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I see that MV Altai (aka Neverland Star) and MV Aegean Power are now anchored at the mouth of the Iskenderun bay.

Old friends, both of them.

Meaningless or meaningfull?

Hopeful traders taking a punt?

Stop salivating over this possibility - it just won't happen.

What might well happen is the re-start of pipeline operation exporting crude only from the 2 Baghdad-controlled Kirkuk domes plus the Erbil-controlled Khurmala dome (with reduced initial volumes of less than the much-trumpeted 400Mbopd); a return to the historic Kirkuk Export Grade, with all the implications that might imply for the heavier crude producers?

This would of course necessitate using the Erbil-financed pipeline from the Khumala CPF to the Faysh Khabur export terminal, so some sweeteners necessary perhaps for KRG, BarZ and his crowd.

This provocative start of operations would do 3 things:

1. It might concentrate the APIKUR mindset beautifully - "look what we're missing!"

2. It would help Erbil in their painful negotiations with the local producers in respect of modified contract terms and outstanding payments.

3. It would show up the APIKUR mindset as being part of the problem, not part of the solution.

Fait accompli.

Just a mull...?

Which brings us to the question, how does SOMO intend to market their new Kurdish export grade?

Shaikan quality/gravity is rather heavy (API14 – 17 depending on producing formations) and large volumes will significantly pull down the gravity of any new grade – there are simply not enough lighter crudes available in N.Iraq to offset that. TaqTaq volumes (the Champagne Crude) are now so low as to be insignificant. Swara Tika crudes are light and sweet but production is still stuck at less than 50Mbop. Khurmala (and adjacent smaller fields still under KRG control) and Tawke/Peshkabir/Baeshiqa are the 2 big ones. Khurmala, with gravity API31-33 and S%2.4 and reported output potential of ca 200Mbopd. True output numbers are not available but other reports indicate closer to 170Mbopd with gas output being given more attention recently. Tawke/Peshkabir/Baeshiqa, API24? and S%4?, are well known and potential output of 100Mbopd is on the cards if and when when things return to normal.

There are tools available that allow you to calculate with reasonable accuracy the final blend quality for such a mixed bag of crudes. Try using them, you will be amazed at the implications they highlight.

It seems to us that, no matter how you cut it, SOMO will determine the constituents of their new Northern Export Grade and, should they really wish to market a Kirkuk Analogue once again, limits will have to be placed on volumes / proportions of heavier crudes put into the export pipeline.

Don’t forget also that there are other high-output fields (Kirkuk domes - Avanah, Bai Hassan) that produce lighter crudes available to SOMO which could easily bring grade numbers back to near Kirkuk levels -with further consequences for the lower grade producers.

Some appear unable to see the wood for the trees…

There are 3 major issues to be settled, not one:

1. Agreement on modified production contracts.

2. Agreement on new field-specific volumetric parameters required for new Kurdish export grade.

3. Re-opening of pipeline, including agreement on new fee structure.

Leaving aside #3 pipeline issues, #1 is close to potential agreement – albeit with new a Revenue Sharing concept being introduced, one that will not please most Northern producers.

#2 is the most problematic for the current APIKUR group, as it introduces what has already been described as a “discriminatory factor”, whereby SOMO determines the constituent crudes and their proportions for the new Kurdish grade to be marketed. As things stand at present, if your low added-value crude is not wanted in the quantities you are able to produce then you have no choice but to sell to the local market – at prices they more or less dictate.

Make no mistake, SOMO is the supreme marketing authority for ALL Iraq crude (MNR is now reduced to Junior Partner in any discussion re the Northern crudes; SOMO cracks the whip re sales & marketing, NOCo cracks the whip re development plans for exploitation of Kurdish oil- and gas fields).

At the moment, excluding the KBT grade, there are 3 crude grades sold by Iraq:

Basrah Heavy API24 and S%4

Basrah Medium API29-30 and S%2

Basrah Light at API31.4 and S%2.75

(ALL of these grade qualities are subject to fine-tuning by SOMO at any time)

The quality of the (new defunct?) KBT grade has never been made public, having been talked about as though it were still the old “Kirkuk grade” of ca API32 and S%2.5-3. This is most certainly incorrect with respect to Kurd exports in recent years – you just have to look at the constituent grades and their last volume numbers to realise that.

