Middle East

Rosneft enters Infrastructure Project in the Kurdistan Autonomous Region

Rosneft and Kurdistan Regional Government announce the entry of Rosneft into an infrastructure project in the Kurdistan Autonomous Region

Rosneft and Kurdistan Regional Government are continuing to build on agreements they have reached previously.

On the sidelines of the X Eurasian Economic Forum in Verona the parties have announced the start of joint implementation of an infrastructure project for the operation of the oil pipeline in the Kurdish Autonomous Region.

Rosneft’s share in the project may amount to 60%. The other project participant with 40% share will be KAR Group, who is the current pipeline operator.

Rosneft Chief Executive Officer Igor Sechin said: “The entry into the infrastructure project will contribute to achievement of Rosneft’s strategic objectives and will enable Rosneft to enhance the efficiency of oil transportation to the end customers including supplies to the Company’s refineries in Germany”.

Middle East

Kurdistan’s Oil Export Linked Bonds at Record Low

Bonds linked to Kurdistan’s oil exports have fallen to a record low amid escalating tensions between the semi-autonomous Iraqi region and the federal government in Baghdad.

Securities due in 2022 that were issued to help fund Glencore’s pre-payments for Kurdish oil have slumped 6.7 percent since late September, much of the retreat coming in recent days as forces from the south seized oil fields that had been run by Kurds.

While the bonds may be at a record low, they’re still close to par at 99.3 cents on the dollar, suggesting investors retain faith in Kurds’ ability to get revenue from oil sales.

Middle East

Lebanon Completes the First Offshore Licensing Round

Lebanon reached an important milestone on Oct. 12, which was the deadline set for pre-qualified companies to submit their bids on the open blocks within the country’s first offshore licensing round.

Three companies forming one consortium participated in the current bid round submitted one bid on block 4 and one bid on block 9. These companies are Total S.A, Eni International BV and JSC Novatek.

The evaluation of the technical and commercial offers took place Oct. 13, according to the methodology outlined in the tender protocol published in Decree 43/2017.

Upon the results of the evaluation process, the Lebanese Petroleum Administration (LPA) will submit to the Minister of Energy and Water an evaluation report no later than the Nov. 13, 2017.

Accordingly, the Minister will submit the results of the full evaluation process to the Council of Ministers to take the final decision with respect to awarding blocks and signing the Exploration and Production Agreement(s) (EPA) with the winning consortium. The EPA follows a preset model issued in Annex 2 of Decree 43/2017.

The exploration phase will start upon the signature of the EPA and will last up to five years with the possibility of having a one-year extension. The ultimate goal of the exploration phase is to strike a commercial discovery, hence the awarded consortium is committed to implement an exploration program based on the petroleum industry highest standards and practices.

Middle East

Old Rivalries Flare Up With Oil at Stake as ISIS Close to Defeat

In 2014, when Islamic State rushed into northern Iraq, the region’s rival factions and their international backers turned their attention to defeating the extremists despite old rivalries, sectarian divisions, and differing agendas.

Three years later, as Islamic State nears defeat, having been expelled from its stronghold of Mosul and its self-proclaimed capital of Raqqa, many of those old rivalries and unaddressed grievances have burst back to the fore, threatening to further destabilize an already fractious region.

Nowhere is this more apparent than in the disputed city of Kirkuk, where Iraqi federal forces loyal to the central government in Baghdad faced down Kurdish fighters for control over Iraq’s oldest producing oil field, named Baba Gurgur, or Father of Fire, by the Kurds in 1927. The long-standing struggle between the government in Baghdad and the semi-autonomous Kurdistan Regional Government (KRG) reignited on Oct. 16 as Iraqi tanks entered the outskirts of the city of more than 1 million people.

The Iraqi army and federal police, along with Shiite Arab militiamen, encountered little resistance, seizing oil fields, a refinery, and a military base as the Kurds retreated.

The town of Sinjar near the Syrian border fell a day later. “The war against the Islamic State is almost over, but that does not mean that the vacuum has been filled,” says Ayham Kamel, head of the Middle East and North Africa department at Eurasia Group Ltd. “This is a complex process where local forces and the central governments will also have a role. It’s a messy affair, and it will invariably be unstable in some areas.”

