Valeura: Turkey's new gas supplier

Valeura continues to make good progress in Turkey where the company announced a technical success at the Inanli-1 well in November. The well continues to be tested into 2019.

Turkey is structurally short gas, importing gas by pipeline and LNG - LNG regasification capacity is 12bcm/year with cargoes from Algeria, Nigeria and the Middle East. Domestic gas production is therefore long awaited and with Valeura owning the local pipeline network around its licence areas, it is in a good position to start supplying the grid once it is in a position to proceed to development.

The recent gas price hike by BOTAS is useful as well - not only does it protect the gas price in USD terms, but the price increase for local buyers has incentivised such buyers to turn to Valeura gas which has the freedom to sell directly to end users.

The domestic gas prices for power producers are: USD9/mmbtu for power producers, USD6.8/mmbtu for industrial customers and USD5/mmbtu for domestic users. Valeura can make inroads with buyers who currently take gas at the higher end of the pricing range from BOTAS.

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Valuera nears TDs at Inanli-1

Valeura has reached 4,145m on the Inanli-1 well (TD 5,000m, c.800m deeper than Yamalik-1).

It has encountered over-pressured gas with a c.40% net-to-gross, similar to that of Yamalik-1, with gas flows - all pointing to promising results. In addition, the well has encountered more naturally fractured rock than encountered in Yamalik-1 with increased gas levels recorded at the fractured intervals.

Drilling is continuing to 5,000m with an extensive set of logging and well tests planned. Operations are expected to be completed in January with fracking and flow testing expected to commence around the end of Q1/19. Inanli-1 is the final well to be funded by Equinor.

Devepinar-1 appraisal well is the next scheduled to be drilled following completion of Inanli-1.

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Valeura's value protected by another gas price increase in Turkey

Valeura has announced that BOTAS, which owns the Turkish natural gas network and imports 82% of Turkey’s gas, has announced a fourth natural gas reference price increase. This increase is 14% (63% compounded so far this year) to around USD5.60-6.00. This increase more than compensates for the recent depreciation in the Turkish Lira by maintaining the gas price in USD broadly unchanged.

On a related note, Valeura has drilled the Yamalik-1 well in the Thrace Basin and production tubing will now be fitted for clean-up and testing.

For the next well, Inanli-1, site construction is progressing with the rig being mobilised in location. Spudding is expected end Q3 2018 targeting 5,000m (800m deeper than Yamalik-1). Inanli-1 is the final earn-in well funded by Equinor, the following two appraisal wells will be funded on a working interest basis.

Once appraisal is complete, development should progress expeditiously given the plentiful gas infrastructure to enable monetisation.

#Inanli #Turkey #Valeura #Yamalik

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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.

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Turkey-Genel gas update

In 2013, Turkey established Turkish Energy Company (“TEC”) as a vehicle to enter into partnerships with IOCs for dealings in Kurdistan. TEC was a state-backed entity and an offshoot of Turkish Petroleum International Company (“TPIC”).

Earlier this year TEC was placed under BOTAS, the state-owned oil and gas pipelines and trading company, with gas coming back to one of the top items on the agenda of the Turkish government. It is now commanding attention at the highest levels of government, driven by a strong will to secure Kurdish gas to strengthen its hand against Russia.

To this end, TEC and Genel have been in continuing dialogue over the way forward for the Miran and Bina Bawi gas fields, with the talks intensifying in recent months. For Turkey, the interest in the project is strategic and necessary. For Genel, the securing of Turkey as a guaranteed long term offtaker is important in helping in reviving the company’s fortunes following a succession of problems including reserve write downs and production underperformance.This has been compounded by a series of management changes with Tony Hayward and Nat Rothschild leaving the board in June 2017 and the departure of Ben Monaghan on 30 June 2017.

Genel is now craving some stability with focus turning to delivery of the gas project which will take a few years to develop. In the meantime, managing production at Taq Taq remains a near term priority.

Related recent entries:

• Kurdistan independence referendum
• Kurdistan: The Rosneft connection

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