Floating Oil Island for Iraq’s Expected Spurt in Exports

By Adnan Abu Zeed for Al Monitor. Any opinions expressed here are those of the author and do not necessarily reflect the views of Iraq Business News.

Floating Oil Island will handle Iraq’s expected Spurt in Exports

The South Oil Co. (SOC), based in Basra, Iraq, will establish a floating oil island off the coast of al-Faw Peninsula to increase its export capacity by as many as 2 million barrels a day.

The company announced the project June 14 in anticipation of a surge in Iraqi oil exports to reach 5-6 million barrels per day. Indeed, OPEC on June 23 approved an increase in crude oil output to meet growing demand.

Hamzah al-Jawahiri, an Iraqi Oil Ministry consultant, explained that Basra province has five floating terminals overlooking the Arab Gulf for commercial work and two fixed offshore terminals at Khor al-Amiyah and al-Basra dedicated to loading about 80% of Iraq’s oil exports.

He told Al-Monitor, “All of these terminals require technical and administrative staff working around the clock. The ministry noted the need for more flexibility, as work will double in the future with the increase in oil and oil derivatives output. This requires additional technical, logistical and human support that can be provided by the oil island project near the seven Iraqi terminals. The project will facilitate shift work and the delivery of services with no interruption caused by [outside] emergency disruptions, human errors or terminal platforms oil spills.”

Jawahiri revealed that the island will include a spare-parts warehouse for all equipment and pumps, in addition to civil protection and technical services teams, as well as comfortable and modern accommodations for workers. “The floating island will spare Iraq work delays due to possible failures,” he said. “It will save time when it comes to oil export and prevent any emergency crisis caused by the disruption of any of the pumps. Recently, Iraq has paid delay penalties of about 300 million Iraqi dinars [about $252,300].”

He said the island will provide storage capacity for oil derivatives, black oil and refinery waste. “The island is linked to jetties and will provide a ready alternative in the event of disruption of any of the seven terminals.”

A source in the oil company’s media office told Al-Monitor, “The project will … also provide other services, such as anchoring and launching oil tankers and ensuring their technical and logistical support. Tankers will be filled with oil stored on the island in sufficient quantities.”

Jawahiri said a contract has been awarded to a Dutch company regarding the island project, including a preliminary agreement, but he provided no further details other than to say discussions are ongoing about the completion period and expected costs.

However, Alaa al-Yasiri, the director general of the State Organization for Marketing of Oil (SOMO), told Al-Monitor, “The contract is expected to be signed in the first quarter of 2019, with operation at partial capacity set for the first quarter of 2022. All services will be provided in the fourth quarter of 2022.”

He added, “Iraq is in dire need of expanding its export outlets. Its services must be in line with modern technology, and it must be able to cope with the potential oil and oil derivatives increase. SOMO’s new plans include joint projects with Asian companies to invest in the continent’s vast market. The Asian market consumes 60% of Iraqi oil exports. … The Ministry of Oil wants to turn SOMO into a profit-earning company. The floating oil island will help achieve this.”

Oil Ministry spokesman Assem Jihad said the project coincides with plans to build a national tanker fleet to transport oil and oil derivatives. “It is also in line with plans to restore the capabilities of the Iraqi Oil Tankers Co. to transport crude oil and oil derivatives to all parts of the world.”

Jihad said the island will help Iraq transfer oil to consumers via four giant tankers. “Three other tankers will be added at later stages,” he said.

Some experts worry about the coming increase in oil output. Oil projects expert Mohammed Zaki Ibrahim told Al-Monitor, “Experiences proved that sporadic increases in crude oil output offered for sale on global markets does not serve the Iraqi economy. Increasing exports above 3 million or 4 million barrels per day will harm Iraq gravely and deny it any opportunity to develop other resources. This also will deplete oil resources in the south.”

Meanwhile, Iraq urgently needs financial resources, with its deteriorating economy and a suffering agriculture sector. The floating island will provide hundreds of jobs, limit export delays and reduce the cost of transporting oil and derivatives.

Oil Exports Rise in June

By John Lee.

Iraq’s Ministry of Oil has announced interim oil exports for June of 105,640,160 barrels, giving an average for the month of 3.521 million barrels per day (bpd), an increase from the 3.490 bpd exported in May.

These exports were entirely from the southern terminals, with no exports registered from Kirkuk via Ceyhan.

Revenues for the month were  $7.323 billion at an average price of $69.322 per barrel.

May export figures can be found here.

(Source: Ministry of Oil)

Oil Ministry Finalises Export Figures for May

By John Lee.