The Kurds have occupied much of Kirkuk since June 2014, when Iraqi troops retreated from Islamic State militants. Kurdish fighters swept in to claim the province, occupying an area they see as an ancestral home. While Baghdad wants to reassert centralized control over Kirkuk’s oil deposits, the Kurds see the oil as essential to a future independent state. The region around Kirkuk pumps about 10 percent of Iraq’s total crude output of 4.5 million barrels a day, according to estimates compiled by Bloomberg. Most of that oil travels through a Kurdish-operated pipeline that stretches through Turkey to the Mediterranean. “Clearly this fight goes beyond oil to an issue of wider autonomy in the broader region,” says Bassel Khatoun, chief investment officer for Franklin Templeton Investments in the Middle East.

The military offensive comes three weeks after the Kurds voted overwhelmingly in favor of statehood on Sept. 25 in a nonbinding referendum.

The vote was denounced by officials in Baghdad—as well as in Turkey, Syria, and Iran, all of which have large Kurdish populations and reasons to be wary of independence for Iraq’s Kurds. The referendum included Kirkuk, even though it lies outside the reach of the KRG. Kirkuk’s inclusion was a “big overreach” by Kurdish leader Masoud Barzani that was inevitably going to elicit a reaction from the government in Baghdad, says Paul Salem, senior vice president of the Middle East Institute in Washington. “What’s actually happening links to the referendum.”
Iraqi Prime Minister Haider al-Abadi, who is trying to shore up his political position ahead of a general election next year, had to “move decisively and quickly to show he’s not just tough on Islamic State but also tough when it comes to Kirkuk on the Kurdish issue,” says Salem. He didn’t want to risk “being the guy who lost Kirkuk. No way could he survive that.”

Turkey, fearing the impact of the referendum on its own Kurdish population, has threatened to shut down the pipeline from Kurdistan to its Mediterranean oil terminal at Ceyhan. The KRG has exported 160 million barrels through Turkey this year, according to Bloomberg tanker tracking. So far the pipeline has remained open, even though Turkey could shut it down at any time. Oil production at some fields around Kirkuk halted during the fighting, cutting northern exports by more than half.

Donald Trump signaled increasing U.S. alarm about the complex situation in northern Iraq, telling reporters in Washington on Oct. 16 that “we’re not taking sides, but we don’t like that they’re clashing.” The U.S. has for decades supported Iraq’s Kurds, first as a bulwark against Saddam Hussein and then as a fighting force against Islamic State. The fall of Saddam in 2003 brought Washington into alliance with successive governments in Baghdad. At the same time, Iraq’s ties to Iran have been growing stronger.

The Iran-backed Popular Mobilization Forces have been fighting alongside the Iraqi army against the Kurds in Kirkuk.

“Iran is trying to strengthen its negotiating hand by gathering assets and cards here and there in order to confront the campaign being waged against it by Washington and efforts to limit its expansion in the region,” says Sami Nader, head of the Levant Institute for Strategic Affairs in Beirut. “The war to come after the war against Islamic State is about the distribution of wealth, oil, and areas of influence among the different players,” he says. “Hopefully it will be a cold war and not a hot war.”

Middle East

Crude Oil Exports from Northern Iraq Fall as Kirkuk Fields Stay Shut

Crude exports from northern Iraq fell again, and output remained curtailed in the nation’s disputed Kirkuk province. Oil Ministry engineers worked to replace computers and other critical equipment missing from fields in Kirkuk that government troops recaptured this week from Kurdish forces, according to a person with knowledge of the situation.

The Kirkuk area’s Bai Hassan and Avana oil fields were still shut, with exports stopped, the person said Thursday, asking not to be identified because the information isn’t public. The two deposits had been pumping an estimated 275,000 barrels a day before the Iraqi offensive against the Kurds. Iraq won’t be able to restore Kirkuk’s oil output to last week’s levels before Sunday because of missing equipment at the fields, Reuters reported earlier Thursday, citing an unidentified oil ministry official.

