By John Lee.
Iraq has reportedly asked some Asian refiners to consider forgoing prompt shipments of its Basrah crude, a potential signal the country is trying to meet the output-cut pledges it made to OPEC at the weekend.
(Source: Bloomberg)
Iraq to Cut Oil Output, but by Less than OPEC+ Target
By John Lee.
Iraq is reportedly cutting its oil output by around 700,000 barrels per day (bpd), a third less than required under an OPEC+ supply pact.
Iraqi oil officials told Reuters that the government failed to persuade the international oil companies (IOCs) to agree to bigger reductions.
(Source: Reuters)
GKP Shares up 10% on Results
By John Lee.
Shares in Gulf Keystone Petroleum (GKP) were up around 10 percent on Thursday morning, following the company’s announcement of its results for the year ended 31 December 2019.
Jón Ferrier (pictured), Gulf Keystone’s Chief Executive Officer, said:
“2019 saw a step change in activity at Shaikan; we delivered production and controlled expenditures in line with guidance, returned just under $100 million to our shareholders, and maintained a strong balance sheet with cash of $164 million at 22 April 2020.
“The current oil price and macro-economic uncertainty continues to have profound, far-reaching effects. We have taken concrete steps to protect value and assure the viability and financial strength of our business, both for today and the longer-term. As previously announced, we have suspended guidance and, while we were on-track to achieve 55,000 bopd in Q3 2020, we have stopped further expansion activity and are currently demobilising the team until circumstances improve. While we have secured ongoing production operations, we continue to closely monitor market dynamics and will take appropriate further actions to preserve value.
“We continue to focus on strict financial discipline and maintaining our strong balance sheet. GKP remains underpinned by Shaikan, which continues to perform in line with expectations, and we look forward to resuming expansion activity and delivering the underlying value of the field for all stakeholders upon resolution of the outstanding payments from the Kurdistan Regional Government (“KRG”) and an improvement in economic conditions.”
Highlights to 31 December 2019 and post reporting period
Operational
- Robust safety performance during a period of increased operational activity.
- GKP remains committed to the welfare of all personnel and the safety of our operations. To limit the risk and transmission of COVID-19, only location essential personnel are working at GKP sites and offices.
- Average gross production in 2019 of 32,883 bopd, in line with original guidance.
- Gross production from the field in 2020 to date of c.38,000 bopd.
- As a result of COVID-19, the focus on cost control and overdue payments from the KRG, operations have been reduced to focus on minimum safety critical activities required for production.
- Once macro conditions improve, including resolution of outstanding payments from the KRG, the Company will restart expansion activity to increase production to 55,000 bopd.
Financial
- In 2019, the Company achieved its production, capital expenditures, operating costs and G&A costs guidance.
- Profit after tax of $43.5 million (FY 2018: $79.9 million) and revenue of $206.7 million (FY 2018: $250.6 million) were down, as Brent oil prices averaged $64 per barrel in 2019 compared to $71 per barrel in 2018.
- Net capital investment in Shaikan of $90.0 million (FY 2018: $35.4 million).
- Maiden dividend and share buyback programmes returned $79 million in 2019. Subsequent completion of the share buyback programme brought total returns to $99 million.
- Cash balance of $190.8 million at year end (2018: $295.6 million).
Outlook
- The Company is actively focused on maintaining a robust financial position and is targeting a major reduction of costs across the business, while maintaining a strong focus on safety and long-term asset reliability. These actions are being taken in response to the current oil price environment and in anticipation of a protracted recovery:
- net Capex for 2020 include expenditures incurred to date and remaining firm commitments andare expected to be $40-$48 million ($50-$60 million gross), a c.50% reduction compared to 2019;
- targeted Opex and G&A savings of at least 20%; and
- in process of reducing expatriate workforce by c.60%.
- The KRG has committed to paying for monthly production by the 15th day of each following month starting with March 2020, for which payment was recently received. Dialogue with the KRG is continuing relating to payment of outstanding invoices for November 2019 to February 2020 aggregating $93.7 million gross ($73.3 million net to GKP).
- Guidance for 2020 suspended until the outlook becomes clearer.
- Resumption of distributions is dependent on an improvement in macro-economic conditions, resolution of outstanding payments from the KRG and a clear operational outlook.
- With a strong balance sheet, limited capital commitments and an existing low-cost production base, GKP is well placed to navigate through these challenging conditions and, if necessary, to withstand a lower oil price throughout 2020 and 2021.
The Company’s 2019 Full Year Results presentation is available on the investor relations section of the website: https://www.gulfkeystone.com/
(Source: GKP)
Kurdistan, Iraq discuss Oil Production
From Middle East Monitor, under a Creative Commons licence. Any opinions expressed here are those of the author and do not necessarily reflect the views of Iraq Business News.
An official Kurdish delegation arrived on Sunday in the Iraqi capital Baghdad to discuss oil production.
