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Assessment of KRG-Rosneft Recent Deals

By Ahmed Mousa Jiyad.

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

Many of my Kurdish colleagues, members of the Finance and Oil Committees in the Iraqi federal Parliament, asked for my opinion on these deals. In response to that request and due to the importance of the deals and their potential impacts on the Iraqi national interest, I prepared this contribution.

Kurdistan-Iraq Regional Government (KRG) and the Russian oil company Rosneft signed a series of agreements on oil matters, on crude oil supplies with upfront payment in addition to an “open memorandum”; that was done during the period between February and June of this year.

As usual, the main contents and components of those agreements, the financial and economic conditions and their governing modalities have not been disclosed. While these agreements have attracted the attention and opposition of some Kurdish political blocs and members of the Iraqi parliament, the federal government and the federal Ministry of Oil both kept silent as if the matter does not concern them!

In spite of the lack of information and the confidentiality surrounding the details, what is available indicates, obviously, to their economic and financial importance for KRG; to the geopolitical considerations of the Russian government; to the profitability and the external strategic positioning considerations of Rosneft; and, finally, to the important implications and impacts of all that on Iraq and the federal government.

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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.

Rosneft, KRG agree to Expand Strategic Cooperation

Russia’s Rosneft and the Kurdistan Regional Government (KRG), as part of the XXI St. Petersburg International Economic Forum, signed a series of agreements on widening their cooperation in exploration and production of hydrocarbons, commerce and logistics.

The documents were signed ahead of the meeting between the President of the Russian Federation Vladimir Putin and the Prime Minister of Iraqi Kurdistan Nechirvan Barzani by Igor Sechin, Rosneft Chief Executive Officer, and Dr. Ashti Hawrami, Minister of Natural Resource.

The Parties signed an investment agreement under which they committed to develop cooperation in exploration and production, agreed on monetization of the export oil pipeline in Iraqi Kurdistan, as well as entered into a number of production sharing agreements.

The agreement outlines the main terms of the project which provides for the establishment of a joint venture for implementation of the long-term contract related to infrastructure systems in Iraqi Kurdistan. Rosneft will get access to the major regional transportation system with the throughput capacity of 700 thousand bbl per day, which is planned to be expanded up to 1 mln bbl per day by the end of 2017.

Also, the Parties committed to enter into effect of the PSAs signed as part of the Forum with respect to five blocks with substantial geological potential and outlines other perspective areas of cooperation in exploration and production, including the gas sphere.

Gazprom, Luaibi discuss Badra Oil Project

A working meeting between Alexey Miller, Chairman of the Gazprom Management Committee, and Jabbar al-Luaibi, Minister of Oil of the Republic of Iraq, took place in St. Petersburg today.

The parties discussed the Badra project, which is implemented in Iraq by Gazprom Neft. Currently, the Badra field produces as much as 77,000 barrels of oil per day.

Gazprom Neft continues to construct oil and gas infrastructure, with start-up underway for a comprehensive gas treatment unit. The first and second trains of the project will go into operation in the 2nd and 3rd quarters of 2017, respectively.

Gazprom Neft is a vertically integrated oil company focused on oil & gas field exploration and development, oil refining, and petroleum product processing and marketing. The company’s largest shareholder is Gazprom (95.68 per cent); the rest of its shares are in circulation.

On May 31, 2014, Gazprom Neft started developing the Badra field located in the Wasit Province in the eastern part of Iraq. According to estimates, Badra holds 3 billion barrels of oil.

In January 2010, the consortium of Gazprom Neft, Kogas (Korea), Petronas (Malaysia), and TPAO (Turkey) signed a contract with the Iraqi Government for the development of the Badra field following a competitive tender. Gazprom Neft, as the project operator, holds a 30 per cent stake in the project, Kogas – 22.5 per cent, Petronas – 15 per cent, and TPAO – 7.5 per cent.

The Iraqi Government represented in the project by the Iraqi Oil Exploration Company (OEC) holds a 25 per cent stake. The Badra development project’s lifecycle is 20 years, with a possible five-year extension.

The cumulative oil production from Badra is in excess of 5 million tons.

Gazprom Neft allocated USD 10 million for social projects in the Wasit Province. The funds were used to build three schools, purchase computer equipment and school supplies, buy two minibuses for the University of Wasit, renovate and expand power grids in the neighboring population centers, provide local hospitals with medical equipment, and buy two ambulances.

At present, over 3,000 Iraqi citizens work at the Badra field. Gazprom Neft spent upward of USD 12 million on training programs for those workers.

