KRG Bureaucracy Delays DNO Investment

DNO ASA, the Norwegian oil and gas operator, has reported operating profit of USD 61 million in the quarter ending 30 June 2021, its second consecutive profitable quarter since the onset of the COVID pandemic. Revenues totaled USD 184 million, up USD 14 million from the previous quarter, as higher oil and gas prices more than compensated for lower North Sea volumes sold.

Gross operated production at the Company's flagship Tawke license in Kurdistan averaged 110,300 barrels of oil per day (bopd) in the second quarter, of which the Peshkabir field contributed 63,000 bopd and the Tawke field 47,300 bopd. Of the total, 82,700 bopd were net to DNO's interest during the quarter.

DNO's North Sea net production dropped to 9,900 barrels of oil equivalent per day (boepd) in the second quarter, primarily due to planned summer maintenance shutdowns at Marulk and Alve and infill drilling at Ula and Tambar. The Company expects the North Sea contribution to average 13,000 boepd for the year.

In the wake of an ongoing reorganization of Kurdistan's Ministry of Natural Resources, the Company has experienced extended delays to the final approval of its 2021 Tawke field work program and budget as well as to the approvals necessary to fast track early production from the Baeshiqa license. The delays are expected to defer USD 50 million in 2021 DNO net spending in Kurdistan which could have generated up to 15,000 bopd gross production across DNO's three operated fields (Tawke, Peshkabir and Baeshiqa) going into 2022.

With no new wells coming on production at the Tawke field in more than a year, the natural production decline has been partially offset by pressure support from reinjection of over 20 million cubic feet of gas per day from the Peshkabir field in addition to workovers and interventions of existing wells.

"We are eager to invest and produce more oil in Kurdistan," said DNO's executive chairman Bijan Mossavar-Rahmani. "In nearly two decades of operations in Kurdistan, DNO has confronted and overcome multiple challenges and we are well positioned to continue to do so," he added.

In the North Sea, DNO maintains an active drilling program in 2021, including two appraisal wells on previous discoveries and three exploration wells, the first of which has been drilled leading to a discovery. In addition, the Company plans 10 development wells this year.

Recently, the DNO-operated Brasse project selected the Equinor-operated Oseberg facilities as the preferred development host. With total field reserves of 35 million boe and a relatively modest topside construction scope on Oseberg, Brasse has robust project economics based on a 2022 project sanction target.

With an operational cash flow of USD 160 million, an increase of 135 percent from the first quarter, the Company reduced its bond debt to USD 700 million through a USD 100 million partial bond redemption. DNO exited the quarter with a net interest-bearing debt of USD 396 million, the lowest level since yearend 2018.

DNO received USD 159 million in the second quarter from Kurdistan, up from USD 75 million in the first quarter of 2021. Additional payments this week bring the total 2021 receipts from Kurdistan to USD 290 million year-to-date. The arrears built up as a result of Kurdistan's withholding of payment of certain invoices to DNO in 2019 and 2020 total USD 214 million, excluding any interest.

(Source: DNO)

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Dana Gas Expansion Plans “Well Underway” in Kurdistan

By John Lee.

Dana Gas PJSC announced that its H1 2021 collections from the Kurdistan Region of Iraq (KRI), and Egypt have increased 106% year-on-year to $185 million (AED 678m), the highest level in more than five years.

Dana Gas, which owns a 35% stake in Pearl Petroleum, saw its share of collections from sales of condensate, LPG and gas in the KRI jump 85% to $87 million in the first half 2021 as compared to $47 million in the same period the previous year.

The Company received cash dividends of $48.3 million from Pearl Petroleum over this period. For the same period, the Dana Gas share of Pearl Revenue was $87 million, EBITDA $74 million, Net Income $57.4 million, Cash Balances $61 million and Gross Debt $93 million.

The Company share of total KM 250 expansion CAPEX is $220 million, which will be funded at the Pearl level. Dana Gas share of Pearl Petroleum production for the first half 2021 averaged 150 MMscf/d of gas, 5,250 bbls/d condensate and 350 MT/d of LPG.