Which brings us to the question, how does SOMO intend to market their new Kurdish export grade?

@itsaponzi, wise words...

There may well be a "gasp of relief" rise, but that will be soon followed by the cold light of day.

Argus reporting thet re-opening is not imminent...

There is a high probability IMO that the marketing authority SOMO will want to "test the market" to try to establish a benchmark for a new/revised/modified Kurdish / KBT grade.

A significant traditionalist block down in Baghdad - perhaps for no other reason than historical pride, would like a return to the historical Kirkuk grade (ca 33API, 2.25%S).

Pragmatists on the other hand recognize that things have changed, seem prepared to "play around with the ingredients" and offer a completely new blend - perhaps after consultation with the trading houses and Med refiners.

Part of that re-jigging of ingredients could involve limiting (not excluding) the inclusion of the really heavy grades, such as SH. It's quite likely that trial batches, sent by truck to the assay labs at Kirkuk, have already been tested, distilled, and offered.

We might well be looking at a permanent marketing split for SH crude - X% going South to the low-value basic refineries of Iraq, Y% going North into the Ceyhan pipeline. IMO It is not realistic to think of very high volumes of SH crude at 17API (perhaps even heavier, down to 14API) with >S5% forming a significant proportion of the future KBT blend.

Q2: Easily

Q1: 3 days at ca 250Mbopd

Iraq doesn't need any APIKUR crude to test the pipeline, they have quite enough down South from the Khurmala and Bai Hassan fields - both of which were contributing to the high Kurdish output numbers until a couple of years ago.

Now, would that be leverage or would it not...

At this time I think you would be hard put to find any takers for oil company debt associated with the KRI...

The Khabour Border Gate, through which was trucked the crude oil going to the Ceyhan terminal, is now jointly controlled by Baghdad and Erbil forces.

It would be very easy to stop crude crosing the border and/or to provoke an incident there.

Good morning Cookie, nice to hear from you, I trust you are well?

I do agree that GKP could return to being a good investment - once most (all?) of the outstanding issues have been resolved. The Heavy Crude / Sulphur issue is known, can be priced, and taken off the slate but my penultimate point below cannot be discounted. The big “political” issue IMO is the (forced) return of the KRI to being a semi-autonomous region of Iraq – and the end of its “we’re a separate country” mindset; a lot of water has still to flow under that particular bridge before the dust settles.

Leaving aside the unresolved issue of the export pipeline(s), some other BIG IFs remain, including:

- the proposed commonization of O&G extraction contracts throughout Iraq (TSC vs PSc vs RSC). Issues here are potential $/bbl revenue per stb produced (what we see as Profit Oil) AND rate of return of invested capital (i.e. Cost Oil).

- the agreement with a new managing partner (NOCo) on how the KRI O&G fields are to be developed. The long-outstanding SH FDP is toast by now, and the masterplan for the KRI is still not yet fully developed, so that implies greater uncertainty for longer.

- depending on just what sort of FDPs are eventually agreed with the 4 larger local operators (DNO, HKN, GKP, SNM) the financial mountain to be climbed is still to be quantified. Lots of cash may be required and that cash cannot be generated by local sales; if crude $/bbl remains high you can breath easily, but if crude prices were to have a hissy fit you would be rather short of breath. How would capital markets view the risk profile bearing the mind the non-payment issues of the last 12 months?

- the pressure on OilCos to deal with their gas issues, greatly reduce flaring and utilize that valuable commodity (capital intensive).

There are a LOT of variables being discussed, especially around point #3, one of which involves removing the SH heavy crude from the mix and developing a separate strategy for that. Early days yet, but drawn-out uncertainty too.

You asked about Tony – he’s well but has had his fill of the abuse these bb’s bring so he has more or less withdrawn from the bbs, as have Ren and some of the others who were able to bring valuable insights. Schade. The network, however, still functions well.

Best regards.

...and these words will come back to haunt you: "...Have not been supported by Board comments. With 80m in cash there is virtually no risk."

You need to open your eyes

It has already been clearly stated that SOMO will be responsible for the future sale and marketing of Kurdish crude, and NOCo will be responsible for the further technical development of the Kurdish fields – knitting them in with the future development of all Iraq O&G fields. NOCo will, of course, take local advice and knowledge into account in any KRI field development planning.