Flows by pipeline from northern Iraq to the port of Ceyhan, Turkey, fell to 196,000 barrels a day on Thursday from about 225,000 barrels the previous day and far below their normal daily level of 600,000 barrels, according to a port agent report and Bloomberg tanker tracking. Iraq’s central government piggybacks its exports from Kirkuk with Kurdish shipments through a Kurdish-operated pipeline to Turkey.
Kirkuk, home to Iraq’s oldest-producing oil field, is a flashpoint in the power struggle between the central government in Baghdad and the semi-autonomous Kurdistan Regional Government. Tensions in Kirkuk erupted into outright hostilities between the central government and the KRG on Monday following a Kurdish referendum on independence from Iraq. The KRG included Kirkuk in the Sept. 25 referendum despite competing claims to the ethnically mixed area, which lies outside the boundaries of the KRG-ruled Kurdish region.

Iraq, the second-largest producer in OPEC, pumps most of its 4.47 million barrels a day from fields in the south and ships it from the Persian Gulf port of Basra. But with Iraq supplying about 14 percent of total production from the Organization of Petroleum Exporting Countries, a recovery of curtailed exports from the north could affect crude markets. Brent crude was 71 cents lower at $57.44 a barrel on Thursday at 3:29 p.m. in London. The global benchmark closed Wednesday at the highest since Sept. 26.

Local Supplies

Iraq’s Oil Ministry deployed engineering teams at Avana and Bai Hassan after workers and guards stayed away from the fields earlier this week when government troops pushed back Kurdish peshmerga fighters from the area, an official at the central government-run North Oil Co. said Wednesday. The company will pump only enough oil from the fields to supply local needs until Iraq’s central government can reach an agreement with Kurdish authorities allowing exports from Kirkuk via the Kurdish pipeline to Turkey, he said.

As it consolidated control over Bai Hassan and Avana and other oil facilities in Kirkuk, the Oil Ministry reiterated its long-standing position that international energy companies must not sign any contracts that bypass the central government.

“Irresponsible statements” by some officials or foreign companies regarding their intention to sign deals “with X party” inside the country are a blatant intervention in Iraq’s internal affairs and infringe on its sovereignty, the ministry said in a statement. While it didn’t identify any such officials or companies, the ministry issued the statement just a day after Russia’s Rosneft PJSC signed an agreement with the KRG to develop five oil blocks.

Rosneft’s deal is in line with legislation and is similar to agreements that other international companies have in the Kurdish area, Mikhail Leontyev, a company spokesman, said by phone on Thursday. Russia’s state-run oil producer always abides by local law, he said.

“The government is reiterating its past statements that no one should be signing oil production deals with the Kurds,” said Jaafar Altaie, managing director of Abu Dhabi-based consultant Manaar Group, which has operations in Iraq. “I don’t think that at this stage it’s an effort to roll back any of the contracts currently in place.”

Middle East

Rosneft Signs Production Sharing Agreements for 5 Blocks in Kurdistan

Rosneft and the Government of the Kurdish Autonomous Region of Iraq signed the documents required to put into force Production Sharing Agreements (PSA) with respect to five production blocks located in the Kurdish Autonomous Region.

The share of Rosneft Group Subsidiaries in PSA will be 80%, the amount of payments for the projects farm-in and geological information for each of  five blocks ranges from 40 mln. USD  to 110 mln. USD and may total to 400 mln.USD (incl. 200 mln.USD that can be compensated by oil produced from block), the heads of terms of the agreements and the basic principles of product distribution are similar to the PSA in Iraqi Kurdistan that were signed by other international oil and gas companies.

The parties agreed to implement the geological exploration program and to start pilot production as early as in 2018. In case of success, in 2021 it is planned to start full-field development of the blocks. According to conservative estimates, the total recoverable oil reserves at five blocks may be about 670 million barrels.

The documents were signed in pursuance of the Investment Agreement which was concluded at the St. Petersburg International Economic Forum in 2017.

Rosneft and the Kurdistan Regional Government signed a series of binding agreements at the XXI St. Petersburg International Economic Forum related to widening their cooperation in exploration and production of hydrocarbons, commerce and logistics.