In Egypt, Dana Gas collected $98 million during H1 2021, compared to $43 million received in the same period of 2020, representing a 128% increase.

Dr Patrick Allman-Ward, CEO of Dana Gas, said:

"This is one of our best collection periods in the past several years, driven and supported by the strong rebound in oil prices. The respective governments of both the KRI and Egypt are meeting their payment obligations, ensuring the petroleum industry investors are receiving their current monies on time and catching up on overdue payments.

"This provides us with the confidence to reinvest in our operations, notably in the KRI where our expansion plans are well underway. We are in the process of constructing our new KM250 gas train which is on track for first gas in Q2 2023. In Egypt, we continue to work diligently to maintain production and to prepare for drilling our exciting exploration well in our offshore Block 6 Concession Area which holds material potential of over 20 Tcf of gas resources."

(Source: Dana Gas)

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Iraq’s Kurdistan Region detects first case of Delta Variant

By Al Monitor staff. Any opinions expressed here are those of the author(s) and do not necessarily reflect the views of Iraq Business News.

Iraq's Kurdistan Region detects first case of Delta Variant

Several Middle Eastern governments have instituted measures aimed at mitigating the spread of COVID-19 variants recently.

Click here to read the full article.

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ShaMaran Increases Stake in Sarsang Contract

By John Lee.

ShaMaran Petroleum has announced that it has signed an agreement with a subsidiary of French major TotalEnergies S.E. to acquire its affiliate (TEPKRI Sarsang A/S) holding an 18% non-operated participating interest in the Sarsang Production Sharing Contract in the Kurdistan Region of Iraq for an initial consideration of USD 155 million plus working capital adjustments amounting to USD 14.2 million as of January 1, 2021.

Shares in the company were up 16 percent on the news.

An additional contingent consideration of USD 15 million is payable in the future as more fully described below.  The Acquisition is transformative to ShaMaran's production, reserves and financial profile and delivers on the Company's focused and disciplined strategy for growth by targeting this opportunity that is accretive to the Company, its shareholders and its bondholders.

HIGHLIGHTS

The Acquisition:

  • Adds immediate incremental participating interest production of approximately 5,000 bopd of light crude oil;
  • Is expected to double ShaMaran's Q2 2021 average net production of 11,090 bopd following the completion of the processing facility expansion at Swara Tika field by mid-2022;
  • Enhances ShaMaran's oil reserves through the addition of high API and low sulphur oil that achieves a low discount to Brent; and
  • Provides a low cost structure with life-of-field operating expenditure anticipated to be approximately USD 5.60/boe.

The Sarsang block is on the northern border of the Company's Atrush block and is comprised of two producing fields: Swara Tika and East Swara Tika.  At Swara Tika, an expansion project is well underway with the addition of a new 25,000 bpd processing facility which is expected to lift gross production to approximately 50,000 bopd by mid-2022. Through the Acquisition, ShaMaran will add strong cash flow and a production growth trajectory underpinned by its interests in two cash-positive PSCs with three producing fields in the same vicinity.

Following a successful closing of the Acquisition, the Company's Q2 2021 average net production of 11,090 bopd is expected to double in second half of 2022 after the facility expansion at Swara Tika is completed. Additionally, the Sarsang crude is of high quality and enjoys one of the lowest price discounts to Brent in Kurdistan. In connection with the new facility being commissioned by mid-2022, the Sarsang block will also be connected to the Atrush feeder pipeline for future pipeline export and will thereby have a permanent pipeline connection to the export market.

The Acquisition is highly accretive and transformative to ShaMaran as it grows from a single asset company to a multi-field producer and paves the way for future growth opportunities for ShaMaran.

ShaMaran's President and Chief Executive, Dr. Adel Chaouch, said:

"We are delighted that we have agreed the acquisition of the TotalEnergies' non-operating interest in Sarsang, a high-quality producing asset with strong operational and financial fit to ShaMaran's business. This is a strategic transaction for ShaMaran delivering value to equity and debt holders and strengthening the financial profile of the Company.

