Member Info for theoryman

#1 unverifiable source speaking on terms of secrecy - remember the Erdogan visiting next week story :)

#2 soon - hmmm, how soon?

#3 testing after pipeline repairs given clean bill of health by independent assessor is routine and necessary - at what % of max flow rate are they going to test?

#4 testing soon does not necessarily mean it will open for normal export after (soon + a bit). Just means it will be ready IF they sort the politics out.

Reverse the thinking, how embarrassing for all involved, and career ending for you, would it be if you were the senior technician and the politicians suddenly forged an agreement and you hadn’t bothered to test the pipeline…

The post from CCC just below this one references the two blockers I mentioned and adds in an another couple that Turkey also want sorting.

“Turkey has staked out an aggressive opening position, demanding the nullification of the $1.5 billion fine, the abandonment of the second leg of the case, an increase in transit fees, and Baghdad’s approval of the long-term energy agreement it signed with Erbil. Despite Ankara’s tough opening position, Baghdad has the leverage, with two legal opinions supporting its view.”

So what’s the probability that this is a slam dunk, no chance of the pipeline not opening soon, when you then read, “The Turkish demands are nonstarters for Iraqi Prime Minister Mohammed al-Sudani. His authority and space for maneuver are constrained by the factions that helped put him in power. These factions generally oppose Turkish interests in Iraq.”

The company is in survival mode, the FGI are sending money to keep Kurdistan from falling apart.

#1 Anyone who thinks the pipeline will open tomorrow, next week, next month really IMO needs to reconsider how realistic they are being.

#2 At some stage, Iraq must consider that the Turkish demands cross too many red lines and there is zero point in talking to them. Time for them to survive until they construct an alternative export route.

@Anfil, thanks for taking the time to go into so much detail, looks like things have moved on since I did that last look.

When it comes to the export versus can’t export wrt to the Budget Law i cannot remember seeing any differentiation.

The budget is balanced at a nominal figure for the exported PoO. If the oil is exported through SOMO then the volume is all that drives the budget share of the nominal cash. So if the KRG hits its target when the PoO is below the nominal value they still get paid as if if were at that value - aka Iraq would be running a deficit budget.

If the oil can’t be exported for any reason e.g. pipeline closed then it has to redirected to the internal market. None of these deals have mentioned SOMO, all are cash up front to whoever turns up and wants the oil. Given the volumes being sold and the price the buyers are paying, the local economy will be getting a very nice unexpected boost.

So given your point about the KRG’s share of this revenue, and how some of it might not be being past on by the companies, how can this production also lead to cash coming from Baghdad under the Budget Law?

@Anfil, what sort of figure would the FGI have been sending to the KRG as cash per month in real time, if the exports were as normal and how does it compare to the value of the delayed random payments and these loans (humanitarian?) they have just graciously agreed with the pipeline being closed?

I ran the figures two months ago and the gains and losses were self cancelling to within a reasonable degree of certainty. I cannot rerun it with the latest figures because I am away from my base long term, mixture of research and holiday.

Maybe time to ask what would they give to the Turks if they were desperate and why haven’t they done it?

Drop the second arbitration case?

Agree that the Kurds benefitted from the illegal export, set up a system where the KRG “pays” the fine to Iraq to satisfy the arbitration ruling and it gets added to all their other international debts? (Recovered through withholding % of budget payment over as long as possible.)

If that combination doesn’t shift the Turks then what will?

Looks like they are now producing above their OPEC+ quota.

The PoO went up circa $5 a barrel during the time the pipeline was closed for what was thought to be the short term but then remained closed...

So if the pipeline did reopen, how about the following side effects.

The PoO would drop AND Iraq would have to curtail production from its own fields as the Kurdistan production picked back up again - otherwise it would be way above its quota.

I still don’t think that Iraq is under any significant financial pressure to reopen the pipeline. It is doing OK as things are, maybe a marginal gainer/loser but it’s not in a death spiral :)

@BDSU, after watching this debacle develop of many years, what follows is my considered opinion.

It was bad enough when there were just three players, Kurds, Sunnis and Shiites. Each one welcomes the opportunity for its followers to suffer, provided the other two’s suffer more. Now we have the added delight of Turkey being involved.

