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The refinery yields obtained from processing Tawke, Peshkabir, Swara Tika and Atrush crudes are all very different from that of SH crude and cannot be compared using a simple $/bbl metric as you seem determined to attempt. Sorry, but that's how it is.

You say "...they also sell some volume directly to refiners" - where else do you think they are selling it? Do you think they are paying $15/bbl for trucking it to Ceyhan?

Local prices also fluctuate, no question about that but it's wrong to tie these fluctuations to Brent. If some other local fields were diverting their supplies S to Basrah, as has been reported, that would starve the refineries somewhat and help explain the rise?

Graph the internal (Iraq) prices for diesel and petrol for the last 10 years against Brent before you spout off...

There is NO direct correlation between external (i.e. Brent) prices and the Iraq internal sales price for crude oil.

Local selling prices for Diesel, Petrol and Heating Oils are determined by Government pressure / guidance, not by any international criteria.

GKP's achieved $/bbl price will be determined by local supply & refinery demand criteria, nothing else.

Stick with the $25/bbl for the moment...

Captain,

thank you for posting that Rudaw inteview with KRG Cabinet Sec. Rahim.

The following section caught my eye and, if a true representation of what was said, needs some serious thought by investors:

"There was one point of disagreement on the oil issue: the wages of the companies. Has any agreement been reached on this issue?

First of all, the Kurdistan Region does not have a national oil company to force its companies to agree to the money determined by the Iraqi oil ministry, SO THIS PROBLEM IS MORE BETWEEN THE OIL COMPANIES AND THE IRAQI OIL MINISTRY, not between the KRG and the federal government. In the latest step, we took representatives of all companies to Baghdad and met with the oil ministry under the supervision of the finance committee, and provided any documents they requested. THEREFORE THE PROBLEM IS NOW BETWEEN THE COMPANIES AND THE IRAQI OIL MINISTRY, although unfortunately the suspension of oil exports from the Kurdistan Region has caused more than $500 million monthly loss to the Iraqi treasury."

(CAPS are mine)

That reads rather like "It's not my problem lads, it's up to you to sort it out".

IF the old pipeline (Kirkuk-Baiji-Mosul-FK-Ceyhan) has been repaired (I believe most of the damage by DAESH was to the 2 pumping stations) then Baghdad will still have to use the FK Export Pumping and Metering Station as it’s the only one available to my knowledge.

As KRG claims the FK station is within their territory, how then will that use by SOMO be achieved - by force or by agreement?

Using force cannot be ruled out and is what is wanted by some hardliners in Baghdad, but may not be necessary at the end of the day.

Agreement will involve compromise by both sides.

The 2 Issues that I see both impinge on the APIKUR / PSC discussions and -arguments:

Grade/Blend Quality

Partly for reasons of national pride, SOMO wish to reinstate as closely as possible the old Kirkuk Blend (ca 32-33API, S=2.5%) and they will want to differentiate between their current 3 Basrah grades (Heavy, Medium, Light) and the reinstated K grade. SOMO will determine which grades and what volumes of each will make up that export blend.

Flow Volume

The main SOMO inputs will be from the Avanna, Bai Hassan and Kirkuk formations and, assuming that a proportion (one third?) of that output will be earmarked for the Baiji refining complex for local refined product sale, we could be talking about flowing volumes from the South in that pipeline of ca 300 - 350Mbopd.

As the Ceyhan pipeline capacity is currently probably no more than 450-500Mbopd, full capacity utilization is therefore one of the factors that could be discussed by SOMO & KRG.

However, 500 – 350 only equals 150Mbopd (contribution by KRG) and that would be a big blow for the KRG/MNR – and for the local KRG producers hoping for unfettered export access.

Don’t get too excited…

Invstrat,

one of the arguments against the creation of an independent Kurdistan must surely be the hugely destablising effect this would then have on N. Syria and (mostly Southern) Turkey (leaving aside the Kurdish minority in NW Iran). Both areas have large numbers of "Kurdish" people - many of whom actively support the creation of a new Kurdish state in the ME.

The resulting euphoria that at least one part of their diaspora had finally managed it would, IMO, set the whole area aflame with unforeseeable consequences.

I don't think the USA would welcome that in the near future.

@senator,

As I see it, there are at least our issues, not one, that are all interrelated and require resolving:

1. Approval by Baghdad Parliament to allow TR troops to be based permanently inside Iraq in order to deal with the PKK problem once and for all; the TIMZ (Turkey-Iraq Military Zone) in the Quandil Mountain Area. Although there have been Turkish ouposts in N. Iraq for years, these have all been small and mostly tied in to specific operations. The proposed and initially agreed (at minister level but without approval of parliament) Military Zone will be a major and permanent facility - a very different kettle of fish and one that will be bitterly contested in Baghdad.

