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Tom,
Following the DAESH troubles, it's unclear how much of the original pipeline(s) connecting all 3 domes remains intact or has been repaired. The Avana-Khurmala link must surely still be operational as the KRG were "misappropriating" Avana and Bai Hassan crude until end-2017, when tensions again flared between KRG Peshmerga and Baghdad militias? The financial loss of output from these 2 particular fields (was said to have been approaching 300,000bopd) hurt the KRG very badly.
I reckon the distance from the Khurmala facility to the main link South at Avana Dome could be as little as 50km BUT, again, it is unclear whether the Avana-Khurmala link has been destroyed in the meantime or not - same goes for the Avana-Baba link. Arranging for flow reversal (N to S) is a pretty straightforward task and, assuming all flow control devices and pumps are suitable it's a days to weeks sort of timescale. The fact that the main Baiji Refinery (main local offtake for Kirkuk output) was smashed and robbed should also be taken into account.
If the pipeline link is still operational then it's down to political fun and games, proving a point. IMO
There is one significant downside (there are several actually) to working with SOMO - they are not used to working with smaller, financially stretched companies.
At the table, when push comes to shove, they need technically competent, strong and confident partners with financial muscle.
IMO the recent Genel activity / director share purchases is nothing but a punt on the final outcome of the gas fields issue, and has almost nothing whatsoever to do with crude oil - so, no carryover to GKP situation.
When everything went to pieces back in 2003 or so, the issue of Disputed Territories was aired by many qualified people inside US Gov organizations and in the military. There are open source maps available which show quite clearly the line of demarcation and the various towns, villages and oil blocks straddling that line. In the ones that I have examined, Shaikan field is just outside the Green Line and tehrefore within the Disputed Territories. That green line also slices through the Atrush block.
At the time, Hawrami made some statements about the Green line, incl:
"There is no hard line drawn somewhere that says this is KRG controlled territory and these are disputed territories, it is all grey areas...you show me the green line in the constitution. You show me a green line that officially anybody signed on. There are many green lines. But what counts is what is currently under the KRG authority."
The Iraqis down in Baghdad have never forgotten the issue of the disputed territories, for them it remains a thorn in their side.
Khurmala
The inclusion of Khurmala, the 3rd Kirkuk Dome, has always been like a red rag to a bull as far as Baghdad is concerned.
The problem, however, goes much deeper: Khurmala is a big feeder of the KAR Refinery - owned and run by Barzi's best pal and cutting them out completely would be almost impossible. KAR are also "willing buyers" of all sorts of non-authenticated supplies (mostly heavier crudes) from smaller producers in the region - think Akri Bijeel. Baghdad knows all of this and how it goes, and it gets up their noses.
GKP is a one-trick pony, that's why.
...and a pony with form.
P120 of AR, middle column, halway down:
The Directors believe an agreement will ultimately be reached on the terms of a revised lifting agreement, and we reasonably expect that overdue balances will be paid and payments will return to a more regular basis.
However, a deferral of revenue receipts from the KRG for an extended period of time could result in liquidity pressures within the 12 month going concern period.
...for the trees.
Some other issues of concern that don't appear to be of any concern to many retail investors:
The imminent conclusion of the Shaikan 55Mbopd Milestone – with future plans and amended FDP now to be approved by NOCo. The detail in this new FDP, especially its financial / Capex implications, will all affect the revenue streams. Any changes to the PSC terms as previously mentioned, will likewise amplify the revenue-reducing effects.
The field output at re-start will look sick - so many non-producing wells for such a long time has consequences: it may even be that some wells will no longer be able to produce. Output guidance will be paired back / re-stated downwards by a factor significantly exceeding the pipeline shutdown period.
The dividend will almost certainly be cancelled.
...for the trees.
The re-opening of the pipeline will come, when IR and TR agree on the new fee structure - annual guaranteed throughput MMstb p.a. and $/bbl fees. It's already more-or-less agreed, just awaiting the signatures.