Iraq’s Ministry of Oil has announced final oil exports for May of 108,175,920 barrels, giving an average for the month of 3.490 million barrels per day (bpd), an increase from the 3.340 bpd exported in April.

These exports were entirely from the southern terminals, with no exports registered from Kirkuk via Ceyhan.

Revenues for the month were  $7.551 billion at an average price of $69.801 per barrel.

April export figures can be found here.

(Source: Ministry of Oil)

Petrofac Wins $110m Iraqi Contracts

Petrofac has secured a new award and a number of contract extensions, with a combined value of more than US$110 million, for construction management, engineering, commissioning and start-up services for international oil company clients in Iraq.

Petrofac has been active in Iraq since 2010 and has developed a significant track record in delivering a range of onshore and offshore greenfield and brownfield projects, project management, engineering and consultancy, operations and maintenance and training services.

Mani Rajapathy, Managing Director, Engineering & Production Services East, commented:

The extension of our Iraq portfolio is part of our ongoing growth strategy. We continue to expand our service delivery in-country through the development of strong client relationships, whilst remaining competitive in a maturing market.

“These contract extensions and additional contract award from major international oil companies further enhance our position, where our focus remains on operational excellence, the development of local resources, and safe project execution.

(Source: Petrofac)

Shell hands over Majnoon Oilfield

By John Lee.

Shell has reportedly exited the Majnoon oilfield and handed over its operations to the Basra Oil Company (BOC).

Sources told Reuters that the handover was formalised on Wednesday, and that the process was “smooth“.

According to the news agency, Anton Oilfield Services (AntonOil) and Petrofac will now operate the giant oilfield on behalf of the BOC, under a two-year contract; last month, KBR announced that it will has been awarded a contract for the development of the field.

(Source: Reuters)

UK Starts Corruption Proceedings against Unaoil

The UK’s Serious Fraud Office (SFO) has commenced criminal proceedings against Unaoil Monaco SAM and Unaoil Ltd as part of an ongoing corruption prosecution.

This follows charges already brought against four individuals for alleged conspiracy to make corrupt payments to secure the award of contracts in Iraq.

Unaoil Ltd has been summonsed with two offences of conspiracy to give corrupt payments, contrary to section (1) of the Criminal Law Act 1977 and section 1 of the Prevention of Corruption Act 1906.

This relates to alleged corrupt payments to secure the award of a contract worth US$733 million to Leighton Contractors Singapore PTE Ltd for a project to build two oil pipelines in southern Iraq.

Unaoil Monaco SAM has been summonsed with two offences of conspiracy to give corrupt payments, contrary to section (1) of the Criminal Law Act 1977 and section 1 of the Prevention of Corruption Act 1906.

The charges relate to alleged corrupt payments to secure the award of contracts in Iraq to Unaoil’s client SBM Offshore.

The first appearance for the companies will be held at Westminster Magistrates’ Court on 18 July 2018.

(Source: SFO)

GKP may issue $100m Bond

Gulf Keystone Petroleum (GKP) has mandated Pareto Securities to arrange fixed income investor meetings in conjunction with a potential bond issue.

Following these meetings, and subject to market conditions and acceptable terms, a 5-year senior unsecured bond issue of $100 million (the “New Notes”) may take place.

The proceeds from the New Notes will be used to refinance Gulf Keystone’s existing $100 million Guaranteed Notes due 2021 (the “Existing Notes”).

Subject to market conditions, offer restrictions and the successful closing of the New Notes, Gulf Keystone invites holders of the Existing Notes to offer to exchange their outstanding Existing Notes for the New Notes.

With respect to any Existing Notes not tendered for exchange, the Company intends to exercise the option to redeem all of the Existing Notes then outstanding.

(Source: GKP)

An Integrated Approach for Iraq/Iran Border Fields

By Ahmed Mousa Jiyad.

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

An Integrated Approach for Investment in Joint Development-Unitization for Iraq/Iran Border Petroleum Fields & Exploration Blocks

This article provides brief note in panel discussion and abstract of a keynote PowerPoint presentation prepared for and presented before the 12th International Energy Conference-IEC: Innovative Systems in Energy-Water-Environment Nexus, Tehran, Iran, 19-20 June 2018.

IEC was a cooperation effort between the Iranian National Energy Committee, the International Energy Charter (Treaty) Secretariat, Brussels-ECT and World Energy Council-UK.

My participation was proposed by International Energy Charter Treaty (Secretariat)- ECT, Brussels and I was formally invited, as one of the Key Speakers, by the Iranian National Energy Committee. I am very thankful to both entities for funding my participation.

The aim of the conference was to provide the necessary grounds for specialized and outstanding national and international deliberations, accomplishments and contemporary research activities in energy sector. It comprised, over two days, panels discussions, keynote speeches, scientific research papers, exhibition of innovations and company profiles among others.