When it comes to Iraq they specialise in long running disputes which end up with written rules that they all agree to. Problem is the rules have to be written in a form that allows them to be agreed by all parties but they mean different things to all parties.

The Constitution contains Articles that mean totally different things in Baghdad and Erbil. We know things are going to get worse when the KRG mention that they are trying to settle any situation through the Constitution.

After many attempts to get a Budget Law through Parliament they all finally succeeded getting one through after many hours of voting, haggling, voting. A few months later and the KRG want some key Articles amending because they don’t like the interpretation some players in Baghdad are placing on them. Worry not, it won’t be long before they get told that they actually voted for them and they are not for renegotiation.

Turkey says it is going to appeal the Arbitration ruling - maybe they should have read the T&Cs before agreeing to go to arbitration. The rules are totally different wrt appeal compared to a court of law. In a nutshell any appeal must be based on being able to demonstrate gross incompetence or gross misconduct by members of the panel - nuanced misapplications of points of law fail miserably at the first hurdle. One of the key reasons for going to arbitration is to avoid long running appeals and counter appeals.

So why would the Turks make that statement knowing it’s a complete waste of time, as does everyone else involved, can’t possibly be a negotiating tactic? Every statement made is aimed at feeding the needs of the home audience from the point of view of the politicians.

Whoever wrote that politicians do what they need to do to stay in power, as opposed to what is needed to be done to solve the problems that their people face, need look no further than Iraq and Turkey at the moment.

“ and the pipeline will be ready “technically” for operation soon. ”

Must be worth a few pence boost that they didn’t use the word “imminent” like GKP did with that well coming online :)

@Anfil, you wrote, “Trust me, they are receiving the gross payment and are paying only for the MOL.”

How gross is that gross payment?

IW clearly states 34:00 onwards in the presentation that the KRG are taking some oil in kind.

Is your gross before or after they have taken some in kind?

I interpreted what he said as implying that some money was only being withheld at the Constructors’ level and it wasn’t MOL’s share.

Are you really suggesting that they are withholding the whole of the KRG’s share of the revenue from the gross field production and is that opinion or knowledge of what is actually happening?

@JAB, there has been an increasing tendency on here recently to use Cash Flow and Profit as if the two were interchangeable, which they obviously aren’t.

What is amazing from a statistical point of view, as long as you ignore bias, is when the wrong interpretation is used it enhances the case of the poster - utterly amazing :)

@PUTUP, the keeping back money idea comes from time 34:00 onwards in the investor presentation.

IW does say though that the Government have taken some oil in kind. He then refers to what I would call the Contractors bit.

IMO there is no way GKP would withhold anything that was linked to the Government’s share as Royalty or its share of the Profit oil as the Government, before what’s left gets split with the Contractors.

The only leeway, again IMO, is the Government’s share of the Profit Oil as a “contractor” or less likely the CBT which specifically only applies to GKP.

@Kheldar, roughly 37% of the oil lifted is owned by GKP at the point of transfer.

So the MNR has sold by agreement what belongs to someone else but withheld payment without their agreement.

It might not meet the criteria for robbery but I’d be very surprised if it didn’t meet some other criteria for illegality :)

If nothing else it shows an attitude of mind as to how you treat others.

@Kheldar, the non-payment of invoices for GKP’s share of the oil lifted, and sold at market, within the 60 day sales agreement, was already established BEFORE the pipeline closed.

How about, “ How strong an alliance is APIKUR, is it open to a divide and conquer strategy?, for that last bit? :)

The pipeline will open or remain closed.

The T&Cs under which the IOCs are prepared to export will either be met or they won’t.

Four combinations but not necessarily 25% probability attached to each :)

Pipeline closed and T&Cs not agreed, outcome is no exports.

Pipeline closed but T&Cs agreed, outcome is no exports.

Pipeline open but T&Cs not agreed, outcome is no exports according to that latest APIKUR statement.

Pipeline open and T&Cs agreed, outcome is exports restart.

So whilst opening the pipeline is a necessary condition for exports to restart, it is not sufficient, the APIKUR T&Cs must be met as well.

