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Be aware that Tawke crude is of higher quality than SH crude; SH oil is much heavier and more sour, and has higher Sulfur levels.

SH crude will be purchased at a greater discount than the 50% applied to Tawke crude.

Quality differentials continue to be applied - even in a disfunctional- and corrupt local marketplace like KRI.

@putup,

The Sarsang Block PSC, which HKN entered into in Nov-2007, includes the following provisions:

10% Royalty to KRG

Cost Oil Recovery of max 43%

Profit Oil component of max 35% (R-factor)

Each Contractor is required to pay 20% of their Profit Oil entitlement to the KRG as a Capacity Building Fund Payment.

(This data was taken from Dec-2020 financial statement)

You will of course recognize immediately the important differences between the SH and the HKN numbers.

@rog,

yes it all sounds very positive re gas, but the SH "wet" gas (and that from others such as Atrush) cannot just be piped anywhere "as is". It has to be cleaned / processed and contaminants and other undesirable hydrocarbon elements removed. That will cost quite a bit.

We are still quite a way from utilizing Associated Gas from any of the KRI fields.

HKN crude is a Brent analogue - high quality stuff, SH crude is not. I therefore expect the SH local sales $/bbl to be closer to $20/bbl net to GKP - at the PF loading bay (buyer pays trucking). Worse case $17/bbl (seller pays trucking).

It is not clear if the PSC terms are still being applied at the moment (40% CO, 30% PO) or whether the whole sales revenue is being paid to GKP.

If the PSC terms do still apply, I expect that revenues generated by ca 12Mbopd to be closer to $2.5M - $2.75M per month.

If the PSC has been temporarily set aside, the monthly revenue might be closer to $6M - $7M per month.

Bearing in mind how many other local producers are trying to sell their crude, it's bound to be a buyer's market.

At the end of the ops update, was the following:

In mid-August, HKN will provide its 6-month management update and publish interim financial statements as of

June 30, 2023.

More pain, more detail, or what?

This important news, issued by HKN, changes the whole dynamics of the forthcoming H1 Presentation.

Some serious PR work got to be done now by GKP to save the day.

GRH*,

I couldn't see that on their website.

Thanks for the correction.

C+++eye,

yes I was. I also looked at several US website and could find nothing.

The chap Sniff*** has a name for posting such constructed "news"

You must be VERY careful about believing such postings!

I went to the HKN website and you will find nothing about any such announcement.

Let the buyer beware...

I actually do believe they thought it would be settled very quickly - that, after all, is what the MNR were telling them.

Their lack of knowledge and deep understanding of TR:Iraq:KRI issues is lamentable.

ALL of these small "upstart" oil company bosses are greedy - it goes with the territory.

As I said, they now have to be very careful otherwise the stool might be kicked aside, the noose will tighten and ....

Fine tuning will be required...

The CEO, and any of his colleagues also taking part (especially the CFO!), will have to be VERY careful how they formulate their statements on 31st Aug.

Too much bravado or too much "concern" could cause the market to take extreme fright.

What is needed is a balanced review of the current circumstances, with not only the extreme-case scenarios being carefully addressed, but also the real potential for GKP's future as a financially healthy- and going concern.

Until now the company auditors have been suportive of the "going concern" payments situation - that financial standard goodwill could now be tested most severly.

THAT, in my opinion, will be the real challenge to be addressed by the CEO on the 31st.

History...

The stock was last at 134p on 20th - 21st June.

C***eye,

in the recent past, the Baghdad folks have effectively said "what you want to pay the contractors is your business, but we will only pay you what the budget says" - so, 12.7% or whatever.

Implication being that KRGs pay out of their Baghdad-allocated sums.

Also, at the moment the KRG/MNR seems only to be delivering ca 52Mbopd instead of the required / requested / demanded 400Mbopd - so only a pittance is being paid.

We have both seen this time and time again.

Same, same.

Iraq already owns ALL of the oil and gas within the country.

Kurdistan is what the Kurds prefer to call it, but truthfully it is the Kurdish Region of Iraq and is a SEMI-autonomous region of Iraq with certain rights and powers granted to it. Those rights have are balanced by obligations - and it's plain that these, on both sides, have been abused in recent years.

The State Oil & Marketing Organization has every right to manage the sales & marketing of KRI crude.

In the same way, North Oil Co - who traditionally managed the technical aspects of Kirkuk field development (incl Avanah and Khurmala domes as well as the adjacent structures) will be responsible for the technical development of ALL the Northern fields. Obviously, input from those closest to the action with the greater knowledge of the local fields such as KRI MNR will be sought.

The "hardball" briefly mentioned has yet to be fully aired and will encompass the revision of the KRI PSCs.

Opening of the export pipeline is only one of the issues / challenges confronting us.

Agreement of the revised Contract Terms being pushed by IR Gov is another.

Bringing the field back up to its pre-shutdown production level is yet another - applies to all of the affected KRI fields.

Do not be fooled by those who waffle on about "contract sanctity", and be not fooled by those who say output ramp-up will be very fast. Dividends are firmly now on the back burner.

