Saudi Arabia - joining the dots

A series of blog entries exploring Saudi Arabia's role in the oil markets with a brief look at the history of the royal family and politics that dictate and influence the Kingdom's oil policy

AIM - Assets In Market

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Iran negotiations - is the end nigh?

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Yemen: The Islamic Chessboard?

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Acquisition Criteria

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Valuation Series

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Friday, 18 August 2017

Kosmos London listing at risk as company and advisors face potential legal action

Kosmos' secondary listing is at risk as the Saharawi government had strongly condemned the company's move to list on the LSE. The Sahrawi government has threatened the company's licences in the region as well as legal action against Kosmos and its advisors.

The listing would set a precedent for legal proceedings regarding companies operating in the disputed region which could drag out for years to come. The press release by the Saharwi government is below.

--------------------------------------

Media release РCommuniqu̩

For immediate release


Saharawi government responds to the proposed listing of Kosmos Energy Ltd. on the London Stock Exchange

Bir Lehlu, Western Sahara (August 16, 2017), The government of the Saharawi Republic (the SADR) notes with concern recently expressed plans of the United States-based petroleum company Kosmos Energy Ltd. to trade in securities in a secondary listing on the London Stock Exchange (the LSE).

“Any effort by Kosmos to raise additional capital, including securities offerings and especially on an exchange which is, for the time being, subject to European law results in clear risks for the company and others financially interested in it. Kosmos continues with seabed petroleum exploration in the coastal waters of occupied Western Sahara with an established basis for legal action against the company and its supporting enterprises”, remarked Emhamed Khadad, the SADR official responsible for natural resources following Kosmos Energy’s recent announcement.

Western Sahara, routinely referred to as Africa’s last colony, has been illegally occupied across much of its inland area and part of its coast since 1975. A commitment by the United Nations organization to deliver a self-determination referendum to the Saharawi people who had been the sole, exclusive occupants of the territory, has been stalled as a result of continuing annexation efforts including resources development purportedly done to generate economic benefits for the territory. Four senior level international and national courts have confirmed an occupying Morocco to be without right or title to the territory. “What this means”, noted Khadad, “is that the rule of international law holds that the occupying state is unable to offer exploration licenses and, even less, hold out any rights to petroleum that could be recovered from the seabed.”

In a December 2016 judgment the Court of Justice of the European Union confirmed that Western Sahara is not a part of Morocco and that the kingdom is unable to exercise treaty authority over the territory in respect of trade matters.

A June 2017 judgment of South Africa’s High Court, concerning a shipment of phosphate rock exported seized after export from Western Sahara, concluded that:

“Morocco has no claim to sovereignty over Western Sahara ... Furthermore, it acquired the territory by force [and] we conclude that howsoever Morocco's presence in Western Sahara may be described, it does not exercise sovereignty over the territory".

(A copy of the decision in Saharawi Arab Democratic Republic and Another v Owner and Charterers of the MV 'NM Cherry Blossom' and Others [2017] ZAECPEHC 31 is available online at: <www.saflii.org/za/cases/ZAECPEHC/2017/31.html>.)

The 2017 and 2016 judgments follow one of the United Kingdom High Court in 2015 which confirmed the territorial status of Western Sahara as not being part of Morocco. A securities listing on the LSE, and related activity, faces the risk of precedent in the United Kingdom and by parallel and separate proceedings, in the Court of Justice of the European Union.

“There is no longer any speculation by the SADR government in its safeguarding of the sovereign resource rights of the Saharawi people that formal legal measures will be resorted to in the face of financial activity to capitalize the taking of our resources, and as against activities as such. International law is clear about such matters and we will continue to employ it in the face of a universally derided, illegal occupation”, observed Khadad.

# # #

For additional information and media contact:

Mr. Kamal Fadel
Saharawi Republic representative for Australia and New Zealand
Senior executive of the SADR Petroleum & Mining Authority
T: + 61 2 92 65 82 58

Thursday, 10 August 2017

Kurdistan's outstanding debts to Turkey

A year ago, at the height of the oil price downturn, Kurdistan turned to Turkey for financial aid. At the time, USD1.15 billion was owed to Turkey in the form of loans together with c.USD500 million in outstanding payments to TEC for services provided to the KRG.

The Kurdish Minister of Natural Resources, Dr Ashti Hawrami, proposed to the Turkish Energy Minister, Berat Albayrak, that more funding be provided by Turkey to help Kurdistan with upcoming expenses. The proposal effectively asked Turkey to quadruple its funding to USD4.7 billion (including the existing debts above).

The budgetary position of Kurdistan meant that it was in no position to repay the debts to Turkey in the near term and Dr Ashti’s preferred solution was to transfer the KRG’s equity interests in certain oil assets (Tawke, Taq Taq and Shaikan) to Turkey. Turkey responded saying that if this was the preferred route, it would need further upside given taking a stake in the PSCs would result in the recovery of debts over a longer period than originally envisaged.

As of today, the Turkish debt problem remains unresolved and is an ongoing issue for both the KRG and Turkey. In the context of the upcoming referendum, Turkey is clearly displeased that it is being held but its ability to take strong action against Kurdistan could be detrimental to the recovery of debts. At the same time, Kurdistan could be an important future source of gas for Turkey. For Kurdistan, maintaining amicable relationships with Turkey is key, being the only viable oil export route in the near term. Turkey can make token threats, such as the rumoured closure of a border point, but is unlikely to escalate to anything more serious.