"Upon completion, this acquisition will add immediate material production and cash flow to ShaMaran and will provide significant value enhancement. It demonstrates our continued commitment to Kurdistan and diversifies our existing production base.

"Sarsang has an attractive discovered reserves base with a strong track record of safety and sustained production.  As a neighboring field to the Atrush field, becoming a partner in the Sarsang field presents opportunities for potential integration synergies with Atrush operations.

"We would like to thank TotalEnergies for their commitment in the negotiations of this acquisition and look forward to a constructive partnership in the future with the Sarsang operator, as well as a continued and trusted relationship with the Kurdistan Regional Government of Iraq."

TRANSACTION DETAILS

ShaMaran has agreed to acquire 100% of the shares of TEPKRI Sarsang A/S ("TEPKRI"), a subsidiary of TotalEnergies, which holds an 18% non-operated participating interest in the Sarsang PSC.  The Acquisition has an effective date of January 1, 2021.

ShaMaran will pay an initial consideration of USD 155 million upon closing of the Acquisition before working capital and related adjustments and an additional contingent consideration of USD 15 million in the future, as follows:

  • The initial consideration of USD 155 million is divided into (i) an upfront cash payment of USD 135 million payable upon closing and (ii) a deferred consideration of USD 20 million structured as a vendor finance in the form of a 5.5% convertible promissory note issued to a subsidiary of TotalEnergies with a 12-months' maturity from the date of closing.
  • An additional contingent consideration of USD 15 million is payable in the future upon (i) cumulative gross production from the Sarsang PSC reaching 130 MMbbls and (ii) subject to Brent crude oil prices averaging at least USD 60/bbl for a twelve months' period.

ShaMaran expects to receive significant positive cash flow upon closing of the Acquisition based on 2021 cash flows at current oil prices.

The Company intends to finance the Acquisition through the issue of new debt, equity and by utilizing the Company's cash balance.

The "change of control" of TEPKRI resulting from the Acquisition is subject to regulatory and exchange approvals in Canada, the Kurdistan Region and Sweden.

DEBT FINANCING

The Company intends to issue an up to USD 300 million new 4-year bond to refinance existing debt and raise new capital for the Acquisition.  Subject to the closing of the Acquisition, USD 175 million of the currently outstanding USD 180 million ShaMaran 2023 bond (after the USD 5 million repayment due in late 2021) will exchange at 102% of par into the proposed new bond at par value.  In aggregate, USD 185.7 million (including the USD 7.2 million amount described below) will be issued to refinance the existing debt into the new bond upon closing of the Acquisition and up to USD 114.3 million will be issued for cash to finance the Acquisition and other general corporate purposes. Cash proceeds from the new bond will be placed in an escrow account and only released upon satisfaction of the closing conditions to the Acquisition.  The existing debt that is proposed to be refinanced into the new bond includes USD 7.2 million of the total USD 22.8 million debt currently owed by the Company to Nemesia S.à.r.l. (a private company ultimately controlled by a trust the settlor of which is the Estate of the late Adolf H. Lundin) ("Nemesia").  The USD 15.6 million balance will remain outstanding as described below.

The Company and its advisors have engaged with a majority of bondholders that prior to the date of this news release have pre-committed to vote in favour of the conditional refinancing of the existing bond through a written summons and resolutions, as well as necessary waivers for the issuance of the new bond and other financial matters relating to the existing bond.

The Company has also obtained strong interest for the contemplated new bond from a group of existing and new bond investors.  Book-building for the contemplated bond will be launched imminently together with a summons for written resolution to refinance the existing outstanding bond conditional on closing of the Acquisition.

EQUITY FINANCING

The Company intends to raise USD 30 million of additional equity capital to fund the Acquisition, which the Lundin family, as ShaMaran's largest shareholder, has agreed to support by Nemesia providing a USD 30 million equity underwriting.  The new equity is expected to be issued through a rights issue in eligible jurisdictions in connection with the Acquisition in order to provide all shareholders to whom subscription rights may be lawfully issued with a proportionately equal opportunity to participate.