“The delegation, led by the Kurdistan government’s Finance Minister, Awat Sheikh Janab, will discuss the federal budget, low oil prices, and the region’s participation in the Iraqi commitment to reduce oil production in accordance with the Organisation of Petroleum Exporting Countries (OPEC)’s decision,” Kurdish Prime Minister Khalid Shwani told reporters.
The Kurdistan Region recently said it would export “250,000 barrels per day of oil to Baghdad to support the Iraqi federal budget.”
“The region must abide by the federal government’s decision to reduce crude oil production,” Shwani stressed.
Oil prices have fallen sharply since Russia and OPEC countries failed to agree on an additional 1.5 million barrels per day of oil production cuts in early March. Concerns over the market impact of the global coronavirus outbreak are compounding the price fall.
Saudi Arabia-led OPEC and Russia-led non-OPEC oil producing countries – a grouping known as OPEC+ that pumps over 40 per cent of the world’s oil – agreed earlier this month to new oil production cuts which will come into effect in May and are expected to stabilise prices.
Jiyad: Oil Market Collapse Damages the Iraqi Economy
By Ahmed Mousa Jiyad.
Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.
Oil Market Collapse, Damages the Iraqi Economy and Changes Oil Geopolitics
The collapse of the global oil market is undoubtedly unprecedented in its timing, magnitude, spread and devastating impacts across the globe. A strange and unpredicted association of a few, but major, factors had contributed to the current threat, causing much uncertainty and vulnerability on national and global levels.
The revised “OPEC+” production cut agreed on 12 April prompted initial minor improvement in oil price, but there remains very many serious concerns that such reduction is much below what is needed to bring stability to and balances a saturated global oil market.
This article aims at estimating the collapse in oil market on Iraq first then on both Russia and Saudi Arabia, as they are accused for “OPEC+” failure early last March that ignited the oil price war, and assesses the geopolitical and political economy consideration that contributed to and further complicate the impasse. The article provides a summary of two articles written and published in Arabic recently and an update on recent deliberation by “OPEC+” and G20 Energy Ministers to rescue the situation and bring some stability to global oil market under existing threat of Coronavirus to the world biosecurity.
My two articles attempt to provide comparative assessment of the impact of the collapse with particular focus on short-term horizon, i.e., the remaining nine months of this year under different Brent oil price scenarios on Iraq, first article , while the second focuses on Russia and Saudi Arabia.
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.
Genel Energy “Resilient to an Oil Price of $30”
Genel Energy has announces its audited results for the year ended 31 December 2019.
Bill Higgs, Chief Executive of Genel, said:
“The industry is currently facing headwinds that challenge companies to demonstrate their resilience and flexibility. Genel has a business model and strategy designed to shelter us from such extreme circumstances, with low-cost oil production, robust finances, and flexibility in our expenditure allowing us to pay a material dividend while retaining sufficient liquidity to capitalise on opportunities and take advantage of future upside.
“Our strong balance sheet with limited capital commitments allows us to invest in the most value accretive areas and pay this dividend at the prevailing oil price, even in a scenario with a temporary delay in payments from the KRG. We are a business that can generate excess cash at a sustained oil price of $40/bbl.
“Given the resilience of the business, our strong performance in 2019, and our view of future prospects, we have retained our dividend of 10¢ per share, deferring an increase until external conditions improve.
“This is a yield of over 20% on our current share price, offering investors the compelling combination of a significant yield from a sustainable dividend and funded growth. Our portfolio positions us well for a future of fewer and better natural resources projects. It is low-cost and low-carbon – the right assets, in the right location, with the right footprint.“
Results summary ($ million unless stated)
| 2019 | 2018 | |
| Production (bopd, working interest) | 36,250 | 33,700 |
| Revenue | 377.2 | 355.1 |
| EBITDAX1 | 321.8 | 304.1 |
| Depreciation and amortisation | (158.5) | (136.2) |
| Exploration (expense) / credit | (1.2) | 1.5 |
| Impairment of oil and gas assets | (29.8) | (424.0) |
| Operating profit / (loss) | 132.3 | (254.6) |
| Underlying profit2 | 134.9 | 138.9 |
| Cash flow from operating activities | 272.9 | 299.2 |
| Capital expenditure | 158.1 | 95.5 |
| Free cash flow3 | 99.0 | 172.7 |
| Dividends declared | 40.8 | – |
| Cash4 | 390.7 | 334.3 |
| Cash after dividend5 | 377.1 | 334.3 |
| Total debt | 300.0 | 300.0 |
| Net cash6 | 92.8 | 37.0 |
| Dividend (declared and proposed) per share (¢ per share) | 15.0 | – |
| Basic EPS (¢ per share) | 37.8 | (101.6) |
| Underlying EPS (¢ per share)2 | 49.0 | 49.8 |
- EBITDAX is operating profit / (loss) adjusted for the add back of depreciation and amortisation ($158.5 million), exploration expense ($1.2 million) and impairment of property, plant and equipment ($29.8 million).