The signed documents outlined the main terms of the project which provides for the establishment of a joint venture for the implementation of the long-term contract regarding the infrastructure project in Iraqi Kurdistan. Rosneft obtained access to the management of major regional transportation system with a throughput capacity of 700 thousand bbl per day, which is going to be expanded to level of 950 thousand bbl per day.

Also, the parties committed to put into effect the Production Sharing Agreements signed during the Forum with respect to the five blocks with substantial geological potential and outlined other perspective areas of cooperation in exploration and production, including the gas industry.

The signed documents have strengthened the cooperation between Rosneft and Iraqi Kurdistan, which started in February 2017 from signing a contract on crude purchase and sale in 2017-2019.

The new agreements will allow us to talk about full-fledged entry of the Company in one of the most promising regions of the developing global power market with the expected recoverable reserves in the order of 45 billion bbl of oil and 5.66 trillion m3 of gas (according to the estimate of the Ministry of Natural Resources of Kurdistan Region). The agreements provided for further phased investments by Rosneft in the Kurdistan region.

Middle East

Saudi Oil Minister Says Full Aramco IPO Is on Track for 2018

Saudi Arabia is still aiming to complete both international and domestic portions of the initial public offering of its state oil company in 2018, Oil Minister Khalid Al-Falih said Tuesday.

Asked whether both parts of the IPO will happen next year, Al-Falih said: “Yes of course; it is on track.” He declined to answer questions on whether Chinese investors were interested in buying ahead of the IPO as cornerstone investors.

People familiar with the situation said last week that the kingdom is wondering whether to delay the international portion of the offering until at least 2019. A two-stage Saudi Aramco IPO is one of several options being considered, they said, asking not to be identified because discussions are private. Another plan would include listing in Riyadh next year and privately selling a stake to one or several cornerstone investors, one of the people said.

There’s a precedent for bringing in such investors before a large commodities IPO. In 2009, Glencore Plc sold a stake through a convertible bond ahead of its 2011 offering, still the largest in London, where the company raised almost $10 billion.

The Saudi government has said the sale of 5 percent of Aramco shares could value the company at as much as $2 trillion, though analysts have tended to give lower estimates. If Saudi Arabia achieves its valuation, that stake would raise about $100 billion, eclipsing Alibaba Group Holding Ltd.’s $25 billion in 2014.

The IPO is the centerpiece of a broad-ranging economic reform program proposed by Crown Prince Mohammed bin Salman, the dominant political force in the kingdom. Any delay would be a setback to his plans and to the plethora of international investment banks and exchanges eyeing millions in fees and commissions.

Exchanges in London and New York are vying for a role in Aramco’s IPO, with Hong Kong, Singapore, Tokyo and Toronto also trying to attract the sale.

“We will announce the venue in due course,” Al-Falih said in London, where he was attending the annual dinner of the Oil & Money conference.

Middle East

Tendeka Doubles Up On Contract Wins After Recent Award by Kuwait Oil Company

Following a recent award by the Kuwait Oil Company (KOC) to deliver a lower completions project, Tendeka, a global leader in advanced completions and production optimization, has been awarded two further contracts in the Middle East.

The multi-million-pound agreements with the Abu Dhabi Onshore Operations Company (ADCO) and Petroleum Development Oman (PDO) will involve the supply of a range of specialized Inflow Control technologies. These technologies enable the effective management of the reservoir in horizontal wells to increase productivity and improve oil recovery.

ADCO’s three-year contract, with a one-year extension, will involve Tendeka’s market-leading zonal isolation products, and full range of inflow control technologies, including their market-leading FloSure Autonomous ICD to be installed across all ADCO fields.

PDO has awarded Tendeka a multi-well trial and one-year deployment contract for the application of FloSure Autonomous ICD across Oman.

The multi-million-pound deal with Kuwait Oil Company (KOC) will involve Tendeka installing Advanced ICD equipment in 55 horizontal wells over two years in Northern Kuwait.

