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HGNAhmed,

and therein lies the crux of the matter - the current law (as interpreted by the KRI/KRG) financially and significantly DISADVANTAGES the Iraq government and the other governates and areas of Iraq, not to mention the other international oil development contractors / companies working in Iraq.

It cannot be a sustainable situation to have TWO interpretations of the law, with all its economic advantages AND inherent disadvantages, honoured in your country.

Something has to give.

& interpretations

I'm not quite sure what level of detail you are requesting, but all I can say is that in these few years the Baghdad-Erbil relationship was typified by mistrust and broken promises - on both sides.

Promises by Erbil to deliver N000bopd in return for public servant salary payments were not kept, several "agreements" were said to have been made over these years and all just turned to dust. It's very unclear what, if any, deliveries of crude (or export revenues) to the national coffers were ever made. Likewise, it is not at all clear what quantities of Kirkuk crude were actually sent N and into the ITP.

Starsalign,

the answer to the question posed is intertwined with the Kurdish control - and subsequent loss of control, of the Kirkuk Fields.

As you know, from 2014 onwards the KRG had taken control of all / most of the Kirkuk fields (Avana, Bai Hassan, Jambur, Khabbaz, etc) and their output was essentially sequestered and a major part of that output then formed part of the KBT. This continued until 2017 when Iraq forces displaced the Peshmerga around Kirkuk and Iraq re-took control. The total output of all of these KRG and Kirkuk fields at that time (up to 2017) was said to be ca 450Mbopd - 500Mbopd and KRG appeared to have full control of the incoming sales money. You know what has happened since then.

Can I play devil’s Advocate?

Let’s imagine that Baghdad/Somo folded completely and agreed that the KRG could pay their oil suppliers as per their (KRG) current PSCs... and, to make it interesting, that ca 300,000bopd from Kirkuk & adjacent fields would be put into the Ceyhan pipeline. The total export flow to Ceyhan could then reach 450,000 – 500,000bopd.

Obviously, with such a mix of crudes (varying from 14API right up to 38API - and assuming no condensates in the mix), the Zagros Blend would have its own market value, and each constituent crude volume would have its own quality discount (or uplift) to the export price achieved. Both SOMO (for Kirkuk crudes) and KRG (for APIKUR crudes) would have their own idea of what these discounts would be - and these parameters would have to be agreed beforehand.

With SOMO as the selling authority we must assume the realised export cargo money is paid into an Iraq Gov account – and that only SOMO is authorized to move funds in and out.

Q1: is this a feasible scenario? Would it not break down very quickly as arguments develop over how much and when? Would the KRG be putting itself in harms way by allowing SOMO sole access to the funds? Or is there another way that funds access could be configured?

There are many more questions associated with this area but that’s all I have for tonight.

Anyone?

As reportedly stated by Mr Zais back in Jan-2021:

"...From a commercial standpoint, the LACK OF A BENCHMARK GAS PRICE is the central problem."

(CAPS are mine)

That has not changed - both sides, KRG and MoO, have refused to disclose their contract terms. The suspicion, therefore, is that the governments want the gas "for nothing", or for as little as possible. In view of the heavy investment needed, the international companies of course want the international market price.

This complete lack of clarity is proving to be counter-productive, for both Erbil and Baghdad. The recent adoption of Revenue-Sharing Contracts which took years to finally agree for BP, would have been an ideal opportunity for the MoO to showcase the attractiveness of Iraq to investors, but instead all we get is more of the same. In the same vein, Erbil could have used the spat with Baghdad to open their books re their current side protocols to the published PSCs.

We all know there has been much more agreed to than is shown in the published docs but we're still in the "show me yours and I'll show you mine" stage.

Considering the huge oil revenue sums we are talking about, it's quite pathetic that we have no proper technocrat at the head of MoO who can argue the toss with the political big shots. Same applies to the Erbil crowd.

Putup, re your claim that there is a lack of Electricity production facilities, there is a large E-Power station just “down the road from PF-1” – currently burning oil as far as we know. Distance to GKP's PF-1 as-the-crow-flies (heading 253.7°) is only 7.6km.

