Member Info for theoryman

Here’s one for our older readers.

I suppose Santa would organise a bid from his little helpers through Elf Petroleum.

“ Hopefully Santa Claus can open the pipeline”

Presumably through the intervention of Santa’s Oil Mediation Organisation (SOMO).

Meeting is at Oil Ministerial level to find a final solution.

Given the need to find an agreed understanding of the key Articles within the Constitution, probably won’t be the final meeting 🙄

If by some miracle the two governments do come up with a solution then it has to gain APIKUR approval before exports restart.

If APIKUR then turned it down, then what…?

Two ****** off governments versus IOCs who are very confident they will win if the situation goes to court and who are surviving very nicely by using local sales in the mean time.

Dare the governments unite and instruct the local buyers to stop, thereby cutting off the IOC’s source of revenue?

Given that they are both prepared to put their own citizens through hell, why not throw in winding up international companies as well.

@JAB, the contract referred to is a revenue sharing one, so the contractor’s profit comes from their share of revenue as a stakeholder minus costs. The FGI are not involved in auditing the costs wrt value for money, which is why they like them. The structure encourages the IOC to minimise costs through efficient behaviour.

The FGI is a 30% stakeholder, the other two got 70%.

So the FGI got 25% Royalty + (30% of the remaining 75% after Royalty)+ any tax on IOC revenue stream.

What is being floated with the adaptation of the PSCs is a Profit Sharing Contract, which is different concept altogether, because AGREED costs play a vital role.

Cannot find anything other than a generalised analysis and summary of all of the outcomes of the bids in that 2018 auction.

References cost recovery percentage limit of 20% if PoO very low but 70% if it’s anywhere near where it is now. Why are they questioning the 40% max under the current PSC?

References MoO thinking that IOCs bump up the costs! So are they offering 70% of costs BUT only after they have removed the froth and rendered them “realistic”.

References low cost fields versus high cost ones in Iraq, $5 per barrel versus $20. Gives an idea into how they come up the bizarre $6 average included in the Budget Law, which is now being referred to in Dinars in some quotes.

The model used in 2018 was for use in a bidding contest. The FGI set a max for the profit generating bit and companies had to decide where to pitch their figure without knowing if the field would be commercial etc..

How will that transfer to a contract that already exists for a field which is producing?

Had to laugh at one outcome. Max allowed by FGI was 14% for one field and the winning bid from a sole interested party was 13.99%.

“Disputes over the oil and gas law continue”

@DrawMediaNet

“Kazim Tugi, a member of the Iraqi Parliament's Energy Committee said, All technical issues of the oil and gas law have been resolved, except the political issues between Erbil and Baghdad, which requires political intervention.”

Two sides negotiating the possible adjusting of contracts, one didn’t understand the thinking behind the original contracts and the other doesn’t accept the validity of the rules (AKA interpretation of the Constitution) being used to change them.

Once they finally reach an adjustment that is politically and technically acceptable to both of them, then that’s all that’s left is to present their solution to the IOCs with whom the original contracts were written.

What could possibly be causing the delay?

@BB, having looked at the structure of the last known Profit Sharing Contracts offered en masse by the FGI in 2018, I think it would be fairly straightforward, from a mathematical point of view, to construct an individual one for each field that gave an acceptable outcome for the individual IOC.

There are two major cultural problems though apart from technical/mathematical ones even if I have underestimated the latter ones.

The FGI still might not comprehend the need to change their views wrt the cost recovery mechanism needed with young fields as opposed to the mature ones they are used to - education doesn’t always produce a change in attitude.

In addition they seem unable to offer the high enough %profit needed by the IOCs to justify the risks they take - fear of being ripped off.

“ The KRG Council of Ministers then instructed the KRG delegation to continue their efforts and negotiations within the framework of the Iraqi constitution.”

If everything had been sorted why would they need to continue their efforts and negotiations?

@Anfil, I don’t know the answer but working from first principles the transition should not cause any changes IMO but since this is an accountancy issue I am almost certain to be wrong.

The cost recovery mechanism is present in both PSCs and Profit Sharing Contracts - the difference is in the order in which the agreed costs appear in the flow chart.

In the latter, the max allowed agreed costs for a month’s cash realised at market is deducted FIRST, hence leaving the profit which is then shared.

The transition of ownership of assets that the company purchases but the Gov recompenses them for over time is covered by detailed clauses in the contracts.

“ The Prime Minister reaffirmed the Kurdistan Region's readiness to resume oil exports within the framework of a common understanding to meet the financial and technical requirements of the export process, within the framework of constitutional principles and contracts, and respect for authority and the constitutional rights of all parties and finding appropriate solutions to ensure the reasonable cost of production and transportation of oil in the Kurdistan Region, which is allocated in the federal budget.”

Barzani speaks and I need to check to see if I have landed the Treble.

An early reference to “understanding”, c’mon don’t let me down.

Yes! Closely followed up by “constitutional”.

All I need now is “budget”… and it wins o with a very late run.

Damn, £2 on the Tote only returned £2.05 - looks like other big hitters have spotted the pattern.

What that quote summarises though is EVERY point of disagreement that existed before the latest round of meetings.

I do question Barzani’s oft repeated use of the word “understanding” as opposed to “agreement”.

Let’s hope there was one area where understanding had improved I.e. that of the FGI’s participants wrt the reasoning behind the level of PSC payments in young fields.