The point being, there is currently NO leaked overview of what such NOCo:KRI field development plans might include.

Until we have such knowldge It is foolish in the extreme to assume that any of the smaller independents have enough cash (or will have enough generated by local sales at silly prices) to deal with such unknown capital committments / Capex demands.

The fact that the possibility of a further capital raising was even mentioned is an indication that this is of major concern to the companies.

It should be of concern that the possibility of 3 or 4 operators going to the capital markets, yet again and all within a similar timeframe (and following such a value-destroying period) would be seen in a very negative light by the debt market.

4 might become 2…

The $6/bbl assertion is just out there - it has not, to the best of my knowledge, been confirmed in any way by any responsible party.

Furthermore, again to the best of my knowwledge, what exactly the $6/bbl refers to has not been stated: does it refer to the Total Revenue(s) per bbl to be returned by the revised contract? Or does it refer only to the Production Revenue/bbl excluding any return of Development- or Capex?

$6/bbl for what we would call Profit Oil is an excellent rate of return when considering Brent at ca $100. I believe Total managed, after a very long battle and threats to exit Iraq, almost $5/bbl at the end of the day? That, however, is with an enormous project involving many Billions and spread over many years. We have no projects like that at present in KRI.

In addition to a lower $/bbl production revenue (PO), the other real challenge facing the KRI OilCos is the (proposed) change to the rate of payment of incurred Development- and Capex sums. The KRI terms are seen as being too generous and return far too much of the Windfall effect (high crude prices) to the contractors, far too quickly - that will change. That rate of return will almost certainly be tied (indexed in some dynamic manner) to a new crude reference rate.

Good luck relying on a UK court ruling that Iraq contract revisions will be illegal.

...nice Bon mot!

What about "...divide or concur"?

The 2010 amendment to the Aug-1973 Crude Oil Pipeline Agreement expires Sept-25.

In retrospect, the agreed tariffs set out in that amendment were too low; not only have crude prices greatly increased since then (Oct-73 ca $25/bbl, Oct-2022 ca $88/bbl, and with huge peaks of $147/bbl and $195/bbl between those years), but attacks of the pipeline system within TR together with Iraq's inability to maintain the agreed contractual pipeline volumes put paid to any chance of Botas being able to make money from its investment (the cheap Friendship $/bbl deals is a side issue to the pipeline profitability one and should be considered separately IMO).

I see little chance of the existing agreement & tariff structure holding for another 2 years – not only would Botas lose a LOT of money repairing and then operating the pipeline, the unfairness of the (historical) tariff in a time of almost $100/bbl crude is now clear.

I see no reason why a revised Ceyhan Pipeline Agreement could not be on the cards (2 years early), and one which seeks to index- or link the tariff in some way to a crude oil price benchmark and volumes. Call it Revenue Sharing or whatever you like, but a big tariff hike appears to be on the cards. Other pipeline operators in other countries are already looking at such ideas.

Unless both sides win, there will be no winner.

Now on Reuters dot com

BAGHDAD, Aug 22 (Reuters) - Iraq's oil minister and his Turkish counterpart did not reach an agreement to immediately resume Iraq's northern oil exports but agreed to hold more talks in the future, said two energy sources with knowledge of the ministers' meeting in Ankara on Tuesday.

...

..

"It's not an easy job to reach an agreement soon and we have a lot of thorny issues. Turkey has demands and conditions that require further talks to allow oil flow restart," said an oil ministry official with knowledge of Tuesday's meeting.

The group still has a Contingent Liability of $27.3M (2022) for test production sales prior to approval of the initial SH FDP in 2013.

@putup,

it's also unclear how many PFs are being utilised - is the whole production coming from one PF or are 2 being used? Same Q re wells - how many wells are presently contributing?

The operating costs for running a PF are, to a great extent, non-linear relative to the throughput - and even more so if 2 x PFs are being operated. I expect the "cost / bbl" therefore to increase quite substantially - perhaps now well over $7/bbl? Too that we must also add some essential well- and PF maintenance work that MUST be done in order to avoid permanent damage to facilities. Your point about the R-factor is timely made.