Apart from these 2 issues, however, there are others (even more important?) that are being ignored by most retail investors.
I speak of course of the PSC Contract Revisions. It is completely illusory to expect the IR government to agree a revenue-sharing structure for Kurdish contractors which is double or three times more generous (oil price dependedent) than accepted by IOCs working the Southern fields. It doesn't matter if the PSCs have been reviewed by top western law firms and found to be kosher - if the IR supreme gov decides they won't wash then they're toast IMO. To me that means the 30%PO is severely at risk, as is the 40%CO formula. It has to be said, even if these 2 factors are severely trimmed / slashed, the attractiveness of working the N. Iraq oilfields is still there - just not as lucrative as it was. The fact that a sovereign entity can come in and change things will, however, reflect in how the area is viewed by investors.
The fact that SOMO should be able to stabilise the KBT export price at a higher level than previously was the case is not in dispute, but what does that actually imply? For SH heavy sour crude at 16API and S5.2% the heavy discount will still be applied. Other contractors have their 36API-grade, others have 30API, some have their 25API and SH has its current 16API (recent report on my desk). That's not to say that SH crude is worthless, but is is worth less and that will become painfully evident as the KBT terms just agreed with 2 customers are released.
Iraq and SOMO would like a return to the Ceyhan Reference Grade of previous years; that will not be possible with greatly increased production from the heavy Kurdish area fields. In the same vein, SOMO does not want another competitor, a 4th Iraq crude grade, to compete with Basrah Light, Medium or Heavy; too many headaches there already. That is yet another issue which will be addressed.
Yet another issue is the long-term O&G development of the Kurdish area fields; North Oil Company is now in charge of all O&G development. That the MNR has a certain depth of knowledge and experience of local fields is understood and it may take some time for NOCo's specialists to get to grips with things but, for better or worse, NOCo now calls the shots so expect some surprises.
Similarly, empty threats regarding stopping flaring are not NOCo's style so more than hard words can be expected here too.
I interpret Mr Soden's appointment as part of the ongoing realignment broached above.
You should not ignore any of these issues.
Plans were made many years ago for a new, modern refinery at Ceyhan / Yumurtalik - needless to say they were never actioned by the TR gov.
All that work for transporting someone else's Crude for what, a couple of dollars per barrel?
Bitter pill.
The original 1973 pipeline contract is no longer fit for purpose and has to be replaced; the expected volumes have never materialized and will certainly not do so in the near future.
The construction costs incurred by BOTAS have not been covered and future costs will require a new (higher $/bbl) tariff structure.
Iraq has not lived up to the contractual terms (minimum annual throughput) and now that SOMO are in control we must expect a tighter ship allround.
The Kurdish KBT is much heavier and more sour than the old Kirkuk blend, and is getting even more so. BOTAS need a pricing structure that covers them for increased maintenance-, security- and pumping costs etc.
Not yet close...
FFS...obviously didn' like the arrows f Great Than or Less Than
Last try:
wide spread of crude qualities now in the KBT blend - from less than 13API up to and beyond 38API - plus some condesate being utilzed too.
F***ing automatic lse abuse checker!
"--- to ensure that proper ****genisation takes place."
Same meaning as mix thoroughly to ensure there is no separation (water, sour milk, fresh milk effect)
Something happened with my keyboard!
Should have read:
... wide spread of crude qualities now in the KBT blend - from 38API - plus some condesate being utilzed too.
If I can add my pennyworth, I would caution against expecting too early a return to full output.
Firstly, there is a wide spread of crude qualities now in the KBT blend - from 38API - plus some condesate being utilzed too. There are stories too of Heavy Ends being put into the export pipeline adown at the refinery run by Barzani's pal. Some of these crudes are blended in the station just W of SH-2, others are blended down at the Khurmala CPU and others are blended at the final Export Pumping and Metering Station at Faysh Khabur. ALL of these stations will have to ensure their mixing units, temperature control- and degas (and water removal) facilities are functioning spot-on before letting their product into the pipe. Faysh Khabur is the main control point here but same goes for the Tank Farm at Ceyhan.