Further information on the contemplated rights offering will be announced in due course.  The offering will be conditional on, inter alia, approval of the Acquisition by the TSX Venture Exchange, the approval of the Kurdistan Regional Government ("KRG"), the filing of a rights offering circular or prospectus in Canada and in Sweden and other regulatory approvals.  It is anticipated that the rights offering would be commenced as soon as practicable following receipt of KRG approval for the Acquisition.

The Lundin family underwriting will be by way of a stand-by commitment, meeting the requirements of applicable securities laws, to acquire shares not subscribed for by others pursuant to subscription rights issued in the offering.

(Source: Shamaran)

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Will Baghdad, Erbil fulfil Budget Obligations?

From Amwaj Media. Any opinions expressed are those of the author(s), and do not necessarily reflect the views of Iraq Business News.

With deal in hand, will Baghdad, Erbil fulfil budget obligations?

To what extent will the Kurdistan region of Iraq (KRI) be seriously committed to the provisions of the federal budget now that it has been approved?

And will the convulsions of the bilateral relationship between Erbil and Baghdad reappear if one of them violates these provisions or does not abide by them?

The full report can be viewed here (registration required).

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Kurdistan 2020 Oil Business “Crashed due to COVID-19”

The Kurdistan Regional Government (KRG) has released its annual oil and gas audit report for 2020, which revealed several drops in production due to the COVID-19 pandemic.

The region's total exported and consumed oil for the year stood at 165,942,861 barrels, about 5 million barrels less comparing to 2019.

The average price of oil dropped to $28.1 per barrel as global markets crashed during the second quarter, with the gross value of crude oil sold via pipelines standing at $4,443,842,235.

As of Q4 2020, $294,315,126 of KRG funds remained held in a bank account in Lebanon due to restrictions on transferring foreign currency outside the country.

The full 2020 audit report is available here:

https://gov.krd/english/information-and-services/open-data/deloitte-reports/deloitte-report-2020/

(Source: KRG)

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Deloitte Report on Kurdistan Region Oil and Gas

Deloitte report on Oil and Gas review in the Iraqi Kurdistan Region - Q1 to Q4 of 2020

The KRG has published a report containing verified statistics covering the Kurdistan Region's oil exports, consumption and revenues for period 1 January 2020 to 31 December 2020, along with the consolidated report for the year 2020.

The report, available in Kurdish, English and Arabic, provides a quarterly analysis of oil export information and average prices.

The data verification was performed by Deloitte.

Transparency being central to the cabinet agenda, the KRG regularly assesses what additional disclosures would enhance the transparency of its oil and gas sector. Accordingly, from 2019 the KRG started providing information on the prepayment balances it owes to oil traders and in 2020 disclosures are further extended to include reconciliation between production and exports and local consumptions.

The KRG acknowledges the positive feedback received so far from domestic and international stakeholders. The council reiterates its commitment to the people of Kurdistan that Deloitte will continue to independently review the region's oil and gas sector.

A frequently asked questions handbook (also available in Kurdish, English and Arabic) will help readers to understand the report's contents.

Click here to download the reports.

(Source: KRG)

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GKP Shares Rise on Corporate Update

By John Lee.

Shares in Gulf Keystone Petroleum (GKP) ended the day up more than 6 percent on Friday, as the Kurdistan-focused oil producer gave an operational and corporate update:

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

"We continue to safely navigate a challenging operating environment due to COVID-19, with gross average year-to-date production of c.43,600 bopd, up almost 20% from 2020 annual average gross production. Today, we are pleased to announce that we have restarted work to complete SH-13, marking the resumption of drilling activities ahead of schedule.

"As a result, we now expect to increase gross production towards 55,000 bopd in Q4 2021 and to be at the upper end of 2021 guidance (40,000-44,000 bopd) as we continue to develop and realise the value of the Shaikan Field's substantial reserves and resources for the benefit of all stakeholders."

