By Ranj Alaadin, for Brookings Institution. The opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Iraq has a new prime minister. What next?

Iraq has a new prime minister-designate, almost three weeks after the previous nominee – Mohammed Tawfiq Allawi – failed to secure parliamentary approval for his cabinet.

The new figure, Adnan al-Zurfi, is a veteran of the Iraqi opposition and a long-time member of the ruling class who worked closely with the Coalition Provisional Authority (CPA) during the U.S. occupation of Iraq.

A stern personality, he has a checkered and violent history with many of the people and groups with which the U.S. is currently clashing.

The full report can be read here.

By John Lee.

The U.S. Army has awarded Navistar Defense foreign military sales contract delivery orders valued at $21.97 million for 134 Medium Tactical Vehicles (MTV).

The orders are comprised of 4×4 cargo vehicles, 6×6 general transport trucks (GTT), 6×6 GTT vehicles with material handling equipment (MHE), and 6×6 30-ton wreckers, along with spare parts and technical data.

Ted Wright, chief executive officer, said:

“Navistar Defense is proud to deliver additional Medium Tactical Vehicles to Iraqi security forces. Providing vehicles to allied forces is an important part of our strategy to grow our business. Since 2004, we’ve delivered more than 7,000 military vehicles to the Iraqi Ministry of Interior and Ministry of Defense. This versatile and cost-effective platform, which shares commonality with their existing fleet, will support a variety of mission requirements.”

Most of the production will take place at Navistar Defense’s assembly plant located in West Point, Mississippi.

(Source: Navistar)

Genel Energy has announces its audited results for the year ended 31 December 2019.

Bill Higgs, Chief Executive of Genel, said:

The industry is currently facing headwinds that challenge companies to demonstrate their resilience and flexibility. Genel has a business model and strategy designed to shelter us from such extreme circumstances, with low-cost oil production, robust finances, and flexibility in our expenditure allowing us to pay a material dividend while retaining sufficient liquidity to capitalise on opportunities and take advantage of future upside.

“Our strong balance sheet with limited capital commitments allows us to invest in the most value accretive areas and pay this dividend at the prevailing oil price, even in a scenario with a temporary delay in payments from the KRG. We are a business that can generate excess cash at a sustained oil price of $40/bbl.

“Given the resilience of the business, our strong performance in 2019, and our view of future prospects, we have retained our dividend of 10¢ per share, deferring an increase until external conditions improve.

“This is a yield of over 20% on our current share price, offering investors the compelling combination of a significant yield from a sustainable dividend and funded growth. Our portfolio positions us well for a future of fewer and better natural resources projects. It is low-cost and low-carbon – the right assets, in the right location, with the right footprint.

Results summary ($ million unless stated)

2019 2018
Production (bopd, working interest) 36,250 33,700
Revenue 377.2 355.1
EBITDAX1 321.8 304.1
  Depreciation and amortisation (158.5) (136.2)
  Exploration (expense) / credit (1.2) 1.5
  Impairment of oil and gas assets (29.8) (424.0)
Operating profit / (loss) 132.3 (254.6)
Underlying profit2 134.9 138.9
Cash flow from operating activities 272.9 299.2
Capital expenditure 158.1 95.5
Free cash flow3 99.0 172.7
Dividends declared 40.8
Cash4 390.7 334.3
Cash after dividend5 377.1 334.3
Total debt 300.0 300.0
Net cash6 92.8 37.0
Dividend (declared and proposed) per share (¢ per share) 15.0
Basic EPS (¢ per share) 37.8 (101.6)
Underlying EPS (¢ per share)2 49.0 49.8
  1. EBITDAX is operating profit / (loss) adjusted for the add back of depreciation and amortisation ($158.5 million), exploration expense ($1.2 million) and impairment of property, plant and equipment ($29.8 million).
  2. Underlying profit is reconciled on page 13
  3. Free cash flow is reconciled on page 14
  4. Cash reported at 31 December 2019 excludes $3.0 million of restricted cash
  5. Cash reported at 31 December 2019 less interim dividend paid ($13.6 million) on 8 January 2020
  6. Reported cash less IFRS debt

