Pure speculation: From stranglehold to stampede?

Could it have gone something like this...

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It seems obvious to me that the KRG will have wanted to “sign” a US major as soon as the size of Shaikan became obvious. They could well have been in discussions with let’s say Exxon early in 2011 or even before. Now who would have “the upper hand” in these discussions? Clearly Exxon would be keen for a slice of the Kurd action, but perhaps not half as keen as the KRG would be to get Exxon onside, developing Shaikan, “legitimising” the other KRG contracts, and strengthening the strategic alliance with the US. So Exxon, rather than falling over themselves to sign up with the KRG, and putting at risk their contracts and relationships with the ICG, may have extracted a good deal from the KRG along the lines of: help us secure Shaikan/GKP at a good price (no more than £8 per share) and when the time is right we’ll sign up for a number of other Kurd licences. In parallel Exxon get their city allies to keep the GKP sp in check so that £8 seems like a good deal premium. Perhaps Sanddunes got wind of this on 10 July, assumed that it was a foregone conclusion that GKP would indeed be sold for £8 per share, and posted his famous “shafted for £8” on iii. Todd also got wind of it and realised that were a hostile bid to be launched he might not have enough supporting votes to resist. So on 20 Sep, despite being “fully funded”, he decided to go for a significant placing of 90m shares (at £1.40) to “sympathetic” buyers whose votes he knew he could rely on. Todd also got his skates on beefing up the NEDs, appointing Lord Guthrie on 3 Oct to help him avoid foul play. And of course GKP continue to “drill baby drill”, to prove up what we have in the ground and show the doubters that £8 is not enough. Hence Sh5 spudded earlier than expected on 28 Oct and major OIP upgrade announced on 8 Nov. Meanwhile Exxon are not hanging around either. They follow through on their deal making with the KRG and agree to purchase the Shaikan 3rd party option and/or back-in rights at a $pb price that would imply a valuation of GKP at around $7b (or £8.30 per share). And sign for 6 other licences. The rumour mill picks up the story and the IoS/Leftly back it up. The KRG wrong-foot everyone proudly announcing on 14 Nov that Exxon have taken 6 new licences! Using the 3rd party deal price as leverage/evidence of value, the KRG then “sound out” GKP and pressurise them to accept a similar $pb deal from Exxon for the whole of GKP. They also attempt to get major shareholders on-side for this deal. But GKP decline, insisting the company is worth double-figure billions. (These events form the basis of the IoS story on 18 Dec which Leftly admitted probably took place several weeks earlier.)(They also resonate with CJ’s assertions that “moves have been afoot to get shareholders on side to accept a lower figure”). Todd fights back making it clear he wants to see an auction, and will not yield to the first bidder. On 25 Nov he appoints NED Mark Hanson to bring the Chinese into the fray. Rumours continue to build and on 18 Dec the IoS/Mark Leftly run their “Exxon woos GKP” story. Hanson reports back to Todd that the Chinese will not enter the bidding unless they are assured there is not already a done deal and can see a level playing field – in particular that GKP is not already in detailed discussions with the US majors. TK isn’t – so he lets the Chinese and any other potential bidders know that he is “not in discussions over the sale of the company” in the denial RNS of 19 Dec. And to emphasise the point that there is plenty more oil to bid for GKP announces the early spud of Sh6 the very next day 20 Dec. JG also lets it be known that he expects at least 2 more major upward revisions to the Shaikan OIP figures. I think he also talked up Ber Bahr comparing the early drill results there to the findings at Sh1. Other shareholders also realise that they need to help Todd fight his corner. Numerous “valuations” are proffered. And 20 Dec also saw the release of GRH’s famous satellite oil maps. Exxon begin to realise that to secure the prize, a high profile offer is needed swiftly. They go for $19b and get US SD backing. (See CJ 9 Jan). But that bid is quickly over-trumped by 23% another US major. (CJ) And the chinese haven't even put their first bid in yet.... ================ Author scaramouche View Profile Add to favourites Ignore Date posted Wednesday 14:06 Subject Each and Every one....... Votes for this Posting Voted 137 times. Message I can see that there are now 2000+ posts on this board every day... and the worldwide interest in GKP is growing by the minute! But with so many posts it is not always very easy to ensure that we are all ‘on the same page’ as far as our understanding goes. There have been some great posts recently about the responsibility of the Board to keep us fully informed on any key developments, and I am sure that they are making every possible effort to do so. However, like so many on here, I see at as absolutely essential that the