 55,000 bopd investment programme

  •  Successful restart of drilling activities, with commencement of SH-13 completion ahead of the previously announced schedule of Q3 2021.
  • After SH-13, SH-I will be drilled and electric submersible pumps will be installed in two existing wells.
  • Gross production is now expected to increase towards 55,000 bopd in Q4 2021, versus previous guidance of Q1 2022.

Operational

  • Continued strong safety performance, with no Lost Time Incident ("LTI") recorded for over 530 days.
  • Continuing to effectively manage the impact of COVID-19 on production operations and the resumption of drilling activities despite continued challenges on the ground.  
  • Gross average production from the field in 2021 to date of c.43,600 bopd, in line with 2021 guidance.

Financial

  • $100.8 million ($78.9 million net to GKP) received from the Kurdistan Regional Government in 2021 to date for payments of crude oil sales and recovery of outstanding arrears. 
  • As previously announced, proposing a $25 million annual dividend and $25 million special dividend, both for approval at next week's Annual General Meeting as we continue to balance investment in growth and returns to shareholders.
  • Retain a robust balance sheet, with a cash balance of $195 million as at 10 June 2021.

Outlook 

  • Expect 2021 average gross production guidance to be towards the upper end of the 40,000 to 44,000 bopd guidance range following early resumption of drilling activities.
  • 2021 guidance of $55-$65 million net capex and $2.5 to $2.9/bbl gross unit Opex remains unchanged.
  • Continuing to progress the preparation of the Field Development Plan, including the Gas Management Plan, through engagement with the Ministry of Natural Resources and other stakeholders; we will provide updates as this work progresses.

(Sources: GKP, Google)

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KRG to rely 100% on Natural Gas for Electricity

Ten electricity plants were provided with transformers at a ceremony attended by Deputy Prime Minister Qubad Talabani in Koya town on Thursday.

The Deputy Prime Minister commended the Koya transformer project and addressed developments in the electricity sector, including the Kurdistan Regional Government's decision to go all in on natural gas.

"The power generation costs are still high," said Deputy Prime Minister Talabani, "and to solve this, we are planning to increase the dependency on natural gas to 100 percent as a source of fossil fuel in power generation."

Also in attendance at the Koya ceremony was Minister of Electricity Kamal Mohammed Salih, who provided more information on the 2.728 billion dinar (or roughly 1.8 million USD) transformer project.

Minister Salih hailed the cabinet's achievements in power generation and distribution, and stated that more than 450 projects have been initiated with a total worth of 60 billion dinars.

KRG is planning to open three more power plants in the Kurdistan Region by the end of this year: a steam power plant in Khabat District, a gas power plant in the Garmian region, and a 37-megawatt plant in Deraluk.

The Deputy Prime Minister Qubad Talabani also talked about his latest visit to Baghdad with the KRG delegation to discuss the region's share of the budget.

He noted that one of the topics of discussion was cooperative power generation between the federal and regional governments, a step that would drastically increase Iraq's supply of electricity.

(Source: KRG)

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Genel Energy receives March Oil Payments from KRG

Genel Energy has announced that payments have been received from the Kurdistan Regional Government ('KRG') for its entitlement for oil sales during March 2021.

Those payments are made up as follows:

(all figures $ million) Payment
Tawke 14.3
Taq Taq 2.1
Sarta 3.4
Total 19.8

As announced on 13 May, Genel and other KRI operators received a letter from the KRG proposing an amendment to the recovery mechanism and payment schedule for monies owed for oil sales from November 2019 to February 2020 and the suspended override from March to December 2020.

The entitlement payments for oil sales were, in line with other operators, received ahead of the proposed amended schedule.

The Company has not yet received payments for March's invoices under the recovery mechanism, regarding which it is engaging with the KRG on their proposed amendments, nor the Tawke override.

Assuming the proposed revision to the terms of recovery stands, the recovery payment will be $3.1 million. The override payment will be $8.2 million. Given the proposed new schedule, Genel expects to receive both payments shortly.

(Source: Genel Energy)

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