2 The acceptance by the various contractors (HKN, GKP, SMN, etc) of the modified Iraq oilfield development contracts based on a form of revenue sharing. This modified payement scheme will alter (decrease) the rate of Capex return to the contractors and make it less attractive (for some) to operate there.

3. The acceptance by KRG of subordination to Iraq state marketing organization SOMO in respect of all Iraq crude oil exports to the Med via the Kirkuk-Ceyhan pipeline. Such subordination to include blend parameters (how much of which crude will make up the blend) and will change the payback parameters, reducing the attractiveness (for some) of the Kurdish plays. Control of the export meters at both the FK station and the loading- and tank storage points at Ceyhan port will also be ceded.

4. The final amount of compensation to by paid by Iraq to Turkey in respect of the non-fulfillment of pipeline agreement contract terms from 2018 to present day (ICC ruling).

In view of the complexity of the issues, and how interwoven they are, there are for sure possibilities for compromise. If history has taught us anything, however (see the mess of IR Constitution implementation), it is that simple (to understand) and straightforward (to implement) is better in this part of the world.

@senator,

the PSC refers only to a "delivery point", to which the produced crude oil is to be delivered - no mention of a pipeline (Clause 27.2).

In the event the current pipeline agreement (between Turkey and Iraq) is not extended or renewed, the focus then switches to the Crude Oil Export Pumping & Metering Station at Faysh Khabur - just South of the IR-TR border at Ovakoy, which pumps Iraq crude into the Ceyhan pipeline.

Do you really believe that the Baghdad authorities would allow a subordinate authority (the KRG) to utilize this important piece of infrastructure for their Kurdish benefit and to block its use by the federal government of Iraq?

Putup,

I wouldn't disagree with any of that....BUT, at the end of the day, the sovereign entity determines the oilfield development plan (in agreement and after deep consultation with the contractors).

In the event that agreement is not forthcoming then a parting of the ways (in extereme case) could be on the cards - in GKP's case I consider that unlikely as the company has been both successful and cooperative (so far) in it's government dealings (as far as we are aware). But, the argument of "if you cant't do it there are others who can" is a powerful one.

The huge dividends paid out so far can be seen as a red rag to a bull - should you be that way inclined, as some in Baghdad and Erbil are.

I would argue for a nominal 3.5p per share max.

Hanging over the company is the prospect of a new/revised FDP - which is now no longer the sole remit of the MNR in Erbil. SOMO and NOC now call the shots re how the Iraq oil industry should be developed and that will be felt also in the KRI fields. It's also not a given that all of GKP's output will be accepted into the Kurdish blend - again, SOMO will decide upon the export blend parameters and a fair proportion of the heavier SH crude may be permanently directed towards local customers who will pay much less than the international value.

Until that new FDP has been presented / agreed / forced upon GKP, and others, the company would be well advised to hoard cash or keep ANY dividend to an absolute minimum.

The cessation of flaring for example will be expensive, whatever form is decided upon. In a similar vein, forced (as in their timescale, not GKP's) exploration of the deeper formations will also eat cash.

Today's report states that Licence Expiry is 2043 (Shaikan Field Estimated Reserves section) - this is incorrect.

A. Shaikan was declared a Commercial Discovery on 1st Aug-2012 and the Contract Term is for 20 years from commercial discovery; that means end-of-term is End-July-2032 (PSC Clause 6.10 refers).

B. There is an “automatic right”, however, to a 5-year extension which would then take it to End-July-2037 (it’s my presumption that this “right” will still have to be requested or demanded).

C. There is another possible extension, of an additional 5 years, which can be requested at the end of the 20+5 year period (1st Aug-2037) and, IF requested and granted, the contract would then finally end End-July-2042. Note that this particular request has to be made at least six (6) months before end of the development period.

March-2024 Aug-2032 Aug-2037 How time flies...

Well, it's a Yes & No anser to that one...

As long as the possibility of pipeline reopening is there the GKP SP will exhibit a natural and (sometimes) frothy optimism - that*s just human nature.

Should that pipeline posibility be closed off, however, and in a clear and definitive manner, then the trading range could be subject to a sharp and brutal correction.

The detail in the (expected ) revised PSC terms will be a further aspect to be considered. I expect the terms to be less advantageous to the OilCos, but at the end of the day the human psyche can survive almost any bad news and still exhibit the will to live.

Senator,

there are no stupid questions, only ill-informed ones.

The pipeline agreement has nothing to do with GKP's agreement to exploit the Shaikan discovery - that will continue no matter what is agreed or disagreed re the pipeline. Obviously having a pipleine to export your crude to a Med port is of great advantage but is not essential.