Highlights

  • Ongoing strategic delivery from a strong financial platform, as highly cash-generative oil production increased to 36,250 bopd, up 8% year-on-year
  • Free cash flow (‘FCF’) of $99 million in 2019, pre dividend payment
    • This increases to $153 million (2018: $173 million), or $0.55 per share, taking into account the receipt of $54 million in payments from the Kurdistan Regional Government, due in 2019 and subsequently received in January 2020
  • Maiden dividend declared and $41 million distributed to shareholders
  • Cash of $391 million at 31 December 2019 ($334 million at 31 December 2018)
  • Net cash of $93 million at 31 December 2019 (net cash of $37 million at 31 December 2018)
  • Production cost of $2.9/bbl in 2019
  • Continued focus on safety: zero lost time incidents and zero losses of primary containment in 2019

Outlook

  • Genel is resilient to an oil price of $30/bbl, as low-cost production, a flexible capital structure, and robust balance sheet allows the payment of a material dividend, and the retention of a material net cash position at year-end 2020
  • Genel has significant capital allocation flexibility with limited commitments, is committed to retaining a strong balance sheet, and will ensure expenditure matches the external environment
    • Capital expenditure can be reduced to as little as $60 million in 2020, with an expectation that it will be around $100 million at the prevailing oil price, covering maintenance expenditure across our producing licences and investment at Sarta
    • Genel will sanction activity relating to the expenditure covered in the original $160 million to $200 million guidance range, as and when the external environment improves
  • COVID-19 is impacting the ease of operating in the Kurdistan Region of Iraq. Our producing operations are currently continuing with a reduced staff, but further activity is under review
    • Given the current market conditions, coupled with the delay in payments from the KRG, drilling activity at the Tawke PSC has been scaled back
    • Due to the delayed expenditure, 2020 net production guidance of close to Q4 2019 levels of 35,410 bopd is expected to be impacted, with the reduced producing asset work programme increasing cash flow generation in 2020 at the prevailing oil price, although a lower exit rate production will impact 2021
    • The Qara Dagh-2 well, which was set to spud in Q2 2020, is now likely to be delayed
  • Payments for production in October and November 2019, due in January and February 2020, have not been received. The KRG continues to state the importance of ongoing payments to oil companies, and we expect the government to deliver on this promise
  • Operating cash costs per barrel expected to be $3/bbl, amongst the lowest in the industry, fitting into a world of fewer and better natural resources projects
  • Genel is yet to receive draft legal documents reflecting the commercial understanding reached on Bina Bawi in September 2019, despite promises from the KRG
  • Emissions at Tawke and Taq Taq will reduce to 7kg CO2/bbl following completion of the enhanced oil recovery project at Tawke PSC in H1 2020
  • Given the resilience of the business and our strong performance in 2019, the Board is accordingly recommending a final dividend of 10¢ per share (2019: 10¢ per share), a distribution of c.$27.8 million, with a view to increasing the 2020 interim distribution should market conditions improve
  • Genel will seek to take advantage of opportunities to repurchase bonds at a value-accretive price

More here.

(Source: Genel Energy)

By John Lee.

Malaysia’s Petronas has said it has shut down production and safely evacuated all of its Malaysian employees from Iraq due to coronavirus (COVID-19).

In a statement, the company said:

In view of the COVID-19 pandemic and as a precautionary measure to ensure the health, safety and well-being of our employees, PETRONAS has safely evacuated all 80 of our Malaysian employees from PETRONAS Carigali Iraq Holding B.V. (PCIHBV), located at the Garraf Contract Area, in the Thi Qar Province, Republic of Iraq.

“This is certainly an unfortunate and unforeseeable event that is not within PCIHBV’s control. PCIHBV had accordingly issued the necessary notice in accordance with the provisions of the Development and Production Service Contract and engaged with the host authority prior to the suspension of operations and evacuation of our employees.

“Operations at the Garraf Contract Area are now temporarily suspended until further notice.

“We are also closely monitoring the situation.