Canacol on track with Sabanas pipeline


Canacol has signed an agreement for the construction, operation and ownership of the Sabanas flowline. The 82km pipeline will connect the gas processing plant at Jobo to the Promigas trunkline at Bremen.
Source: Canacol June 2017 investor presentation

The USD41 million pipeline will be funded by:

  • USD30.5 million from a group of private investors
  • USD10.5 million from Canacol

Canacol’s contribution has been almost entirely satisfied by costs incurred to date.
Construction is proceeding on schedule, with first gas transportation expected in December 2017. All rights of way have been acquired, tubulars are on order and civil works are to commence during August 2017.

The Sabanas flowline will provide an additional 40mmcf/d export capacity and will satisfy 40mmcf/d take-or-pay contracts entered into in 2016 with existing and new customers. Canacol will pay a tariff for use of the pipeline in line with other regulated tariffs which will be borne by gas offtakers. Canacol does not have a ship-or-pay commitment for use of the pipeline.

With the additional 40mmcf/d production, Canacol’s production will increase to a 2017 exit rate of 130mmcf/d. The end of 2018 will see another big step change in production with an additional 100mmcf/d coming onstream with the completion of the additional Promigas Jobo-Bremen pipeline.

Wednesday, 9 August 2017

Kurdistan referendum: Barzani's legacy

With the Kurdistan referendum fast approaching on 25th September, OGInsights reviews the latest developments in this run-up period. What is important to note is that the question being put to the Kurdistan people is sufficiently vague – the meaning of an “independent” Kurdish state is intentionally not set out. Independence can mean self-rule and independent governance with varying degrees of autonomy from Federal Iraq or complete separation from Baghdad at the extreme.

The referendum should be viewed as an opinion poll, something that reminds the world and reaffirms the Kurdish aspirations for independence. It is not something that will have any immediate impact on the administration of the Kurdistan region, trade between Kurdistan and its neighbours or money flows with Baghdad. It certainly is not a declaration of independence either.

The referendum is symbolic and timing is more opportunistic than reasoned. President Massoud Barzani is coming to the end of his term and holding a referendum as being the first step to eventual independence is his chance to leave a legacy. The turnout is expected to be high and a “yes” vote is deemed inevitable which will score popularity points for President Barzani. Barzani has ensured that the voting ballots, systems and infrastructure is largely in place for a referendum at the beginning of September although the actual date will be the 25th, signalling the seriousness of this referendum for Barzani.

Leaving a legacy seems to be an important driver for this referendum, with Barzani spending much political ammunition to secure it. Turkey was not notified of the date of the referendum lest they would undermine it, Iran will fear reignition of calls by its own Kurds for independence and both the US and Baghdad will be annoyed that the referendum includes the disputed areas after being told to explicitly exclude them.

However, Kurdistan’s neighbours have not reacted to date suggesting a level of tolerance recognising that the referendum could be a tiger with no claws. Any action by neighbours is likely to take place before the referendum as any action taken post the referendum results will likely have minimal meaningful impact on Kurdistan and in some cases could have reciprocal impact on the initiator. For example, whilst Turkey could close the oil export pipeline and halt investment in Kurdistan gas, Turkey does do a lot of other trade with Kurdistan. Similarly, any retaliation by the US could see the loss of Kurdish support for the war in Syria.

The referendum will be closely watched around the world, but the results are not expected to be a surprise.

Related posts:

Kurdistan E&Ps have been paid for May shipments

Kurdistan E&Ps have been paid for May shipments.

The Tawke partners have confirmed receipt of USD39.6 million. The amounts will be shared pro-rata by DNO (55%) and Genel (25% WI) and comprises USD33.2 million towards May deliveries and USD6.4 million towards past receivables.

The Taq Taq partners have received USD12.2 million and will be shared pro-rata by Genel (44% WI) and Addax (36% WI). The payment comprises USD11.1 million towards May deliveries and USD1.2 million towards past receivables.

Tuesday, 8 August 2017

SNE North is Sirius


Cairn has completed the SNE-1 North exploration well (Sirius prospect), located c.15km north of the original SNE-1 discovery. The well reach TD 2,837m and was completed ahead of schedule. A 24m gross hydrocarbon column was encountered across three intervals with 11m net condensate and gas pay in the primary objective and 4m net oil pay in the secondary objective.

A full set of oil, condensates and gas samples were recovered to surface from the 500 series sands, the same sand series that contributes the bulk of volumes in the main SNE field. The oil is slightly lighter at 35˚ API (vs. 32˚ API in SNE).

Further work will be required to establish the size and commerciality of the discovery, although FAR has assigned 294mmbbl of mean recoverable resources. The find has positive connotations for the block demonstrating further hydrocarbon potential to the north of the block. The well will now be plugged and abandoned and concludes the five well 2017 drilling campaign and the Stena DrillMAX rig will be released.

Monday, 7 August 2017

Kosmos extends position in Mauritania


Kosmos noted in its Q2 results that it had farmed in to a 15% non-operated interest in Block C-18 Mauritania. The farm-in extends Kosmos' postion in this recently proflific play which contains the Tortue gas discovery to the south.

Tullow Oil holds 90% WI (State 10%) and will reduce its interest to 75% post transaction, whilst retaining operatorship. The block is deepwater (over 2,300m depth) and has recently completed a 600km2 3D seismic campaign.