- Underlying profit is reconciled on page 13
- Free cash flow is reconciled on page 14
- Cash reported at 31 December 2019 excludes $3.0 million of restricted cash
- Cash reported at 31 December 2019 less interim dividend paid ($13.6 million) on 8 January 2020
- Reported cash less IFRS debt
Highlights
- Ongoing strategic delivery from a strong financial platform, as highly cash-generative oil production increased to 36,250 bopd, up 8% year-on-year
- Free cash flow (‘FCF’) of $99 million in 2019, pre dividend payment
- This increases to $153 million (2018: $173 million), or $0.55 per share, taking into account the receipt of $54 million in payments from the Kurdistan Regional Government, due in 2019 and subsequently received in January 2020
- Maiden dividend declared and $41 million distributed to shareholders
- Cash of $391 million at 31 December 2019 ($334 million at 31 December 2018)
- Net cash of $93 million at 31 December 2019 (net cash of $37 million at 31 December 2018)
- Production cost of $2.9/bbl in 2019
- Continued focus on safety: zero lost time incidents and zero losses of primary containment in 2019
Outlook
- Genel is resilient to an oil price of $30/bbl, as low-cost production, a flexible capital structure, and robust balance sheet allows the payment of a material dividend, and the retention of a material net cash position at year-end 2020
- Genel has significant capital allocation flexibility with limited commitments, is committed to retaining a strong balance sheet, and will ensure expenditure matches the external environment
- Capital expenditure can be reduced to as little as $60 million in 2020, with an expectation that it will be around $100 million at the prevailing oil price, covering maintenance expenditure across our producing licences and investment at Sarta
- Genel will sanction activity relating to the expenditure covered in the original $160 million to $200 million guidance range, as and when the external environment improves
- COVID-19 is impacting the ease of operating in the Kurdistan Region of Iraq. Our producing operations are currently continuing with a reduced staff, but further activity is under review
- Given the current market conditions, coupled with the delay in payments from the KRG, drilling activity at the Tawke PSC has been scaled back
- Due to the delayed expenditure, 2020 net production guidance of close to Q4 2019 levels of 35,410 bopd is expected to be impacted, with the reduced producing asset work programme increasing cash flow generation in 2020 at the prevailing oil price, although a lower exit rate production will impact 2021
- The Qara Dagh-2 well, which was set to spud in Q2 2020, is now likely to be delayed
- Payments for production in October and November 2019, due in January and February 2020, have not been received. The KRG continues to state the importance of ongoing payments to oil companies, and we expect the government to deliver on this promise
- Operating cash costs per barrel expected to be $3/bbl, amongst the lowest in the industry, fitting into a world of fewer and better natural resources projects
- Genel is yet to receive draft legal documents reflecting the commercial understanding reached on Bina Bawi in September 2019, despite promises from the KRG
- Emissions at Tawke and Taq Taq will reduce to 7kg CO2/bbl following completion of the enhanced oil recovery project at Tawke PSC in H1 2020
- Given the resilience of the business and our strong performance in 2019, the Board is accordingly recommending a final dividend of 10¢ per share (2019: 10¢ per share), a distribution of c.$27.8 million, with a view to increasing the 2020 interim distribution should market conditions improve
- Genel will seek to take advantage of opportunities to repurchase bonds at a value-accretive price
(Source: Genel Energy)
Oil Production Falls at Garraf Field
By John Lee.
Production at the Garraf [Gharraf] oil field in southern Iraq has reportedly fallen to an average of around 93,000 barrels per day (bpd) in January.
According to S&P Global Platts, officials from Japan Petroleum Exploration (JAPEX) said on Monday that the drop was due to delays in drilling works.
It added that takeholders remained committed to increasing output to 230,000 bpd by the end of 2020.
Japex, which has a 35-percent stake in the field, issued results for the nine months to the end of December on Monday – see here and here.
(Source: S&P Global Platts)
Iraq to Cut Production at Nahr Bin Umar
By John Lee.
The Basra Oil Company (BOC) will reportedly reduce production at the Nahr Bin Umar oilfield due to pollution and gas emissions.
Director General Ihsan Abduljabbar [Ihsan Abdul Jabbar Ismail] is quoted as saying that the field is considered one of Iraq’s most controversial because of pollution and gas emissions.
(Source: Reuters)
Oil Production Resumes at Al Ahdab
By John Lee.
The Al-Ahdab oil field has reportedly resumed production, having been off-line for about a week due to protests by security guards.
The 70,000-bpd field is developed by China’s CNPC.
(Source: Bloomberg)
Iraq a “Potentially Vulnerable” Energy Supplier
By John Lee.
The International Energy Agency (IEA) has warned that Iraq is a “potentially vulnerable” energy supplier.
In its Oil Market Report, it says that in the medium term, “heightened security concerns might make it more difficult for Iraq to build production capacity“.
(Source: IEA)