Board and Investor Relations are made aware of the CONCERNS that many of us have regarding TRANSPARENCY and ASSURANCES..... that we will NOT find ourselves suddenly presented with an OFFER that WE, quite literally, CANNOT REFUSE! With this in mind, I have decided to write to GKP directly as follows, to try to address a number of points that are increasingly being discussed on this board. The note that follows contains TEN QUESTIONS, some or all of which might strike a chord with many on here. And I would simply ask each of you to consider whether it might form the basis of an email that you could also send to the company, to help ensure that everyone receives the assurances they need. *** IMO, this is all about communication, and it is the ONLY way that we can guarantee that everyone is getting exactly the same information *** I fully appreciate that you may not agree with some/any of the questions, might have some of your own, or disagree with it completely as a concept. But, as I believe that we are now approaching the end game, I would like to think that all sharholders will consider doing something to make sour that thier opinions count. In any event, I sincelry hope you find it useful as a basis on which to formalise your own thoughts. If the feeling I detect on here is anything to go by, I would like to think that if many people were to contact GKP directly, it could prompt them to find a more effective means of ensuring that both their concerns, and those so clearly expressed by CJ and others, are fairly dealt with. The “non-denial denial” RNS was in my view far from adequate and has simply served to add fuel to the fire! So, below is my proposed email to IR/Todd Kozel/whoever.... GLA, scaramouche ---------------------------------------------------------------------- Dear Mr. Kozel, As a long-standing holder of GKP shares and continued supporter of the company and its Board of Directors, I would appreciate it if you could respond to the following list of questions which, given both press reports and information widely discussed on many investment forums, are currently causing me some degree of concern. 1. Are there (or have there been) any DISCUSSIONS with major oil companies regarding the sale either of the Company as a whole, or its interests in Shaikan? If there are indeed, as mooted, a number of such discussions (even at an early stage), I understand that the LSE rules for AIM stipulate that shareholders must be made aware of this at the earliest possible opportunity. 2. Have any BIDS been put forward either for the Company or any of its key assets and, if so, what figures have already been flatly rejected? While I appreciate that the specific details cannot be provided, I do think that shareholders should have an appreciation of what the Board sees as a “floor” in any possible negotiations, in order to help manage their own expectations. 3. Can I please have your personal assurance that there is no truth in the rumour that THE KRG is exerting any undue influence on the Board to accept a preferred bidder? It is widely recognised that Iraqi /Kurdish politics are very delicately balanced and price-sensitive, but I am sure that you will agree with me that it would be unfair on shareholders if any FREE AUCTION was to be undermined by external forces. 4. Can you please confirm if the sale of GKP’s share in the AKRI-BIJEEL licence is still expected, and if the time-table for that sale that you referred to in September has been altered as a result of the disappointing results from Bekhme-1 recently announced by MOL? There has been nothing in the latest RNS’s to suggest that the situation has changed, but we have now reached your original anticipated deadline. 5. In the event that a BID is made for the COMPANY or SHAIKAN, can I have your personal guarantee that shareholders will be immediately informed of it? I would also like your confirmation that all shareholders will be made aware of which bidders are involved in any subsequent bidding process, their initial offers, and any significant changes arising to those offers, thereby ensuring complete transparency and strict adherence to the AIM rules and those of the Takeover Code. 6. Given the swiftly increasing OIP figures from the ongoing drilling activities on each of the Company’s blocks, and therefore rapidly RISING VALUE of GKP’s assets, can I have your assurance that the Board will not with-hold any available information that is likely to have a significant influence on its share price or on prospective valuations or bids for the company. In this context, I assume that, should any proposed sale of the company be announced, its shareholders will receive sufficient information as to the latest Operational status, on all of the company’s licences, on which to base their DECISION as to whether or not to accept a proposed offer. 7. In the event that the Board RECOMMENDS acceptance of a BID which is, at least on a ‘prima facie’ basis, less favourable than an alternative offer, the Board will inform shareholders fully as to the REASONS behind their recommendation. 