(Source: Petronas)

The Cabinet held its regular weekly meeting in Baghdad on Tuesday under the chairmanship of Deputy Prime Minister and Minister of Oil, Thamir Ghadhban.

The Cabinet received a detailed briefing from the Minister of Health on the range of new measures being implemented to contain COVID-19. These measures include:

  • Declaring a curfew in Baghdad for a week starting on 17 March
  • Directing relevant authorities to fumigate and disinfect several areas and districts
  • Authorising governors to impose curfews in their provinces
  • Suspending flights for a week from 17 March
  • Increasing internet bandwith/capacity
  • Banning travel between Iraqi provinces

The Cabinet reassured the public that deliveries of food, fuel, medicine, other essentials as well as the imports of goods into Iraq, are unaffected by the curfews.

The Cabinet approved a recommendation from the Social Services Council to declare the day of the Arabeen commemoration of the martyrdom of Imam Hussein, peace be upon him, as the National Day for Volunteer Work in Iraq.

For the latest updates and guidance on the COVID-19, please visit the Ministry of Health Facebook page (in Arabic) https://www.facebook.com/MOH.GOV.IQ/

(Source: Govt of Iraq)

Genel Energy plc has updated its oil reserves and resources across its portfolio.

Bill Higgs (pictured), Chief Executive of Genel, said:

Genel’s producing assets are profitable even at an oil price of $30/bbl and this, coupled with our robust balance sheet, supports investment in growth and the payment of a material dividend. The reduction of reserves at Tawke largely relates to production towards the end of the life of the field, and consequently our mid-term production outlook is materially unchanged and there is no reserves impact on our business plan.

“Our production funds an approved but flexible capital programme that, in the right market conditions, enables us to drill the wells necessary to evaluate the potential to convert the 2C oil resources in our portfolio, validated for the first time by ERCE, into reserves and production, boosting our cash generation potential.

Net oil reserves (MMbbls) 1P 2P 3P
31 December 2018 99.3 154.9 219.3
Production (13.2) (13.2) (13.2)
Technical revisions (17.2) (17.8) (11.2)
31 December 2019 68.8 123.8 194.9

International petroleum consultants DeGolyer and MacNaughton assess that on a gross basis, at the Tawke licence in the Kurdistan Region of Iraq containing the Tawke and Peshkabir fields, year-end 2019 1P reserves stood at 228 MMbbls, compared to 348 MMbbls at year-end 2018, after adjusting for production of 45 MMbbls and a downward technical revision of 75 MMbbls. Tawke licence 2P reserves stood at 400 MMbbls (502 MMbbls in 2018) and 3P reserves at 641 MMbbls (697 MMbbls in 2018).

Broken down by field, Tawke field gross 1P reserves stood at 176 MMbbls (294 MMbbls in 2018), 2P reserves at 284 MMbbls (376 MMbbls in 2018) and 3P reserves at 421 MMbbls (477 MMbbls in 2018). Peshkabir field gross 1P reserves stood 51 MMbbls (54 MMbbls in 2018), 2P reserves at 116 MMbbls (126 MMbbls in 2018) and 3P reserves at 220 MMbbls (unchanged from 2018).

Genel continues to take a conservative view of the Enhanced Oil Recovery project at the Tawke PSC, and will look to book reserves in relation to the project, which has the potential to increase recovery over the life of field, once enhanced performance has been demonstrated at the field.DeGolyer and MacNaughton has included23MMbbls of 2P and 45 MMbbls of 3P gross reserves, working interest portions of which are not included in the table above.

At Taq Taq, there is a minor technical downward revision of 2.1 MMbbls of gross 2P reserves associated with the unsuccessful TT-33 well, and these now total 44 MMbbls, with gross 1P reserves increasing by 3.3 MMbbls to 20.1 MMbbls, illustrating the continued strong underlying performance of the asset. McDaniel & Associates carried out the independent assessment of the Taq Taq licence.

Genel’s gross 2P reserves estimate relating to Phase 1A of the Sarta development remains 34.3 MMbbls.