With no pipeline access the profitability of the SH oilfield asset would suffer greatly but, if crude prices stay high, it would still be bearable.

Consider the potential implications of Article 11 of this sovereign agreement:

"...This Amendment shall be valid for 15 years as from entering into force. The Sides start negotiating the contract conditions upon request of any of the Sides two years before its termination date. In the case where there is no need for new amendment/agreement this Amendment shall be considered as extended for an additional 5 years period of time, unless a termination note is sent in writing by one of the two Sides to the other 1 (one) year before the expiration date of this agreement".

(Copied from the agreement exactly as written)

Seplatwinner,

I follow the Botas Tenders very closely and I have seen nothing to indicate that the 2nd pipeline has been repaired. As the maintenance costs (borne by Botas) have greatly exceeded transportation fees for many years, I don't believe that the 2nd line has been refurbished. For the moment IMO we should consider ca 500Mbopd - Max 600Mbopd to be export pipeline capacity.

Re that available capacity, SOMO - as the sales and marketing authority - has the last word on what grades will be taken and what final export grade will be offered. For understandable reasons of national pride, SOMO aims to reinstate as near as possible the old Kirkuk Grade and, for that to be achieved, quite a portion of the Khurmala/Avanah/Bai Hassan/ Khabbaz and poss even Jambur output could be diverted North. THAT has important implications for the continued export of currently producing KRG fields, incl Shaikan.

C***eye,

to yr Q1: absolutely.

to yr implied Q2: that tiny, NW corner of Iraq - whose border is formed by the Tigris River, has been a smuggler's paradise for hundreds of years. Crossings of Semalka, Faysh Khabur and down to the old pipeline river crossing (trenched) location near Bajid have been lucrative fee earners for tribal powers - and today of course for the KRG. The whole area , right up to the Ovakoy Crossing (planned for many years to be the next main road crossing from Iraq into Turkey, is a hotly disputed corner that Baghdad will have back under its control.

The Syrian lands to the West leading to the Med may look appealing but they are still Badlands - just as bad as the S Diyarbakir corridor where much of the pipeline attacks previously took place.

Moving further South, towards the Rabia crossing is a possibility but suffers from the same Badlands issues - on both the Syrian and Iraq sides.

Nothing is impossible, but it's challenging to say the least, very challenging - and costly, and time-consuming.

C***eye,

no matter, the only available export pumping- and metering station (built decades ago by Iraq, not the KRG) will still be at Faysh Khabur (actually nearer to village of Dayrabun) and THAT is an issue - as the KRG currently control it.

The original Pipeline Agreement was dated 27th Aug 1973 and was subject to various addendums in May-76, Dec-80, Aug-81. July-85, Mar-96 and Aug-07. Although due to expire on 19th Mar-2010, a further Ammended was agreed and signed 19th Sept 2010 (the current one) with a validity of 15 years.

Expiry is therefore 14th Sept-2025, in 18 months time.

BOTAS have lost a LOT of money over the years maaintaining this pipeline infrastructure and if the agreement is extended you can bet your boots the currently-agreed $/bbl tariff will be substantially increased, as will the Minimum Guaranteed Throughput.

The Faysh Khabur Export Pumping Station lies midway between the villages of Faysh Khabur, which lies on the Tigris river border to Syria, and Derabun.

The export station was NOT built by the Kurds and, leaving aside recent plant additions within the compound carried out by KRG/MNR and western contractors (such as DNO), remains part of Iraq's sovereign assets.

It remains to be seen how ultimate control of this Iraq export station will be settled; don't forget also, the pipeline agreement is between the sovereign states of Iraq and Turkey - the KRI is not even mentioned.

The real nub of the matter is that the Kurds in N. Iraq have never been happy being part, albeit a semi-autonomous part, of Greater Iraq, and have always seen themselves as being something special.

This "Kurds are something special" feeling can also be seen in Turkey and Iran, where large Kurdish minorities have been causing trouble for decades. The campaign waged by Saddam Hussein against the Kurds cost them many lives, but also won them many friends in the West. Problem is that on this admiration and "friendship" was then built a righteous belief of entitlement - witness the independence referendum fiasco.

All of this of course has arisen because of the poorly drafted Iraq Constitution, in which the US took insufficient notice of the true dynamics of Iraq power politics, and which allowed the allocation and benefits from O&G Development to be haggled over for many years. It's far too easy to blame Iranian Sh'ia influences; the IR Federal Structures and workings to to this day have never been properly defined and implemented. As time goes on, these poorly defined and implemented structures are being redefined, whittled down, altered. In view of what has happened, it is completely wrong to assume the USA can now come in and force a Sovereign Nation to alter their way of doing things.

Like it or not, that's the way it is.