Middle East

Oil Gains on Concern Iraq-Kurd Tensions Will Disrupt Crude Flows

Crude extended gains from the highest close in two weeks as speculation mounted over potential output disruptions in a region that’s home to Iraq’s oldest producing oil fields.

Futures in London rose as much as 1.7 percent after adding 2.8 percent last week. Iraqi soldiers seized facilities including a refinery after mobilizing late Sunday to take fields near the northern city of Kirkuk from Kurdish forces. Their advance comes amid clashes following an independence referendum by the semi-autonomous Kurdistan Regional Government, or KRG, on Sept. 25.

Exports of about 600,000 barrels a day from Kirkuk’s fields and others in the adjacent Kurdish region were said to continue Sunday. Yet around 120,000 barrels a day pumped by the KRG from fields claimed by Baghdad are at immediate risk, while any move by neighboring Turkey to close a Kurdish pipeline would create bigger disruption, according to Bloomberg oil strategist Julian Lee.

“The Kurdistan tension is the main argument for the price gain,” said Bjarne Schieldrop, chief commodities analyst at SEB AB in Oslo. “The fact that the market now has started to react to geopolitical risks like this is clearly a reflection of an oil market with less abundance of oil.”

Brent for December settlement rose much as 96 cents to $58.13 a barrel on the London-based ICE Futures Europe exchange, and traded at $57.92 as of 10:40 a.m. local time. Prices climbed 92 cents to $57.17 on Friday. The global benchmark traded at a premium of $5.53 to West Texas Intermediate for the same month.

WTI for November delivery advanced as much as 79 cents, or 1.5 percent, to $52.24 a barrel on the New York Mercantile Exchange, after gaining 1.7 percent on Friday. Total volume traded was about 10 percent above the 100-day average.

Iraq is the second-largest producer in the Organization of Petroleum Exporting Countries, and pumps most of its 4.47 million barrels a day from fields in the south, shipping it from the Persian Gulf port of Basrah. The country’s Kurdish region, meanwhile, relies on a pipeline to the Turkish port of Ceyhan to get most of its crude to market. The conduit also transports some 100,000 barrels a day from federal-run fields in Kirkuk.

The shipments from Kirkuk combine crude pumped by Iraq’s state-owned North Oil Co. and by the KRG, and both flows are normal, Kirkuk Governor Najmaddin Kareem said Sunday.

The Kurdistan Security Council confirmed in a Twitter message late Sunday that Iraqi forces and Shiite militias had advanced from southern Kirkuk, intending to take over a military base near the oil fields.

Other oil-market news:

  • Shares of oil companies operating in Kurdistan tumbled on Monday, with Genel Energy Plc falling 8.4 percent, DNO ASA dropping 6.4 percent and Gulf Keystone Petroleum Ltd. losing 11 percent as of 10:40 a.m. London time.
  • OPEC sees crude demand growing at a “healthy pace” over the next five years. Consumption will climb by an average 1.2 million barrels a day through 2022 and slow to 300,000 barrels a day in 2035 to 2040, Secretary-General Mohammad Barkindo said Sunday in Kuwait.
  • Cautious money managers cut bets on rising WTI crude in the week ended Oct. 10, U.S. Commodity Futures Trading Commission data showed.
Middle East

Rosneft Acquires 30% Stage in Zohr field from ENI at over USD 1 Billion

Rosneft closed the deal to acquire a 30% stake in the concessions agreement for the development of Zohr field, the largest gas field in the Mediterranean Sea, from Italian company Eni S.p.A.

The cost of Rosneft stake acquisition is USD 1.125 bln. The Company also refunded its share in past project costs to Eni.

The Company becomes a participant of the project to develop the largest deepwater gas field offshore Egypt jointly with other world majors and strategic partners of Rosneft – Eni (60% stake) and BP (10% stake).

The deal will enable the Company to  share significant experience in offshore field development, using existing competencies in offshore production. Participation in the development of a unique production asset will strengthen positions of Rosneft in the strategic markets of Europe and Middle East.

Commenting on the deal, Rosneft Chief Executive Officer Igor Sechin said, «Having closed the deal to acquire a stake in the concession agreement for the development of Zohr gas field, Rosneft has entered the world class project. It opens up the opportunities for the Company to reinforce its positions in the promising and strategic region, broadens potential of our trading division and enhances our mutually beneficial cooperation with Egypt».