I had two contributions in this important gathering: as member in a panel discussion and as a keynote speaker. They are briefly outlined below.

First: The International Panel on Energy Investment and the Environment/ Climate Change

The panel was convened by the International Energy Charter Treaty (Secretariat)-ECT, Brussels and moderated by Dr. Marat Terterov- Principal Coordinator of the ECT.

Panelists include Dr. Urban Rusnak- ECT Secretary General, and international energy experts from Iran, Turkey, Germany, Pakistan and me (from Norway).

The main theme addressed by the panelists was energy investment and the environment, particularly climate change.

Addressing the main theme I began by highlighting three important caveats:

First, climate change is not a new issue; it has been emphasized by the Club of Rome’ monumental book, i.e., Limit to Growth of mid-seventies of last century, and then progressed through many international and regional conferences, protocols, agreements, guidelines, specialized entities among others.

Second, there are at least three interrelated and mutually enforcing levels of concerns or perspectives: international, regional and national.

Third, there is cause-effect-action dynamics that has to be addressed, especially investment that causes environmental degradation and thus requires further investment and technologies for remedial actions.

Then I focused on the national perspective by talking about Iraq and by linking the main theme of the conference Energy-Water-Environment Nexus to the actual development in Iraq’s petroleum sector development and related policy success and failures.

Moving from the national to the regional perspectives, I highlighted the needs for and thus proposed a regional cooperation framework focusing on Energy-Water-Trade-Development comprising countries of Iran, Iraq, Turkey and Syria.

Second: An Integrated Approach for Investment in Joint Development-Unitization of Iraq/Iran Border Petroleum Fields & Exploration Blocks

As one of the keynote speakers my presentation focused on the importance, necessity and working modalities for border fields’ development.

Empirical evidence and analytical premises suggest that sovereign border hydrocarbons fields or exploration blocks could be developed either through “competitive” or “collaborative” strategies; the first follows “rule of capture” or “use it before losing it”, while the second adopts “feasibility & optimization”;  the first is harmful to the field, its structure and reservoir(s) while the second adheres to efficiency considerations, prudent natural resource management and international best practices; the first is premised on “sovereign exclusivity” while the second is formulated on “Bi/trilateral inclusivity”; the first is “conflict-prone”  while the second serves “mutuality of interests”; the first is “short-term focused” while the second has “phasic orientation” and finally, from investment vs. net revenue perspectives, the first is “own-risk” while the second is “burden and benefit-sharing”.

What should be highlighted is that collaborative development of a border field could be done through two distinct modalities with different investment and revenue structures: unitization (mostly trilaterally structured) and joint venture (mostly bilaterally structured).

Institutional and managerial setups are, by necessity, a top-down multi-layered structures; from “top-sovereign” through “macro” to “sectoral” to “sub-sectoral” to lowest operational  “micro-project” levels.  That indicates border fields development is, apparently, an issue characterizes with complexity and inter-connectivity and, consequently requires, from sovereign parties, holistic approach with clear Vision, competent integrated Mission and specific practical Actions.  Hence, joint development arrangements and operational modalities of border fields or exploration blocks are lengthy, difficult, legally complex and politically sensitive. Thus, as prerequisite for protecting the national interests of the sovereign parties it is vital to formulate specific strategy and adopt well thought integrated approach or roadmap for jointly developing the fields across Iraq-Iran borders.

For this purpose the presentation proposes Strategy Outcomes Matrix-SOM and related TELG Approach; while SOM elaborates on the mentioned above thoughts, TELG Approach basically integrates four fundamental broad spheres of professional knowledge-base and analysis and applicable to the collaborative mode of border fields development in both modalities- unitization and joint venture:

Technical (including technological, engineering, geological and related petroleum specializations, which should provide all related structural, volumetric and qualitative parameters, data and analysis including thorough Situation Analysis and Base-Line Survey );

Economic (including assessing investment options, sensitivity analysis, economic and financial feasibility assessment based on Equity shares, Capex, Opex, existing Assets valuation and provides thorough cash-flow analysis among others);

Legal (including governing frameworks, contract type or contracting modalities and related approvals; Pre-unitization Agreement/ Unitization Operation Agreement);

Geo/political (including bilateral and international instruments, norms and standards pertinent  to the subject matter. For Provincial/ Regional blocks it covers domestic political issues relating to resource development and management).

The main components of these four pillars of TELG Approach have to be thoroughly and comprehensively analyzed and their significance and implications highlighted.

For this purpose the presentation suggests TELG-SCOR analysis (SCOR stands for Strength, Challenges, Opportunities and Risks for each TELG components) that both countries might need to explore.

