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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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.

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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 independence referendum

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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.

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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.

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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.

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Mozambique LNG moves one step closer to FID

On 31^st July, Anadarko finalised two agreements with the Mozambique government (the marine concessions) which pave the way for FID of the LNG project. The agreements would allow Anadarko as operator to progress with the design, building and operation of the marine facilities for the project and could see FID in 2018. The next step is to begin with resettlement plans, the completion of which would allow construction to commence.

Separately, the partners continue with efforts to secure long-term offtake contracts and the high proportion of offtake by equity holders of the licence reduces the risk surrounding the project. Asian players Mitsui (20%) and PTTEP (8.5%) have a need to source long term gas supply, as do the Indian participants ONGC (16%), Oil India (4%) and Bharat (10%). The remaining Area 1 licence holders are Anadarko (26.5%) and ENH (15%).

Area 1 is estimated to hold c.75tcf of recoverable gas and will initially have two LNG trains at the proposed onshore processing plant with 12mtpa capacity for the Golfinho/Atum field. The scale of the resources does pose a threat to upcoming global LNG developments, particularly Australian projects which also target the Asian gas markets, and could see a glut in the 2020s particularly with Qatar also looking to up its LNG exports.

Earlier this month saw Petronas cancel its large Pacific NorthWest LNG project on the west coast of Canada.

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