Analysis: Ending the ExxonMobil Presence at West Qurna 1

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Ending ExxonMobil Presence in WQ1 Oilfield

Legal-Contractual Discussion with Economic-Financial Analysis

Information indicates that the Iraqi Ministry of Oil (MoO) proposed to acquire (buy) ExxonMobil‘s participation interest (PI) in the West Qurna 1 (WQ1) oilfield for $300 million, and that the final decision depends on the formation and approval of the new government.

The proposal revives the divergent positions that prevailed within MoO when discussing a similar situation in 2018 relating to the same oilfield.

Click here to download the full report in pdf format.

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad’s biography here.

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Iraq’s opens its first Hydrogen Production Unit

By John Lee.

Iraq’s first hydrogen production and compression unit has been opened at the Ministry of Oil’s Oil Research and Development Centre

The unit, which is for research purposes, can produce hydrogen with a purity of 99.5 percent, and compress it to 150 bar.

A statement from the Ministry said that this is sufficient to meet the needs of the research departments, with the surplus supplies being used by companies and state institutions.

At the opening, the Ministry’s advisor for energy affairs, Abdul Baqi Khalaf, said that Iraq is committed to its commitments regarding reducing gas emissions and pollutants and protecting the environment and climate.

(Source: Ministry of Oil)

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Iraq Oil Revenue falls below $10bn in August

By John Lee.

Iraq’s Ministry of Oil has announced preliminary oil exports for August of 101,859,528 barrels, giving an average for the month of 3.286 million barrels per day (bpd), down from the 3.303 million bpd exported in July.

The exports from the oilfields in central and southern Iraq amounted to approximately 100,750,000 barrels, while exports from the Kirkuk fields through the port of Ceyhan amounted to 1,109,528 barrels.

While not explicitly stated by the Ministry, these figures seem to imply that there were no exports by road to Jordan.

Revenues for the month were $9.784 billion, falling below $10 billion for the first time since February. The average price was $96.05 per barrel.

July’s export figures can be found here.

(Source: Ministry of Oil)

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US Consul says Existing KRG Oil Contracts must be respected

By John Lee.

The US’s newly-appointed Consul General in Erbil has said that existing contracts between international oil companies (IOCs) and the Kurdistan Regional Government (KRG) must be respected.

Consul Irvin Hicks Jr. made the comment following a meeting with the KRG’s Minister of Natural Resources, Kamal Muhammed Salih, on Wednesday.

In a statement issued on the consulate’s Facebook page, the Consul said:

“We support the KRG’s dialogue with the Government of Iraq on hydrocarbons and agree existing oil contracts must be respected.”

Baghdad has challenged the legitimacy of the KRG’s oil contracts.

(Source: US Consulate in Erbil)

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GKP Profits more than Double

Gulf Keystone Petroleum (GKP) has today announced its results for the half year ended 30 June 2022.

Jon Harris (pictured), Gulf Keystone’s Chief Executive Officer, said:

With the strengthening oil price and increased production, we have delivered strong profitability and cash flow generation in the first half of the year. As we progress towards approval of the Field Development Plan, we have continued to develop the Shaikan Field and recently resumed drilling with the spud of SH-16. We have paid a record $190 million of dividends in 2022 and are pleased today to announce an incremental interim dividend of $25 million, increasing total dividends declared this year to $215 million. While delivering a sector leading dividend yield, we have also maintained a strong balance sheet, redeeming our $100 million bond leaving the Company debt free.

“Looking ahead to the rest of the year, we are focused on progressing towards FDP approval and achieving our production and opex guidance as we continue to optimise production from the field while maintaining a rigorous focus on costs. We have raised our 2022 capex guidance to $110-$120 million as we have added the drilling of SH-16 and are progressing initial procurement activities for the installation of water handling facilities, which will enable us to unlock additional production from our wells in the future.

“We remain focused on balancing investment in growth with shareholder returns. Continued robust cash generation provides flexibility to consider funding future capital expenditures and further distributions to shareholders, while preserving adequate liquidity.

Highlights to 30 June 2022 and post reporting period

Operational

  • Strong safety performance, with no Lost Time Incident (“LTI”) recorded for 315 days
  • 2022 year to date gross average production increased by 3.6% to c.45,000 bopd as compared to the FY 2021 average of 43,440 bopd
  • Continued to progress delivery of our 2022 work programme:
    • SH-15 drilled and brought online in April 2022 in record time
    • SH-16 (formerly SH-M) and SH-N well pad completed in preparation for resumption of drilling
    • Well workovers and interventions completed on two wells to optimise production rates
    • Progressing preparatory work for the expansion of the production facilities, including procurement activities for the installation of water handling capacity
  • Resumed drilling activities late August with the spud of SH-16:
    • Targeting production start-up into PF-2 towards the end of the year