8. I am sure that no member of the Board of Directors would ever ACCEPT any form of inducement, nor OFFER any inducement to any parties interested in the ultimate destination of any of GKP’s assets. But can I please have your cast-iron guarantee that you would immediately respond appropriately should this ever prove to be the case. 9. I would also appreciate an understanding of the TIME-TABLE that the Board will seek to follow in the event that a BID is made for the company, the approach to any ensuing auction, and any actions that should be taken to ensure that I and all other shareholders have ample time in which to make our decisions. I would like to think that, for a company with such massive and diverse assets as GKP has, no ‘offer’ would ever be presented to its shareholders as, in effect, a ‘fait accomplit’. 10. Please could you ensure that shareholders are provided with an UPDATE as to the status of GKP’s Algerian assets, the proposed addition of a third Non-Executive Director, and the previously announced intention to join the FTSE as, to my knowledge, nothing has been communicated on these subjects for some time. While I am sure that it can almost be taken as read that the Board of Directors will actively ensure that it always acts in the best interests of shareholders, it is I think important to obtain your confirmation that my understanding is the same as yours in respect of Each and Every One of these matters. Kind regards, XXXXXXXX ============= Iraq aims to reduce IOC red tape Passengers wait to go through customs at Baghdad International Airport. (MOHAMMED AMEEN/Reuters) By BEN LANDO of Iraq Oil Report Published January 13, 2012 Prime Minister Nouri al-Maliki has ordered the government to remove many of the bureaucratic roadblocks that have slowed foreign oil companies over the past two years. Iraq Oil Report has obtained a copy of Maliki's directive, ordering six key government institutions to implement the recommendations made to Maliki by Iraqi Oil Minister Abdul Karim al-Luaibi in a letter dated Oct. 11, 2011. If implemented, the new guidelines will help companies avoid logistical problems such as visa delays and... ================ Bidders sought to build Kurdistan pipeline SUNDAY 15 JANUARY 2012 Gulf Keystone Petroleum has invited bidders to build a pipeline that would allow the much-watched oil & gas company to export vast supplies of black gold from its key Kurdistan field. This pipeline would have the capacity to handle 500,000 barrels a day. There is also an option to build a second pipeline, of similar capacity, which would ramp up production to a million barrels a day. That would be more than 1 per cent of the world's oil needs and explains why super-majors are running the slide rule over the company. =============== Author scaramouche View Profile Add to favourites Ignore Date posted Tuesday 20:24 Subject Just as the line went dead.... Votes for this Posting Voted 83 times. Message Allegedly.... 18 October 2011... JG: Todd, I’ve got Rex on the phone for you. TK: You know I’m not prepared to talk to that man after what he has put us through this year! JG: No, not Wempen.... Tillerson! TK: Oh, okay that’s different. Put him through. RT: Hi Todd, as I expect you know I’ve just become one of your neighbours! Anyway, I was just thinking. You know you have a few problems at the moment – wife trouble, some legal case, and your share price stuck at around 150p. Well, I understand that you have discovered about 11.8 billion barrels of OIP in Kurdistan, with an estimated TWO BILLION barrels of Reserves attributable to GKP. What would you say to an offer of about $5 per barrel for....? -----The phone line inexplicably goes dead ----- TK (to JG): What is it about people called Rex, eh John - are they all out to ‘shaft’ us? Make damn sure that everyone knows that I am NOT ready to sell the company.... and certainly not for anything less than double-figure billions. Oh, and I’m talking Pounds sterling here, not U.S. dollars! JG: Okay Todd, I’ll get on to it right away. TK: By the way, John - get that latest Operational update out pretty damn sharp! Those revised OIP figures should make a few more people sit up and take notice! 8 November 2011... JG: Todd, Rex T is on the line again. He says he has seen the update showing 10.5 billion barrels at Shaikan. He understands that you now have about 2.5 BILLION barrels of reserves and he is thinking about offering $6 per barrel, plus a payment in lieu of all the costs to date and cash in the bank. TK: Jeez, what is it with these people – do they ever give up? Tell him I’m busy interviewing for some Non-Execs at the moment. 19 December 2011 (at a secret location)... US Major Exec: Rex, I’ve got that State Department approval for the move on GKP. They’ve agreed to that $19 billion you were ready to offer for GKP. The trouble is that some guy from Chicago seems to have got hold of the story, and only yesterday a journalist from the British newspaper, the Independent, has also written a story about it. RT: Dammit, I thought we could keep this all safely under wraps. I’d better ring Kozel. ----- RT picks up the phone ----- JG: I’ve got Rex on the line again. TK: Jeez, he doesn’t half pick his moments. I was right in the middle of a Chinese takeaway. Tell him I’ll phone him back after I have had a good look at those latest SH-4 results. Mmmmm..... 