Tag Archives: Genel

Independent oil exports – a new leaf for Kurdistan Region and International Oil Companies?

Sitting on more than 45 billion barrels of oil reserves, Kurdistan has enormous potential but with the region also awash with great problems, it has faced a difficult predicament.

A deadly war with the Islamic State along an extended frontline and the reality of housing 1.8 million refugees is only made worse with the long running budget issues between Baghdad and the Kurdistan Regional Government (KRG).

Baghdad effectively halted budget payments under former Prime Minister Nouri al-Maliki in January 2014 and a subsequent agreement last December under current premier Haider al-Abadi has seen the Kurds receive a fraction of their agreed entitlement.

This vicious cycle has meant that local salaries were often not paid, let alone the millions owed to International Oil Companies (IOC) under respective Production Sharing Contracts.

The last remaining umbilical cord that Baghdad has over the Kurdistan Region is control of oil exports but after months of feuding and growing impact on the economy of Kurdistan, the KRG had no choice but to resume independent oil exports in recent weeks and receive proceeds from the sales directly.

This finally puts matters into Kurdish hands and rather than pleading for budget payments from Baghdad each month, they control their own destiny.

Plummeting oil prices have hardly helped but this can be offset with increased daily production.

As budget payments have threatened to put a stranglehold over the region, the balance sheets of established IOCs in the region such as Genel Energy and Gulf Keystone Petroleum have fared badly.

These so called smaller companies took the risk to explore for oil and were rewarded with significant discoveries, potentially making them majors in their own right. However, as share prices for both companies clearly show, potential in the ground is no consolation for lack of payments.

In this light, the KRG statement this week that promises IOCs a share of the oil revenues from September was a welcome boost that received much publicity. The announcement is a major milestone for such companies even if the finer details remain unclear such as exactly what these payments will amount to and how arrears amounting to hundreds of millions of dollars will be paid back.

The KRG has eyes on rapidly expanding production from the circa 500kbpd to 1 million bpd but such a plan relies heavily on IOCs and their ability to implement an infrastructure capable of supporting new outputs.

This is easier said than done if the focus of the IOCs is on getting by each month, let alone placing further investment in infrastructure.

Nevertheless, the recent announcement sets the platform for growth and stability. It will take time but with Kurdistan in control of its own destiny, such targets and commitments are very much achievable.

Independent oil exports allow Kurdistan and IOCs to turn a new page and this can only be good for the numerous foreign companies waiting on the sidelines to invest.

First Published: Kurdish Globe

Other Publication Sources: Various Misc

As Kurdistan hits new export levels, where now for foreign oil companies and oil revenues?

According to recent reports, the oil output of the Kurdistan Region hit an unprecedented rate of 650,000 barrels per day. Dubbed by some as the last great oil frontier, Kurdistan is estimated to have 40 billion barrels of oil reserves that saw a flock of junior to mid-size oil companies and later oil majors to the region.

But in spite of the new oil flows highs and immense revenue potential, Kurdistan still suffers from the ironic predicament of a lack of income.

Successive disputes with Baghdad over revenue sharing and exploration somewhat dampened sentiment in the oil industry. 2014 was highlighted by a lack of budget payments from Baghdad but also crucially the start of independent oil exports. Whilst a deal was reached late last year with Baghdad for Kurdistan to export 550,000 barrels of oil per day for a share of the national budget, disputes with Baghdad have continued with promised payments from Baghdad only trickling through in recent months and substantially less than the $1 billion dollars that is due.

This has a significant impact on the local economy and the payment of salaries, with most of the people still relying on government paid jobs. However, a notable squeeze is felt on the numerous oil companies operating in the region, many with rising debts on their books.

In theory, with stable payment cycles, the Production Sharing Contract’s (PSC) are still very much appealing. Oil companies stand to make an excellent return on their investment, especially if rates of production continue to steadily increase.

But with millions of dollars owed to the likes of Gulf Keystone Petroleum and Genel Energy, the short-term pressures for such companies quickly grow meaning that they have to take on an unrealistic cycle of increased debt to maintain their production levels and operations.

Of course, the substantial monies owed for previous exports could just as quickly transform the fortunes of these companies. A regular payment cycle has been an elusive goal but with the increased export figures from Kurdistan and with further rises in production targeted, Kurdistan is ready to assume the next step in its journey as a major oil player.

This may result in further short-term pressures if the KRG-Baghdad oil deal doesn’t hold up, but Kurdistan now has the infrastructure and potential to easily go at it alone. Ironically, Kurdistan would gain more from selling its current output directly than the 17% that they are supposed to get from Baghdad.

For the foreign oil companies, the long-term outlook is bright and they can reap the rewards from the substantial investments that they have made in Kurdistan but the priority to get to the clearer horizons is negotiate their way through the short-term turbulent waters.

The marked decline in oil prices since mid-2014, although stabilizing and rising in recent weeks, has only increased focus on the importance of a stable revenue cycle.

The region may yet witness a consolidation of the oil industry, a logical step in any blossoming oil industry where many small to mid-sized companies dot the landscape. The Kurdistan Regional Government has a strong interest in ensuring any acquisitions and mergers happen on the terms that protect the region.

OPEC took a risky move by staying relatively idle as oil prices tumbled. There are signs that this may have worked as US oil reserves show signs of decline and the more costly shale extraction begins to slowdown.

But with Saudi Arabian exporting oil at new records, Iranian crude set to return to the market and with Kurdistan exports set to increase further, oil prices will not rocket back to previous heights and should instead settle around the $70-$80 mark.

This is still a significant increase from the lows of January and would be welcomed by Kurdistan and in particular the oil companies in the region.

First Published: Kurdish Globe

Other Publication Sources: Various Misc