(Source: Gazprom)

PM Barzani meets Rosneft Board

By John Lee.

A delegation headed by the KRG’s Prime Minister Nechirvan Barzani met the board of Rosneft, including CEO Igor Sechin, in St. Petersburg on Thursday.

The meeting is said to have centred around cooperation between the KRG and Rosneft in the Kurdish energy sector.

In February, the KRG negotiated a deal with Rosneft to secure $3 billion in loans that would be repaid with future oil sales.

(Source: Neftegaz.RU)

SOMO considers JVs in Oil Shipping, Storage

By John Lee.

Reuters reports that following the setting up a new oil trading firm with Lukoil subsidiary Litasco, the State Oil Marketing Organization (SOMO) is considering setting up similar ventures in shipping and oil storage.

The news agency quotes the head of SOMO, Falah Alamri, as telling the CWC Iraq Petroleum Conference:

The idea is not only the money, the idea is to transfer SOMO from a marketing company to a trading company.

“At the moment we started with one company and if it succeeds maybe [we will] increase to another company with shipping … storage.”

(Source: Reuters)

SOMO, Litasco to Trade Oil from Dubai

By John Lee.

Iraq’s State Oil Marketing Organization (SOMO) and Russia’s LitascoLukoil‘s international marketing and trading arm — have set up a joint oil trading company in Dubai.

A source told Reuters that the new venture, LIMA Energy, is building a team to work at the Dubai Multi Commodities Centre (DMCC) to trade in crude oil from Iraq, Russian and other countries, and will lift the first cargo of Iraqi crude this month.

It is understood that up to 10 SOMO members of staff, including its head of shipping, could be seconded to the new company.

Last month, Iraq’s Ministry of Oil confirmed that SOMO had formed a joint venture with Litasco to market crude oil.

(Source: Reuters)

LUKOIL completes 3D Seismic Survey at West Qurna-2

Russia’s LUKOIL has reported that it has completed a field 3D seismic survey at West Qurna-2 field.

The survey covered an area of about 450 square kilometers. The Company has fulfilled all of its contractual obligations to the Ministry of Oil of Iraq.

The high-quality seismic data obtained are required for the updating of the field’s geological model, both for the discovered formations and prospective horizons. The field data will soon be submitted for processing to a contractor, BGP, a division of the China National Petroleum Corporation (CNPC).

3D seismic acquisition at West Qurna-2 began in 2010. However, the completion of the field stage of work was delayed because foreign contractors did not have any work experience in the region. In 2014, following long negotiations, the Iraqi Oil Exploration Company (a division of the Ministry of Oil of Iraq) was chosen as seismic acquisition contractor.

In spite of high security requirements in the area of work, the contractor managed to accomplish all goals of the survey. Every day, about 1,000 people, including up to 700 workers from local tribes residing in the contract area, were involved in the operations at their height.

(Source: Lukoil)

Lukoil in Iraq Oil Trading Deal

By John Lee.

Iraq’s State Oil Marketing Organization (SOMO) and Russia’s Lukoil have formed a joint venture to market crude oil.

In a statement, the Iraqi Oil Ministry said Litasco — Lukoil‘s international marketing and trading arm — would help sell Iraqi crude and train Iraqi staff in marketing.

(Source: Ministry of Oil)

Five-millionth tonne of Oil Produced at Badra

Gazprom Neft Badra, a subsidiary of Russia’s Gazprom Neft, has produced the five-millionth tonne of oil at its Badra oil field.

Thanks to the application of cutting-edge production and transportation technologies, this outcome has been achieved in just over two and a half years’ of commercial production. Total cumulative oil production since the start of 2017 is now in excess of 679,000 tonnes (five million barrels).

Four wells, with a total production rate of 27,000 barrels per day, have been commissioned at the field in 2017, bringing the total number of production wells at the field to 14, with total daily production increasing to 80,000 barrels. All wells are operating under free-flow production.

Pursuant to the agreed field development programme, Gazprom Neft is continuing the construction of oil and gas infrastructure. Pre-commissioning works are currently ongoing at the field’s gas treatment plant, with piping connections being installed, as well as electrical fixtures and automatic control systems. The first stage of this project will be commissioned in 2Q2017 and the second in 3Q2017.

Denis Sugaipov, Director of Major Projects, Gazprom Neft, commented:

“The Badra project is going according to plan, and it’s clear that the infrastructure necessary for increasing oil production is already in place. Badra is Gazprom Neft’s first project abroad, and one of our most successful major projects. Field infrastructure continues to expand, and is, already, now a major production complex, unique to the region.”

(Source: Gazprom Neft)