2375m of gross pay. Talk about “an oilman’s dream” – this is becoming more fantastic every day! 17 January 2012.... JG: Todd, I’ve got Rex on the phone again – he doesn’t sound very happy at all! He says that a journalist called Tamsin has recently mentioned the ‘S’ word in one of her articles, and hinted that the Chinese might be about to show their hand. TK (nervously): Okay, John. Put him on. RT (coldly): Todd, anyone would think that you have been avoiding my calls! When we last spoke, I enquired what you would say to $5 per barrel of Reserves, and then I suddenly got cut off. I know you’ve now got much higher numbers to talk about and Global interest in GKP, so I’ve now got a much higher offer to discuss with you. In fact, I’d also like to say that I now have irrevocable undertakings from almost all of the Institutional holders to agree to the offer. So, I suppose you could say that GKP is pretty much ‘sold’. TK: I have to congratulate you Rex. So close to SH-4 and BB-1 results, and not too far away from confirming the OWC level with SH-6, and you seem to hold all the cards. What a day – and just when my divorce has finally been settled. Ashley pretty much wiped me out, you know, and she now holds about 2% of MY Company. Amazing, eh! If you think I’m a ‘tough American businessman’, you want to try dealing with my ex-wife – she can be even harder to bargain with, I can assure you! And as for those pesky PIs, they’ve been talking about a ‘FAIR AUCTION’ for GKP... for what seems like ages. I can hardly wait for it all to be over. ----- Once again, the line went dead ---- It would certainly be a good story IF this was what had really happened, wouldn’t it - Not saying it did, mind you! GLA, scaramouche ========================== 70% Jump in US Companies Considering Iraq Posted on 18 January 2012 The Iraqi Embassy in Washington DC dealt with nearly 5,000 applications from American companies hoping to do business in Iraq last year, a 70% jump from 2010, according to an article from Chicago Business. Among the companies mentioned are the Schaumburg, Illinois-based manufacturer Quality Float Works Inc., which mades devices to control liquid flows in machinery. Another is Navistar International, whose subsidiary Navistar Defense supplied the U.S. military with about 9,000 trucks during the occupation. Now it’s aiming to become a commercial truck supplier. Northbrook, Illinois-based NewMedical Technology Inc., which makes a scar-reducing gel, is diving into what company Vice-president Jeff Dziura described as “cumbersome” regulatory paperwork in order to sell in Iraq. (Source: Chicago Business) (Picture: Navistar) ============== Luaibi to Iran for Hormuz threat talks Iraqi Foreign Minister Hoshiyar Zebari (left, C) and his Iranian counterpart Ali Akbar Salehi (right, C) smile as they attend an official meeting in Tehran June 21, 2011. (MORTEZA NIKOUBAZ/Reuters) By BEN LANDO AND STAFF of Iraq Oil Report Published January 18, 2012 As tension between Iran and the West increases, sparking a threat by Tehran to shut down the Strait of Hormuz to oil tankers in response to increased economic sanctions, the president of OPEC and Iraq's Oil Minister, Abdul Karim al-Luaibi, is attempting to head off a crisis. "On this occasion, tomorrow (Jan. 19) I am going to visit the Islamic Republic of Iran and we are going to discuss with our brothers the officials there about issuing important and real assurances to the world that all ar... ============== Author scaramouche View Profile Add to favourites Ignore Date posted Sunday 20:19 Subject Before the Curtain comes down.... Votes for this Posting Voted 197 times. Message For some time, I have been conscious of the statement often mentioned on this board and made by Marius Kloppers. CEO of BHP Billiton, the largest mining company in the world. As a reminder, in July 2011 he stated that their < Billiton’s> $12.1 billion bid for Petrohawk Energy Corp. should be valued against the gas and oil assets in the ground rather than the U.S. shale gas company's share price”. I have also been constantly aware that, as far back as 31 August 2010, the phrase “drill, baby, drill” was coined by broker Daniel Stewart, since when GKP has clearly been trying to ensure that as many drills as possible are happening at the same time. It is therefore very obvious from these statements that the more oil RESERVES (Assets) that GKP can prove up, the higher should be the real value of the Company. The missing factors for our Valuation are surely then just the DOLLARS PER BARREL OF RESERVES that our suitor(s) might be prepared to pay, and the TIME LEFT for proving it all up. With this in mind, I find it quite puzzling that many posters on these boards, and even analysts such as the chap from VSA capital in the recent Proactive Investor’s video http://www.proactiveinvestors.co.uk/companies/stocktube/987 repeatedly attempt to relate the potential return that shareholders might get to the prevailing SP. It makes no sense to me at all! Anyway, as an exercise, I thought I would take a look at how our assets have risen in recent times and how this could correlate with the many rumours and SP guestimates posted, as well as the claim that Exxon have had the “very best best block in Kurdistan” RESERVED for them. Although this is quite a long post, I hope you find it interesting.... 