Zohr gas field was discovered by Eni at the shelf of Egypt in 2015.  The area of the field is 231 km2, its in-place reserves exceed 850 bcm.

On December 12, 2016, during a working visit to Cairo, Rosneft Chief Executive Officer Igor Sechin  informed Egyptian President Abdel Fattah el-Sisi on the agreement for the acquisition by Rosneft from Eni of a stake in the concession agreement for the development of Zohr field and 15% in the project’s operator Petroshorouk, a joint parity enterprise of Eni and EGAS.

 

Middle East

BP starts production from giant Khazzan gas field in Oman ahead of schedule and under budget

  • Phase One of major tight gas project to deliver 1 bcf/d gas to Sultanate of Oman
  • Future expansion to 1.5 bcf/d gas on track
  • BP’s largest project start-up in 2017
  • Sixth of seven major projects expected on stream this year

BP, together with the Ministry of Oil & Gas of the Sultanate of Oman, today announced that production has begun from the giant Khazzan gas field, which is operated by BP in partnership with Oman Oil Company Exploration and Production.

His Excellency Dr. Mohammed Al Rumhy, Minister of Oil and Gas of the Sultanate of Oman, stated: “I am delighted to see BP delivering Phase One of the Khazzan Project within time and budget. This will result in realizing more gas reserves and more production of gas that our country needs to support our energy planning and requirements.”

Bob Dudley, BP group chief executive, commented: “The start of production from Khazzan, BP’s sixth and largest major project start-up so far this year, is an important milestone in our strategic partnership with Oman. With further development already planned, this giant field has the potential to produce gas for Oman for decades to come.”

BP expects to start-up seven Upstream major projects in 2017 — making it one of the most important years for commissioning new projects in BP’s history. These seven projects are expected to make a significant contribution to the 800,000 barrels of oil equivalent per day of production that BP expects to add by 2020.

“Khazzan further demonstrates BP’s ability to consistently deliver large, complex projects on schedule and within budget while applying the industry-leading skills and technology we’ve developed globally,” Dudley added. “In this case, tight gas techniques we perfected in the US have been brought to Oman and we are very pleased with the results.”

The Khazzan tight gas reserves lie at depths of up to five kilometres in narrow bands of extremely hard, dense rock. These complex and challenging conditions require specialized drilling equipment, the precise drilling of both vertical and horizontal wells, and well stimulation to free the gas.

Eng. Isam bin Saud Al Zidjali, CEO of Oman Oil Company, commented: “We are excited to see how this achievement is going to reflect on Oman’s economy. We are indeed harvesting the results of our strategic partnership with BP. While Oman has a vast set of resources and human capabilities, BP brings its technology to help unlock that potential. This increment of gas supplies will provide feedstock for development of downstream and petrochemical industries.”

The production sharing agreement for Block 61, which contains the Khazzan field, was first signed in 2007 and was amended in 2013 and extended in 2016. Appraisal over 2007-2013 confirmed the existence of significant tight gas resources that could be developed through the application of BP’s extensive unconventional gas experience and technology. The first phase of development of the field was sanctioned in December 2013.

Phase One of the Khazzan development is made up of 200 wells feeding into a two-train central processing facility. Phase One production is expected to plateau at 1 billion cubic feet of gas per day (bcf/d).

Once the second phase of the Khazzan is fully up and running production is expected rise to 1.5 bcf/d. In total, approximately 300 wells are expected to be drilled over the estimated lifetime of the Khazzan field. Phases One and Two will together develop an estimated 10.5 trillion cubic feet of recoverable gas resources.

Drilling efficiency has increased significantly during the development of the project. The average time to drill and complete a vertical well was reduced by 27% and a record time of 60 days was achieved for completion of one well.

While BP provided advanced seismic, hydraulic fracturing and well design expertise, many local Omani businesses contributed to the Khazzan Project. In fact, approximately 38% of the total contract spend to date has been awarded to local oil and gas services companies.

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