Financial

  • Free cash flow more than doubled to $177.3 million (H1 2021: $66.7 million), driven by the strengthening oil price and continued production growth, enabling the Company to deliver against its strategic commitment of balancing investment in growth with shareholder returns
  • Dividends declared of $215 million in 2022, providing shareholders with a sector-leading dividend yield of 36% based on GKP’s closing price on 30 August 2022
  • Significant increase in Adjusted EBITDA and profitability in H1 2022:
    • Adjusted EBITDA up 122% to $208.6 million (H1 2021: $93.8 million)
    • Profit after tax up 151% to $162.8 million (H1 2021: $64.8 million)
    • Realised price up 93% to $84.3/bbl (H1 2021: $43.7/bbl)
    • Gross average production increased 3% to 44,941 bopd (H1 2021: 43,516 bopd)
    • Revenue up 102% to $263.6 million (H1 2021: $130.7 million)
    • Gross Opex per barrel of $2.9/bbl (H1 2021: $2.4/bbl), at low end of 2022 guidance of $2.9-$3.3/bbl
  • Net capex of $41.8 million (H1 2021: $14.1 million), primarily related to the drilling of SH-15, well interventions and workovers, well pad construction, procurement of flowlines and plant expansion activities
  • $354.4 million net to GKP received year to date from the Kurdistan Regional Government (“KRG”) for crude oil sales and revenue arrears, with the arrears balance related to the November 2019 to February 2020 invoices fully recovered
  • $100 million outstanding bond redeemed in August, leaving the Company debt-free and eliminating annual interest costs of $10 million
  • Robust balance sheet maintained with cash balance of $112.0 million at 31 August 2022

Outlook 

  • 2022 gross average production guidance reiterated at 44,000-47,000 bopd
    • Continuing to optimise production through prudent management of existing well stock, delivery of well workover and intervention programme and addition of SH-16 
  • Gross Opex guidance of $2.9-$3.3/bbl remains unchanged
  • Increasing 2022 net capex guidance from $85-$95 million to $110-$120 million
    • Primarily driven by the drilling of SH-16 and initial procurement activities related to the installation of water handling capacity
  • While timing of Field Development Plan (“FDP”) approval remains uncertain, we continue to engage with the Ministry of Natural Resources (“MNR”) towards project sanction and are progressing the tendering process for the Gas Management contract. We are also monitoring the potential impact of global supply chain pressures and logistical challenges on the costs and schedule of the FDP
  • We continue to monitor the long running dispute between the Federal Iraqi Government and the KRG on the management of oil and gas assets in Kurdistan. Our operations currently remain unaffected

Shareholder distributions

  • The Company has announced an ordinary dividend policy of at least $25 million per year and, with free cash flow, is committed to maximising distributions taking into account various factors, including investment levels required to achieve production targets, deliver profitable growth and satisfy PSC obligations, and preserve adequate liquidity to manage geopolitical, KRG payment and market uncertainties
  • Today we are declaring an interim dividend of $25 million, increasing total dividends declared in 2022 to $215 million:
    • $25 million interim dividend is equivalent to 11.561 US cents per Common Share of the Company and is expected to be paid on 7 October 2022, based on a record date of 23 September 2022 and ex-dividend date of 22 September 2022
  • Assuming timely payment of invoices and continuing strong oil prices, we expect continued robust cash flow generation, which would provide flexibility to consider funding future capital expenditures and further distributions to shareholders, while preserving adequate liquidity
  • With continued progress towards implementing the FDP, the Company expects to firm up the future estimated timing and levels of investment and review the dividend policy

More here.

(Source: GKP)

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KRG Condemns SOMO Threats to Buyers of Kurdish Crude Oil

From the Kurdistan Regional Government:

The Kurdistan Regional Government strongly condemns the letter issued on 23 August 2022, by Iraq’s State Oil Marketing Organization (SOMO) that threatens legal action against buyers and traders of crude oil produced in the Kurdistan Region.

SOMO’s letter is nothing more than another drip in a stream of disinformation published by federally-owned state organisation as part of a political fight, a fight which sadly includes an attempt by certain parties in Baghdad to undermine the Federal Constitution of Iraq. The letter is also intended to undermine the continuing good-faith dialogue between the Kurdistan Regional Government and the Federal Government. That dialogue seeks to agree on a plan for the future management of Iraq’s energy resources and revenues in line with the Federal Constitution.

SOMO’s letter relies on a politically motivated opinion by a panel of lawyers pretending to be the “Federal Supreme Court of Iraq”.

But there is no Federal Supreme Court and there is no binding decision. This is because the Federal Supreme Court has not yet been formed in accordance with the Federal Constitution. The panel in Baghdad therefore is not the Federal Superme Court and the opinions of the panel of pretenders carry no legal weight in Iraq or elsewhere. To suggest otherwise, as SOMO and others in Baghdad do, is to further a deception. It is a deception that undermines the Federal Constitution and threatens the republic. This political assault on the Federal Constitution is motivated by a desire to return Iraq to the centralisation of unconstrained power from a horrific past era.