CONVERTING RESOURCES TO RESERVES

Net oil resources (MMbbls) 1C 2C 3C
31 December 2018 36.8 73.7 121.3
Technical revisions 29.7 78.3 224.5
31 December 2019 66.5 152 345.8

Following completion of the acquisition in 2019, Genel estimated gross resources at Sarta to be c.500 MMbbls. This potential has now been validated through an external audit conducted by ERCE, who has estimated a mid-case total recoverable oil resource of 593 MMbbls, of which 264 MMbbls is classified as 2C resource. Production performance in 2020, and the results of the upcoming three well campaign in 2021, will set out a roadmap for the conversion of these resources into reserves.

The Bina Bawi oil development has been certified by ERCE as 17.1 MMbbls of 2C resources, 13.6 MMbbls of which are expected to be converted into 2P reserves should a commercial agreement be reached and FID be taken on the first phase of the oil project.

At Qara Dagh the QD-2 well will test the crestal portion of the prospect which, based on a rigorous re-mapping exercise, has a mean prospective resource estimated by Genel at c.400 MMbbls. Genel estimates that the downdip segment tested by the QD-1 well defines a 2C resource of 47 MMbbls.

(Source: Genel)

DNO ASA, the Norwegian oil and gas operator, today announced a 30 percent or USD 300 million reduction in its 2020 budget to shore up its balance sheet in the face of unprecedented market convulsions and plunging oil prices triggered by the coronavirus pandemic.

Steps have already been taken to suspend most discretionary drilling and capital projects across the Company’s portfolio and to focus instead on key projects in its core operating area in the Kurdistan region of Iraq.

The Company has also initiated staff reductions, cancelled the first half 2020 dividend, discussed modalities for cost reductions with its suppliers and contractors and frozen new ventures.

“We demonstrated our resilience and nimbleness during the regional geopolitical pandemonium triggered by ISIS some five years ago and can ramp up operations quickly once the coronavirus is put back in the bottle,” said Bijan Mossavar-Rahmani, DNO’s Executive Chairman.

Meanwhile, among the Company’s priorities is completion of testing of the Baeshiqa-2 exploration well in Kurdistan starting late March. The Company previously reported that the well flowed light oil and sour gas to surface and that testing of remaining reservoirs would resume following a well workover program, now completed, to assess commerciality.

DNO also remains committed to complete its USD 100 million Peshkabir-to-Tawke gas capture, transport and reinjection project in Kurdistan to reduce CO2 emissions at the Peshkabir field and boost oil recovery at the Tawke field. Gas reinjection will commence in early April.

But the Company’s exploration, appraisal and development drilling campaign, historically the most active among the international oil companies in Kurdistan, has been scaled back, as both DNO and contractor staff movements and rotations have been impacted by border closings, quarantines and other coronavirus travel restrictions.

By the end of March, the number of active drilling rigs deployed by DNO in Kurdistan will drop to two (including one workover rig) from six (two workover rigs) at the beginning of the year. Production at the Tawke and Peshkabir fields has already started to slide to below 115,000 barrels of oil per day.

DNO’s ability to maintain its level of spending has also been strained by interruptions and delays to monthly payments for its oil exports from Kurdistan; the last payment received in January covered September 2019 exports.

“We have every confidence that payments will be forthcoming from Kurdistan, as they always have, but timing and regularity will drive our ability, and that of other companies, to plan and execute investments necessary to grow, even maintain, oil production,” Mr. Mossavar-Rahmani said.

The Company will suspend guidance, including on production, until it has more visibility on the course of the pandemic and the direct and indirect impact on DNO’s operations and financial position.

The Board of Directors, in light of oil market turmoil and uncertainty, has decided not to make use of the authorization granted at the 2019 Annual General Meeting to pay dividends for first half 2020 but remains committed to the program and at the next shareholder meeting will request authorization to resume dividend distributions once circumstances permit.

The Company today also released its 2019 Annual Report and Accounts and 2019 Annual Statement of Reserves and Resources.