The targeted KBT qualities will mean some fields will have their outputs throttled - in some fields (e.g. SH) some producing formations will have to have their outputs adjusted /throttled for the same reason. Some producing formations will, due to the extended shutdown, may even be incapable of producing at anywhere near normal for quite some time and may require further stimulation and clean-up. The operators will have to determine their own startup schedule based on criteria that, to some extent, may be out of their hands.
The densities of the Kurdish crudes are so very different that great care will have to be taken, as Belgrano has mentioned, to ensure that proper ****genisation takes place.
The last thing you want is cargoes being rejected or punitive discounts being applied due to extreme deviation from sales parameters.
Your offhand remark that "Italy counts for nothing" is both ill-informed and demeaning.
ENI /Snamprogetti / Saipem , to take just one example from many, is a world-class oilfield services company with some excellent people and a first-class reputation.
The IT politicians may not please you, but their engineering skills in O&G are first class.
It seems to me that the following 5 main elements (there are more) have still to be confirmed:
1. Confirmation of resumption of pipeline exports.
2. Confirmation of new, stable KBT $/bbl price achieved.
3. Confirmation of SH discount $/bbl applied to new KBT price.
4. Confirmation of all amendments to current PSC.
5. Confirmation of payment of outstanding monies.
The pain is not over.
In conjunction with the expected (lower) KBT contributions and, and with the reduced "profit oil" element to be forced upon the Kurdish operators (to say nothing of a modified Cost Oil formula), and with NOCo calling most of the shots on field development plans and SOMO driving the export sales bus, do you really expect GKP to be a solid, self-financing business model?
Or should you expect another major Capex funding excercise in the near future?
It's deliberately misleading, IMO, to state as the RNS does, that only $102M is due for payment.
You may want to pull the wool over most people's eyes by hiking that remark to the "previousl payment arrangement" but it won't wash - the company is owed probably about $170M or so for delivered and sold oil.
The fall is not yet over.
In the greater scheme of things, the monies owed to GKP (and to most others) have been inflated to an abnormal extent by the heady price of benchmark crude this last year or so. These unpaid & overdue sums present the KRG with both PR- and financial challenges.
These issues are now firmly on Ammar al-Anbagi’s desk (new SOMO chief) who now has to rebalance any negative perceptions - of an untrustworthy Iraq.
It appears to me there are 2 main hammers:
1. Agreement (forced) on PSC contracts to make thesm palatable to all other Iraq operators and -interested parties. You may not like the Shi’a powerplay down South but it has to be recognized, accepted and pacified in some way. The main plays around Basrah (main oil-producing region by far) pay half as much as the KRG contracts (PO).
2. As SOMO will say “nothing to do with us”, dealing with the outstanding payments to producing companies in a manner that does not tie a millstone around the neck of either the KRG/MNR or SOMO becomes predominant.
In my opinion, both of these issues (separately or in conjunction) could be addressed by contract amendments. Dealing with the Turkish pipeline issue is quite separate from these 2.
Re #1
I see no way the central gov can accept the Kurdish PSCs as they are – the Profit Oil component is just far too generous to the OilCos. That means either a new TSC forced upon the operators OR a Hybrid form to be agreed. This will be the hardest nut to crack, and other agreements or compromises could flow more easily from this.
I see no way that agreement on major PSC amendments could be done or sold to investors without some form of company shareholder meeting - whether Annual General - or Extraordinary is up for debate.
Re #2
It would be financially bearable for all Kurdish operators (who appear to have built up healthy cash reserves), to agree a Scheme of Arrangement for the outstanding payments. It would be easier for Baghdad to see these payments taken off the public visibility table and hidden / buried in the detailed (amended) PSCs. From a shareholder relations point of view, and with a little PR skill, this could even be sold to investors as an improvement and, see closing remark to #1 above, would probably be possible using only RNS.
IMO only 2 PSC parameters seem suitable for amendment: Contract Duration and dealing with Gas.