Yes, you're right - it has been going on for years now, but the whole issue is now coming to the boil, with the Sept-25 pipeline agreement expiry looming.

Added to that we have the impending election, with jockeying for advantage as the blocks nominate their front men and try to divi up powerful positions beforehand. The 9-year hiatus was mainly because the Baghdad authorities had their eyes elsewhere - stopping DAESH, trying to recover what they could from the destruction (rebuild Baiji refinery etc), etc. The runup to the crude price spike in Spring of 22 also made many think that good times were coming again

Finally we have the introduction by MoO of the new Revenue Sharing Contracts (such as BP), details of which they refuse to make public, causing others who might be interested in working with Baghdad to back off as they have no benchmark to work with; the Chinese of course generally not affected as they use different criteria for success and often win whichever way it goes. The APIKUR bunch have latched onto this RSC issue and say, with some justification, "show us yours and we'll show you ours".

Result is Stalemate.

Someone has to break it - weak, foolish or strong, however you look at it the longer it goes on the more tension it causes and the more some crazies down South will want their pound of flesh. As in Merchant of Venice, getting a pound of flesh without blood is impossible to achieve.

An observation only:

KAR (good friends of BarZed crowd) have a couple of refineries which I'm sure take their share of Local Market Sales. Problem is, however, the KAR refineries are currently unable to extract full value from the received crudes (especially heavier feedstock)- there are fluids (cuts) that they are currently unable to further refine (and extract value from), so these have to be sold on. The Iraq refinery scene is such that no one is yet able to extract full value - so there is a lot of hydrocarbon fluids going somewhere, and if you are so (politically) inclined, you might consider that smuggling.

Should have read,

the "bot" as in Ar*e is you...

it should have been quite clear from my posting that i was inviting views / opinions / suggestions that diverge from the limited number i laid out - so don't give me your sh*t about "...is stipulating a range of options".

the "bot", as in **** is you..

My own view is that nothing will be decided until the Iraq elections are over - scheduled for 11th Nov.

In the meantime we have politicians of all shades jockeying for brownie points, as their factions try to increase their vote share and cement alliances with other blocks (see Sunni Speakership yesterday supporting the KRG position).

Back to the pipeline contract expiry date;

IF the KRG and Turkey did manage to cobble together a new pipeline deal, whereby KRI crude is transported to storage facilities at Ceyhan port for export, what do readers think would or might be the reactions of the Iraq government?

I'm not interested in a slanging match - most know of my views and they haven't altered, but I'm genuinely interested in what people think the range of possibilities might include.

For example: IR Gov shrugs shoulders and says, "So What, doesn't bother us", or

IR Gov says, "Great, can we also contribute some crude to the new Kurdish Grade?", or

IR Gov pleads with KRI/KRG to do a deal with it and modify/approve new production- and development contracts, or

IR Gov puts the matter before an international court, claiming sovereign rights, or

IR Gov pleads with TR/BOTAS to cease and expand the deal to include IR crude, or

IR Gov threatens TR with sever trade restrictions unless the deal is put on hold, or

IR Gov threatens military action against KRI/KRG export infrastructure, or

your own particular thoughts on the matter.

Many believe September will be a New Dawn for the KRI, well let's see if you've thought through possible consequences - share your thoughts.

Apologies to serious readers, I should also have included the link to the actual draft law (33 pages):

www.iraqoilforum.com/wp-content/uploads/2009/05/draft-oil-gas-law-feb-20072.pdf

Together with the American University of Iraq Sulaimani, Stanford Law School issued a good paper on this back in 2018 - see link:

https://law.stanford.edu/wp-content/uploads/2018/04/ILEI-Oil-and-Gas-Law.pdf

It's only about 40 pages long and illustrates the challenges facing both sides as they try to get a consensus.

A lot of water has flowed under the bridge since the draft was first publicised in 2007 and, as we have seen, Iraq politics are not very dynamic in their approach to changing circumstances.

Enjoy the read, those who can be bothered.