Now we just have to wait and see how far the FGI have taken on board KRG demands and how far they have shifted in terms of APIKUR’s demands re commercial outcomes.

Would the IOCs bite if they were offered certainty of contract, sales agreements and debt recovery in return for say receipts being only 90% of what they would be under current PSCs?

Extends cost recovery timeline by a factor of 1.1 and reduces the profit generating element by 10%.

In return they can plan future developments in an environment of peace, calm and certainty - absolute bliss :)

You need to change the title of the thread and content by removing the word you inserted I.e. “good”. 🙄

Here is the original:-

“ #BREAKING PM Barzani: There is a prospect for resuming oil export.”

Goto 14:15 onwards to hear his very precise statement about the need for written agreements about the debts and future payments. There is ZERO reference to their content, just that they are a necessary condition before exporting can restart.

For me it’s the repeated references to the need to educate the FGI officials wrt the workings of PSCs that was very interesting.

In particular their experience of the costs of running mature fields in Iraq does not prepare them for those in Kurdistan, where the operators are still trying to recover their exploration costs. ( He did not point out, but hopefully someone will, that those costs were fully covered by the IOCs and if the fields were uneconomic they lost the lot.)

One way for the FGI to get around the $6 figure set by the Budget Law is to differentiate between “reasonable daily running costs for the current state of each field”, with extra payments for “recovery of risked initial exploration costs” and when production starts to increase beyond pre closure levels, “future expansion costs.”

The FGI have previously pointed out that since the KRG signed the PSCs without their approval, the KRG are responsible for now paying what the IOCs see as standard commercial amounts and coughing up for any outstanding payments.

In order for both the FGI and KRG to come up with a face saving solution, which also matches the needs of the IOCs, there will have to be a significant chunk of money moving behind the scenes from Baghdad to Erbil under tight control.

One source yesterday suggested the solution will be sorted by the end of today, another within three days max - no pressure then.

Even if the money is there, trying to concoct something that doesn’t lead to a political implosion in one or both camps will be a tad tricky

“This will be iron out this time, especially with Barzani's confident statement and the oil delegation 3 day meetings in Erbil.”

IMO Barzani’s statement deliberately introduced, as he always does, a reference to any solution being derived through the Constitution.

What are the common understandings based on the Articles referred to in the Feb ‘22 FSC ruling? How about NONE?

So any negotiated solution has to move away from PSCs to an alternative but on what commercial terms and how will it be funded?

The FGI has proposed a fixed $6 a barrel figure to limit the rate of cost recovery, which is way below what the PSCs deliver.

The FGI’s position is that the KRG signed the PSCs so they can make up any shortfall between the FGI offer and the APIKUR demand whatever contract is used.

The KRG is not in a financial position to do this and given their current plight, it will be a long time before they are, even when the full budget payments flow on a regular basis.

IMO the key element is how can the FGI indirectly pay the IOCs enough money, seemingly through the KRG, to satisfy the needs of the IOCs in the short term; until everything becomes self funding?

Everything seemed to be going so well until I found this.

“Erbil is “willing to resume the export in line with the shared understanding towards fulfilling the technical and financial needs and honoring the constitution, contracts, constitutional rights,” the premier told the attendees.”

Barzani and shared understandings with the FGI of the meaning of various Articles in the Constitution has wrecked many a previous attempt at settling differences, maybe this time will be the exception.

The FGI’s views on the commercial aspects of the PSCs have been made abundantly clear previously. Based on what happens in the rest of Iraq the rate of cost recovery is too high, as is the % profit per barrel.

APIKUR “… reiterated that existing commercial terms MUST remain in place,…” (My upper case)

So if the APIKUR statement is a true reflection of an immovable red line, then the FGI will have to shift all the way to meet it, whatever form the contract takes.

Realistically, what is the chance of that happening?

There is a solution and it was proposed very early on but it has a glaring problem area - financial reality.

Any difference between what the FGI decide is reasonable and what the IOC’s want, is topped up by the KRG from their budget share. 🙄

IMO we are nowhere near the end game, a bit further on from

1 e4 c6 but not much. The timing of any outcome though will depend on whether it’s a Postal game or under Lightning rules.

Paul, when you posted “Added” was this referring to your shareholding on the number of avatars you are posting under?

Personally loved the transition from JakeLaMotta to FurensTaurus through the Raging Bull commonality.

Maybe you could set up a chain of linked ones as in word association games?

You could continue to make the content the same, with minor alterations to confuse Admin, whilst providing us with an insight into the deepest workings of your mind :)

@MRSt, the only people who know who instigated the trade are the people involved.

The sites which report these Buys or Sells are using software which is blatantly not fit for purpose.

I would be very surprised if there was anyone on here who hasn’t clicked on Buy but seen it reported somewhere as a Sell, or vice versa.

The probability that the FGI will freely accept the PSCs is exceptionally low - cultural chasm wrt sharing oil production with an IOC.

So that opens up that they are either enforced through International Law or they are replaced by an alternative that both sides find agreeable.

Simplest solution is to rewrite the PSCs, remove the right of the IOCs to receive a share of the oil and replace it with wording that uses the same %s but refers to gross field revenue sharing.

Another way would be to trial these new proposed contracts that are due to be introduced in 2024. The FGI apply the rules to each of the Kurdistan fields and tells the individual IOCs what the outcome would be.

No point in doing either though if the definition of production costs and the %s that the FGI want to use are significantly different to what the IOCs would require to give up the PSCs.