1. For most of 2010, GKP had just 4.2 BILLION OIP (P50) from Shaikan which, with an estimated one-third (33%) Recovery Factor and a 54.4% Net WI in Shaikan, would have given them Reserves of 750 MILLION. The oil price was about $75 which would have given us approximately a net $6 per barrel, based on what we understand today. To allow ‘something for the next man’, $4 per barrel could therefore easily have taken us out. A $3 Billion oil reserves valuation, little cash, and return of costs amounting to $200-300 million - and we would have been ‘worth’ about $3.2 billion had the For Sale sign been up. For the then 675 million shares in issue it represented $4.75 per share (or about £3). *** How many of you can remember how those with a less than positive view on GKP would tell us then that we would be taken over for at best 300p per share? *** 2. Then came the October 2010 placing, taking shares in issue to about 750 million. This was soon followed by a 2.4 BILLION (P50) oil discovery by MOL at Akri-Bijeel, giving us another 100 MILLION of ‘estimated’ reserves, or a new total of 850 MILLION. The Oil price was heading inexorably for $100 which would give us a net $7.80 profit per barrel. So, if in early 2011 we had upped the sale price valuation to, say, the $5.90 per barrel of reserves implied by the Vallares/Genel merger http://www.bloomberg.com/news/2011-09-07/vallares-agrees-to-merge-with-genel-in-2-1-billion-share-deal.html ... GKP’s 850 MILLION of attributable reserves would have become worth about $5 BILLION. Adding recoverable costs and cash in the bank, we would probably then have been looking at a ‘sale’ valuation of $5.5 BILLION (£3.7 billion).... or about £5 per share. **** And the de-rampers were at it again, proclaiming “you’ll never get more than 500p” ***. 3. We were all however really waiting on Shaikan-2 and, when the results came in April 2011, we saw the OIP figures jump to 7.5 BILLION (P50), and so too our attributable Shaikan reserves to 1.36 BILLION. The TOTAL RESERVES had therefore risen to around 1.46 BILLION, and the oil price was now firmly in the $100+ range. On that basis, GKP could conceivably have been taken out as follows: 1.46 BILLION reserves x $5.90 per barrel = $8.6 billion (£5.7 billion). Add in cash and recoverable costs totalling £300 million, and you have a total of £6 BILLION... or £8 per share for the 750 million shares then in issue. *** How often did we then have that supposed ‘pie in the sky’ of 800p drummed into us, I wonder? *** But then, it was as if everything changed.... 4. In JULY, Sanddunes came up with his infamous ‘shafted for £8’ post, and the doom-merchants still insisted that everyone was crazy if they thought we would get that more than £5. Of course, they could have been right had we been looking exclusively at the prevailing SP of about 150p.... but NOT if we based our evaluation on the ASSETS IN THE GROUND. In AUGUST, we had “preliminary” figures of 1.9 billion OIP (P50) for Oil found at Sheikh Adi. This added about 500 MILLION to our estimated Reserves figures – but the SP went down! In SEPTEMBER, TK said that our share in Akri-Bijeel was for sale and Ewen hinted that we could expect several hundred million dollars, which would be reasonable for 100 million or so recoverable barrels. But we needed Bekhme results first, and Bekhme-1 seemed to be drilling forever. There was virtually no impact on the SP ! Also in SEPTEMBER, we had an unexpected placing, taking shares in issue to 850 million.... mainly I think because TK wanted the drills to keep turning and our OIP figures to rise – curiously, the SP fell well below the placing price of 140p for quite some time! *** A total now of nearly TWO BILLION estimated Reserves, £120 million of new funds, and yet we still had a MARKET CAP of only just over £1 BILLION - something clearly didn’t make sense ***. Then, in OCTOBER we started hearing rumours that Exxon had moved into Kurdistan, and that other majors were likely to follow. The KRG confirmed the rumour on 13 NOVEMBER 2011 when they told us about the 6 exploration licences Exxon had signed for.... but not about the best block ever that the VSA capital analyst recently said had been “reserved” for them... presumably SHAIKAN! And also in NOVEMBER, GKP announced a further 3 BILLION upgrade to 10.5 BILLION (P50) at Shaikan, giving about 550 MILLION extra estimated reserves. Perhaps this was designed to remind Exxon and others that big OIP upgrades could happen at any time. By this time GKP’s total estimated reserves were a staggering 2.5 BILLION, and we would have been ‘worth’ $14.7 billion at $5.90 per barrel of reserves, plus cash and recoverable costs of about $500 million, which converts to somewhere close to £10 BILLION! (Note: Had Bekhme-1 come in as originally expected with a further 200 MILLION of attributable reserves, we might even have been looking more closely at at Nobletrader’s $16.5 Billion bid rumour). 