Debatable : ...the Region is capable of living off its own revenues ...

Define Living Off.

As in, we can pay everyone who should be paid - including the external holders of KRG Promissory Notes (debts) said to be about $9Bn (some say much, much more!)?

Or, we can pay all of the Gov and Friends who need to be paid, but not yet the Oil Cos to whom we still owe a few Millions?

Fat pigs make great bacon.

I see the warmongers are out again on the other board.

I don't think the US would want a full scale war with Iraq ever again.

Leaving aside contagion effects, a full scale US-Iraq conflict would turn many US allies in the Gulf Region against it.

The true problem is that Federalism (forced upon Iraq by the Allies after the Saddam wars) is a concept not at all suited to Iraq; it will take many years, if not decades, for old power structures to be swept aside and it doesn't help to refer so dismissively to these forces only as Shia, Tribal or Corrupt.

Comparing Iraq corruption with Kurd corruption is like comparing Silk Sheen Black with Matt Black.

Iraq is stumbling through it's own attempts at re-definition of Self, and that doesn't please everyone for sure but it's their country, not ours.

Even in the US, the operation of the Barzani Enrichment Machine is coming under close scrutiny.

Follow the money...

Putup, that's much too difficult for them to understand....

Payment in Kind (PiK) just means you receive your payment as barrels of crude , which of course you then have to sell and the buyer (depending on where the point of transfer is located) then has to transport those barrels (tanker truck or pipeline?) to a suitable export point (Ceyhan?).

The PSC (Art 25.2 and Art 27.2) says that the "...Crude Oil shall be valued at the International Market price obtained at the Delivery Point"; so we can safely assume that any onward costs (tanker truck or pipeline) to the export point (Ceyhan?) will drop that $/bbl value.

So, who guarantees that the KRI crude can flow into the Kirkuk-Ceyhan pipeline - and if so, at what (new) $/bbl tariff?

The new, modified pipeline agreement will be between the sovereign government of Iraq and the Turkish Government's pipeline operating arm BOTAS - the Kurdish Regional Government will have almost nothing to say in the matter.

Bank Holiday Monday provocative thought: SOMO takes say 100,000stb of Kurdish crude, leaving the rest (the PiK barrels) to "find its own way to market".

Putup,

yes - that will be interesting, especially if Baghdad really tries to insist on a central control of such oilfield development activities. In that case (and I think they already mentioned it) they would want to have North Oil Co control development of the Northern fields - incl the KRI fields.

The purpose of having internationally recognized consultants is NOT just to verify that GKP have added up all their bills properly (the ones that are submitted as part of their CO claims).

Such an exercise only makes sense if the consultants, able as they are to compare submitted costs with databases of similar fields in comparable areas, can assure their client (the Ministry of Oil in Baghdad) that everything is in order, that the claims and cost structures behind them are in line with current best practice for comparable areas and everything is hunky dory.

Bearing in mind the history of the Barzani family, and how quickly they seem to have accumulated such riches, the Ministry will be looking for any hint of off-the-books payments as well as sub-contractor payments / invoices that might be out of kilter with comparable / similar operations.

Still open to conjecture is whether or not the international consultants have been tasked with expressing their professional opinions as to the expected Rate of Return the contracts then produce.

Putup,

quite apart from the pipeline issue and new contract terms, there are at least another 2 issues lurking in the background - the revised FDP, Gas- and Sour Gas Capture and Treatment Processing, and of course dealing with an increasing Water Cut.

The new Field Development Plan, with all its capital funding implications is, as yet, still to be presented to and agreed by the new boss SOMO.

It could well be that SOMO, mindful of its responsibility for ensuing stable Iraq export crude grades, would be quite happy for SH heavy crude output to be throttled to somewhere between 50Mbopd and say 75Mbopd - even limiting export to 50% of that, the rest going local.

Financing such a throttled output would be relatively straightforward, assuming current $/bbl parameters; dealing with the other issues not so IMO. Depending on how the other issues are addressed and their timescale, the potential for a further round of debt financing cannot therefore be ruled out.