Who would benefit politically from the opening of the pipeline knowing there would be no exports, by blocking any move to accept those T&Cs?

Have APIKUR drawn up a list of red lines, if the KRG or FGI cross any one of them it’s an automatic response - arbitration?!

If the pipeline does open and the IOCs refuse to produce for export, will the FGI play the illegal card and instruct local buyers to stop trading with them?

How strong an alliance is APIKUR, is it open to a divide and concur strategy?

Some time ago I raised concerns about a phrase that was circulating in articles from Iraq I.e. average “cost of production” in Iraq as opposed to the industry standard, and universally understood, average “production costs”.

Was this deliberate or a side effect of poor translation?

Now we have the answer IMO.

From the AKIPUR statement 28/08/23.

“However, even if the ITP reopens, member companies of APIKUR will not produce oil for pipeline exports until it is clear how IOCs will be paid for their contractual entitlement to past and future exported oil. Under the recently passed Iraqi budget for 2023 to 2025, the FGI is taking the position that, in addition to the KRG’s 12.67% of the budget, the KRG is only eligible to be reimbursed for an ambiguous average cost of production (rumored to be USD 6/bbl) based upon undefined Iraqi fields. This is an arbitrary amount that is insufficient to compensate IOCs for production costs and entitlements under their Production Sharing Contracts (‘PSCs’), not to mention the significant investment and risk incurred by IOCs to date. In addition, as noted in APIKUR’s press release on 13 August 2023, these contractual entitlements are governed by English law with dispute resolution via international arbitration at the London Court of International Arbitration.”

The new term according to the above is ambiguous, based on undefined fields and therefore arbitrary.

From this I deduce it has been deliberately introduced to shift discussions away from standard ways of analysing contract differences and reaching a well constructed compromise.

Now why would anyone do that? :)

Waiting for the detail :) Pipeline will be opened:-

A on a given date

B only when all repairs and testing have been completed AND all parties have agreed on how to split the costs.

Then we can move onto the next fundamental disagreement, what constitutes reasonable “cost of production” and how to reconcile the difference between what is an essential component of the PSC but the CGI think is too high. ( Negotiated narrowing of the gap, KRG topping up the difference or stand off that goes to International Court?)

Then there’s the missing payments from before the pipeline closure. How will the repayments be scheduled? Within the time limit of the current budget agreement or longer? (Read one article that implied KRG was allowed five years from origin of debt but budget definitely only runs for three.)

Judging by the market’s lack of negative response to yesterday’s HKN update and the positive one this morning so far, the present hope counts for more than the future fears.

@Mulder whatever the BOD wanted to do there are problems IMO with market reality and logistics.

Shaikan being sold locally is not going to fetch anything like Brent on the international market. News outlets have suggested that even the good stuff from the KRG is only getting circa $40 a barrel on the local market.

What price Shaikan on the local market and is it above the CURRENT b/e level?

So if they want to get Shaikan to the international market they will need to hire a fleet of tankers to transport just like they used to.

The government is already moving some production internally and has proposed increasing that rapidly in the coming weeks - that is going to involve a lot of tankers.

Where are the spare tankers needed by GKP coming from?

@Armas.

“ I didn't realise Erdoğa visit was a rumour, I thought it was a fact.”

From this I deduce that it was not you who gave me the single Rec for my sceptical evaluation of the weight being placed on one outlet quoting one source speaking in secrecy:)

Hardly finger on the pulse stuff, the article is from last Saturday.

No mention of “imminent” that appeared in the title thread, just a less pressing “upcoming”.

The pipeline doesn’t get ranked in the top issues to be discussed, doesn’t even get a mention!

Had a look at all the reports I could find about this visit.

The adjectives used wrt the visit range from planned, imminent……. upcoming and proposed.

The topics to be covered, aka sorted beforehand, seem to cover everything apart from the impact on City of letting İlkay Gündoğan leave the club.

Every named official has refused to put a specific date on the visit. The reference to the visit being during this week came from someone of unknown status speaking under terms of secrecy.

I prefer to build my expectations on a somewhat firmer evidence base.

As for a return to normality, no thanks!

Following any restart, I’d prefer things to operate as they contractually should do, as opposed to how they have normally worked.