TELG Approach, by its very nature, requires multi-layered integrated-team working of relevant and related specializations and expertise comprising:

Authorizing and Coordinating Committee-ACC (high-level decision making on the Ministry’s level with formal reporting obligations to the Cabinet and the Parliament);

Team Leader-TL (with track record of petroleum professional competence and international negotiation skills);

Supportive Working Group(s)-SWGs (comprising members with distinct knowledge in their own field of knowledge and specialization) and representatives from the related field or exploration block such as the State Partner and the contracted Consortium/IOC.

The main functions, working procedures, modus-operandi and role of each group in the team working need careful identification and adherence.

Also, the application of TELG approach takes into consideration the status of the related border field/block; accordingly, there could be many scenarios depending on the assessment of the joint border field/block.  This calls for “Special” version of Unitization Agreement.

Both countries, Iraq and Iran, have in recent years invigorated their efforts for boarder fields’ development and, moreover, assigned “strategic” importance and grant priority to these fields. At the same time both countries endeavored to pursue joint modalities in such development.

The presentation provides a list of worldwide unitization agreements and hypothetical illustrative example on a unitization case study.

Hence, this contribution is timely, relevant and helpful. The presentation was through PowerPoint slides, uses formal and official sources for data and information.

My PowerPoint slides are available upon direct request.

The Conference website is http://irannec.com/English/default.aspx

Key Speakers and titles of their presentations are listed through http://irannec.com/English/83-Key-Speakers

Norway

25 June 2018

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.

GKP Shares Gain following Update

Shares in Gulf Keystone Petroleum (GKP), operator of the Shaikan Field in Iraqi Kurdistan, were trading up 10 percent on Friday after the company issued an operational and corporate update.

Highlights

  • Agreement with the Kurdistan Regional Government’s (“KRG”) Ministry of Natural Resources (“MNR”) and MOL Hungarian Oil & Gas plc (“MOL”) has been reached in relation to the investment plans to increase gross production capacity to 55,000 barrels of oil per day (“bopd”) in the next 12 to 18 months.
  • Gulf Keystone has initiated contracting and procurement activities to implement the 2018 approved capital expenditure of approximately $91 million gross ($73 million net to GKP), which includes workovers in existing wells (electric submersible pumps (“ESPs”) and tubing replacements), drilling of a new well, facilities improvement and plant debottlenecking.
  • The remainder of the required capital expenditure which is currently estimated to be between $175 million to $215 million gross (as previously set out in the 2017 Full Year Results) to achieve 55,000 bopd gross production capacity is expected to be part of the 2019 investment plan (which will also include activities related to the further development of the field).
  • The Company continues to work on the revised Field Development Plan, which is expected to be submitted to the MNR in Q3 2018. The Company will provide an update on the details of the investment plans for the 75,000 bopd and up to 110,000 bopd phases when finalised.
  • Safety performance remains strong with over 3 million man hours without a lost-time incident achieved since 2015.
  • Plant uptime between 1 January 2018 and 31 May 2018 has been outstanding at over 99%, leading to an average gross production of 32,138 bopd for the period, just above the upper end of our 27,000-32,000 bopd guidance for 2018. Full-year guidance for 2018 remains unchanged.
  • A major milestone has been achieved with cumulative production from the Shaikan Field reaching 50 million barrels. As a result, in line with the terms of the Shaikan Production Sharing Contract (“Shaikan PSC”) and our previous disclosure, a production bonus in the amount of $20 million ($16 million net to GKP) is now payable to the KRG.
  • Hook-up of the 400m spur pipeline from Production Facility 2 to the Atrush export line is in its final stage and expected to be operational shortly. This will eliminate trucking requirements for a significant share of Shaikan production which will reduce HSE exposure and is expected to improve netbacks to the Company. Pipeline tie-in of Production Facility 1 will be part of the 2019 investment plan.
  • Payments from the KRG have been received on a regular basis throughout the year. The Company has received gross payments of $136.7 million ($107.3 million net to GKP) year to date.
  • The Company had cash amounting to $222 million as at 21 June 2018.
  • The Company continues its dialogue with the MNR and MOL in order to achieve further contractual and commercial clarity in relation to amendments of the Shaikan PSC which it anticipates being concluded in Q3 2018.

Commenting, Jón Ferrier, CEO, said:

“We are very pleased with the progress we have made in recent months on key commercial and operational matters and are delighted that Gulf Keystone is now back to investment mode, with the objective of achieving 55,000 bopd production capacity in the next 12 to 18 months; an important step towards the development of the full potential of the Shaikan field.”

(Source: GKP)