Article 92(2) of the Constitution requires that the Iraqi Council of Representatives enact a law – by a two-thirds majority – to determine the workings of the Federal Supreme Court. No such law has been enacted. Iraq therefore does not have a constitutionally established Federal Supreme Court. The panel of lawyers that issued the 15 February 2022 opinion has no constitutional authority to do so.

The Kurdistan Regional Government has neither acquiesced nor stood aside. On 15 February 2022, the day of the so-called Federal Supreme Court decision, the Government issued a statement describing the decision as unjust, unconstitutional, and illegitimate.

On 28 February 2022, a joint statement was issued from Kurdistan Region Presidency, from the Kurdistan Region Parliament, and from the Judicial Council of the Kurdistan Region of Iraq. The statement was supported by KRG’s Prime Minister. The statement described the so-called Federal Supreme Court decision as unconstitutional and called for the establishment of a legitimate Federal Supreme Court in accordance with Article 92 of the Constitution. Similar statements followed in March.

On 4 June 2022, the Judicial Council of the Kurdistan Region of Iraq issued a further statement setting out that Iraq does not have a constitutionally established Federal Supreme Court, that the body that issued the 15 February 2022 decision had no authority to do so, that the management of all of the oil and gas fields of the Kurdistan Region fell within the exclusive jurisdiction of the Government, and that Kurdistan Oil and Gas Law was fully in accordance with the provisions of the Federal Constitution. The Judicial Council is an independent body made up of leading jurists in the Kurdistan Region.

On 5 June 2022, the Kurdistan Regional Government started proceedings before the courts of the Kurdistan Region against Federal Minister of Oil. It seeks a comprehensive declaration of the constitutionality of the Kurdistan Oil and Gas Law and related matters and of the illegitimacy of opinion of the panel pretending to be the Federal Supreme Court.

Neither SOMO nor any other spokesman in Baghdad has even attempted to justify the legitimacy of the so called Federal Supreme Court. This is because the Federal Supreme Court is obviously illegitimate. This inconvenience is understood in Iraq, but perhaps less understood outside of Iraq. Given the fatal weaknesses in Baghdad’s institutions, and the fatal weakness in Baghdad’s arguments, Baghdad’s strategy is to fabricate a story to create market uncertainty outside of Iraq in respect of the Kurdistan Region. The statements and threats from Baghdad should be understood as such and should be dismissed. The truth is found clearly and unequivocally in the Federal Constitution and the hope of the Iraqi people that Iraq remains a truly federal republic.
The rights of the Kurdistan Region to develop and produce hydrocarbon resources within the boundaries of the Region continues as provided by the Federal Constitution and Kurdistan law. Oil produced in the Kurdistan Region continues to be produced, to be shipped, to be sold, to be refined, and to be consumed. Investment interest remains and production is expected to increase.

The Kurdistan Regional Government remains fully committed to the process of mediation and dialogue to resolve outstanding differences with the Federal Government on the management of oil and gas in Iraq. Those differences, like any other differences of opinion, must be resolved in accordance with the Federal Constitution and the constitutional rights of the people of the Kurdistan Region and all of Iraq. Until that time, the Kurdistan Regional Government will continue to take vigorous steps to defend those rights.

(Source: KRG)

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Three Contractors “Quit” Khor Mor Field

By John Lee.

Three companies have reportedly stopped operations at Kurdistan’s Khor Mor gas field following rocket attacks.

According to Reuters, the companies are Texas-based Exterran, and Turkish subcontractors Havatek and Biltek.

The field is operated by Pearl Petroleum, a consortium led by UAE-based Dana Gas and Crescent Petroleum.

More here.

(Source: Reuters)

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Iraq Confirms July Oil Exports

By John Lee.

Iraq’s Ministry of Oil has announced finanlised oil exports for July of 102,385,049 barrels, giving an average for the month of 3.303 million barrels per day (bpd), down from the 3.373 million bpd exported in June.

The exports from the oilfields in central and southern Iraq amounted to approximately 99,965,094 barrels, while exports from the Kirkuk fields through the port of Ceyhan amounted to 2,344,536 barrels.

While not explicitly stated by the Ministry, these figures seem to imply that exports by road to Jordan totalled 75,419 barrels for the month.

Revenues for the month were $10.368 billion, at an average price of $101.268 per barrel.

June’s export figures can be found here.

(Source: Ministry of Oil)

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Amarinth delivers Pumps to West Qurna-2

By John Lee.

UK-based Amarinth has reportedly delivered pumps worth £1.2 million to the West Qurna-2 expansion project.

According to World Pumps, the first order was from Italy’s Cannon Artes, and was for seven super duplex API 610 OH1 pumps.

The second order, from SICIM (also from Italy), was for three super duplex API 610 OH3 vertical in-line pumps for produced water treatment.

(Source: World Pumps)

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