DNO had a record year in 2019 with annual revenues of USD 971 million, up 17 percent from year earlier levels, Company Working Interest (CWI) production up 28 percent year-on-year to a record 104,800 barrels of oil equivalent per day (boepd) and the largest drilling program in the Company’s 48-year history. Notwithstanding strong underlying performance, 2019 results were impacted by non-recurring items as well as lower oil prices and increased exploration expenses resulting in operating profit of USD 76 million.

Yearend 2019 CWI proven and probable (2P) reserves stood at 345 million barrels of oil equivalent (MMboe) down from 376 MMboe at yearend 2018 after adjusting for production during the year and technical revisions, offset partly by reserves added through the acquisition of Faroe Petroleum plc in 2019.  Proven (1P) reserves stood at 206 MMboe and proven, probable and possible (3P) reserves at 540 MMboe.

On a gross basis, at the Tawke license in the Kurdistan region of Iraq containing the Tawke and Peshkabir fields, yearend 2019 2P reserves stood at 400 million barrels (MMbls) (502 MMbbls in 2018), of which 1P reserves represented 228 MMbbls. Gross 3P reserves stood at 641 MMbbls.

Broken down by field, Tawke field gross 2P reserves at the Tawke field stood at 284 MMbbls (376 MMbbls in 2018) after adjusting for 2019 production of 25 MMbbls and a downward technical revision of 67 MMbbls; of the total remaining 2P reserves, gross 1P reserves represented 176 MMbbls.  Gross 3P reserves at yearend 2019 stood at 421 MMbbls. At the Peshkabir field, gross 2P reserves stood at 116 MMbbls at yearend 2019 (126 MMbbls in 2018) of which gross 1P reserves represented 51 MMbbls.  Gross 3P reserves stood at 220 MMbbls.

Across its North Sea portfolio at yearend 2019 (87 licenses in Norway and 12 in the United Kingdom), on a CWI basis, DNO’s 2P reserves stood at 70 MMboe (1P reserves of 49 MMboe, 3P reserves of 102 MMboe and 2C resources of 149 MMboe).

The 2019 Annual Report and Accounts, the 2019 Country-by-Country Report  and the 2019 Annual Statement of Reserves and Resources are attached and also available on the Company’s website www.dno.no.

(Source: DNO)

By Amnesty International. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Iraq: 3D reconstruction shows security forces deliberately killed protesters

An exclusive new visual investigation by Amnesty International and SITU Research shows that Iraqi security forces intended to kill or severely maim dozens of protesters when they fired military-style grenades directly into crowds on the streets of Baghdad from last October onwards.

The organizations’ interactive website, Smokescreen – Iraq’s use of military-grade tear gas grenades to kill protesters, includes a 3D reconstruction of deadly incidents captured on video around the capital’s Tahrir Square and Jimhouriya Bridge. The distinctive grenades are known to have mortally wounded at least two dozen protesters in that area since October 2019.

Ballistics simulations and spatial analysis presented on the Smokescreen website show how the projectiles were fired to kill or cause serious bodily harm.

More here.

(Source: Amnesty International)

 

By Michael Knights, for the Washington Institute for Near East Policy. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Giving Iraq’s Next Prime Minister Space to Succeed

As the next well-qualified, Iraqi-chosen candidate navigates the delicate ratification process, Washington can avoid disrupting his efforts by temporarily ignoring militia provocations and providing quiet, symbolic support where needed.

Full report here.

By Abbas Kadhim, for the Atlantic Council. Any opinions expressed here are those of the author and do not necessarily reflect the views of Iraq Business News.

Another prime minister nominee in Iraq: Will this one take?

On March 17, Iraqi President Barham Salih appointed Adnan Al-Zurfi, a member of the Council of Representatives and former governor of Najaf, to be the new prime minister.

This is the president’s second attempt to replace Prime Minister Adil Abdul-Mahdi, who resigned in November 2019 and is currently presiding nominally over a caretaker government, though he has delegated all his executive duties to his deputies.

As I grew up a few blocks away from Iraq’s new prime minister nominee, I would like to share a few thoughts on his background and likely next steps.

Click here to read the full story.