Humble Pie will be eaten...

To be fair, there is nothing positive that the company CEO can really say at the moment - much better to keep quiet and not add fuel to the flames seems to be the most sensible thing.

What the company could do, I would say SHOULD do from a PR standpoint, is use the time to brush up, for investors old and new, the positive story behind the Shaikan dsicovery - bring it bang up to date with the latest tech data, seismics, CPR evaluations, well- and flow data, photos, details of processing plant improvements, etc, etc, etc.

WHY is nothing like this being done to improve the mood music around the SH block discovery, and the management of the asset?

WHY does the BOD appear so deaf to such basic investor relations issues?

@putup, out of interest and a genuine Q: what do you think will be the constituent crudes forming the new KBT Blend?

I ask because it could well be that part (even all) of the Khurmala crude might continue to be appropriated (like that word, nice and flexible in its connotations!) by SOMO for their Southern export streams. SOMO has already re-aquired the lighter Avana, Bai Hassan and adjacent fields, so much of the lighter components are no longer available. If that is reflected in a new heavier, sour grade, then the discount vs Brent may be substantial.

Whatever the new grade is, the heavy SH component will attract its very own additional discount.

@Belgrano,

to what rates do you refer - the $/bbl Transit Fee, or the "special friends rate for purchasing crude oil"?

Iraq has never got close to the ghuaranteed volumes defined in the Ceyhan Pipeline Agreement - and has not, to the best of my knowledge, paid the agreed penalty for the non-achievement of these volumes over many years. TR/BOTAS built the pipeline, in good faith, and based their fees on volume undertakings made by the (then) IR government. The expected volumes were not achieved and the initial Pipeline Capital Cost costs plus ongoing repair/maintainance costs balooned due to terror attacks. BOTAS & the TR government is no longer prepared to accept this loss-making situation and the transit fees must increase quite substantially. As the current ITP agreement finishes in 2025, it would be prudent to tie everything together now and prepare the new agreement for implementation before end-2023.

IMO.

@trades, I tried not to dwell too much in the grade issue but to highlight that there are other important things going on down South & within NOCo and SOMO that transcend the SH crude grade and the GKP contract.

I believe adressing these other associated issues are a major source of delay; SOMO don't want to create a patchwork solution, but to "get it right this time" - if at all possible. I see the bringing of KRG contracts more into line with the TSCs as being the first major step; the determination of future IR grade offerings as possibly the 3rd major step.

The 2nd major step I see as sorting out, as much as possible (and with KRG help, if they can bring themselves to assist) the sheer financial & budget mess that has resulted from MNR side deals with tradering houses, side deals with Friendly Turkish & Syrian banks, special $/bbl deals with Erdogan and others, special deals with local refineries friendly towards the BarZ family and associates, etc. The priorities for #2 and #3 might of course be swopped.

As you say, it's a real pity GKP didn't get a 2nd string for their bow when better times made it possible, even easy.

@TM, good morning.

I tried to cover most of these points back on 12th April.

In the old days, SOMO had 2 grades exported from Basrah and 1 from Kirkuk. They now have 3 grades from Basrah and 0 from Kirkuk. The old Kirkuk grade was ca 34API and 2.25%S. The quality of ALL IR crude grades has fluctuated in recent years. As you say, SOMO does not want IR to market yet another grade, and certainly not one close to the Southern grades BUT, it has to be said, ALL of IR crude output has been getting heavier as time passes.

There is currently NO hi-output Light Oil Producer in the Kurdistan Region (HKN output cannot yet be termed High), and without the Khurmala/Avana/Bai Hassan/Khabbaz lighter grade volumes, the KBT blend will only get even heavier, and more sour.

That is part of SOMO’s dilemma to which I referred.

Now that a fresh breeze is blowing thru N Iraq, and both NOCo and SOMO feel “more in control of things”, it should be expected that the heavy crude fields around Mosul also be included in any consideration of revenue-producing assets. Currently much of the output from fields around Mosul is processed by old and simple distillation units, producing low-quality fuels. The people there are grateful for anything they can get, but such a hand-to-mouth existence does not sit well with Baghdad and NOCo / SOMO have their place in improving things for all Iraqis. Does that mean favouring Baz Karim with refining almost everything produced in these heavier fields?

So, what to do?

It seems to me that Iraq needs less Heavy Crude being produced, not more.

Q: Continue to aim for reinstatement of the “old” Kirkuk grade AND offer a new, heavy Mediterranean grade – even heavier than Basrah offers, maybe as low as 21API, 4.5%S?

Q: As only one leg of the Ceyhan ITP is currently usable, how best to get the new heavy grade to the ports - refurbish/repair the ITP pipeline leg, truck it to the Med, pipe it to Iran?

Q: Can the gov of IR live with a crude quality pricing regime that has been practiced by KRG/MNR until now (individual operator’s $/bbl crude value calculated separately)?

I have no answers to all the above but the final question you pose is a distinct possibility.