5. On 19 DECEMBER 2012 we saw the famous Mark Leftly article in the Independent on Sunday... which essentially demonstrated the problem for any possible buyer. In October 2011, GKP could perhaps have been valued at £7 BILLION (800p per share), but the upgrade in November had surely taken it into... “double-figure billions”, eh Todd! No wonder, any ‘sounding out’ was unlikely to have got past first base. It is interesting too to see our friend from VSA capital popping up again in this article of the same date http://blogs.wsj.com/deals/2011/12/19/analysts-weigh-exxons-possible-kurdistan-oil-play/ Extract: A bid by ExxonMobil for Kurdistan-focused explorer Gulf Keystone “wouldn’t be out of kilter at all,” says VSA Capital analyst Malcolm Graham-Wood, who points out the 800 pence a share offer price first referenced in an Independent on Sunday article would be at the top end of most valuations. But was there a time-lag here perhaps, as any possible bid would surely have to take account of the latest upgrade - perhaps an element of Managing our Expectations? 6. NOW, at nearly 2.5 BILLION of reserves.... GKP might be estimated to be worth something like £10 Billion (or $15.5 billion). But, what is the betting that, in the short-term, what is already known about Shaikan (from SH-4) will take us quickly up to CJ’s $19 billion on that same $5.90 per barrel basis? Indeed, could the imminent news expected from BB-1 or SH-5 even move us 23% higher towards CJ’s subsequently revised figure? In conclusion, I can’t help thinking that the apparent change of approach (which seemed to begin in about July 2011 may have signalled a set time-frame.... during which GKP was required to prove up as many reserves as it could. Could that deadline be approaching very fast? JG said recently he expected another 2 upgrades, which may see us getting the results first from SH-4 and SH-5, and then hopefully SH-6 should be the icing on the cake. But isn’t it ironic that we spent almost the whole of 2010 and 2011 failing to respond to the FACTS in our RNS’s, and the SP is now only just beginning to react to what seem like albeit credible RUMOURS? Finally, did anyone notice that our friend from VSA capital also said about Exxon... ”and they wouldn’t have gone in there if the STATE DEPARTMENT had said it was going to be a problem (at 4.10 into the Proactive Investor video”).... just before a sideways glance to the camera which suggested to me that this was the line he really wanted to get in! Are we essentially saying that there is State Department approval for the US Major, as has also been rumoured on here. Maybe this is what all the rumours are pointing to. Exxon is about to be proclaimed the preferred bidder and their price, just like Tony Hayward’s, is about $5.90 per ‘proved-up’ recoverable barrel. And maybe, just maybe, we have only a little more time.... before the curtain comes down. The recent spate of buying, and sequence of recent RNS’s, suggests to me that this could well be the case. GLA, scaramouche ======================== By Gavin Jones, Director of Iraq Business News, and Partner at consultancy firm Upper Quartile. This article was originally published on the Emerging Economics blog. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News. It is very difficult with a market like Iraq to separate current issues, past progress and likely consequences. Since mid-2009 there has been significant achievement and progress, a sustained period of calm which now, sadly, is turning into what will probably be a very violent period as the actions and indecisions running up to the last election start to be resolved. Let us take a quick look back at what has been achieved by the Iraqi Government: Two licence rounds that were very much more transparent than most in Western countries; Production has increased from about 2 million barrels of oil a day in 2009 to about 3 million today and is increasing rapidly; 14 IOC’s (International Oil Companies) and hundreds of service companies operating in Iraq; $43 billion in foreign investment during 2010 with numbers showing about twice that expected in 2011. The Central Bank of Iraq has a surplus of $50 billion The contracts being awarded are massive, but it is not clear to me that many companies are making much in the way of profits in the country because the operating costs are so high. If companies cannot generate earnings commensurate with the risk, they will leave – especially with the price of oil rising quickly. However despite the achievements there are significant problems, some of which have been highlighted already, but it is important to understand the likely out-turns of what is going on in this re-emerging economy. There are a few facts that, in my view, are driving what you are seeing in Iraq now; these are: The Shiite-Sunni divide has been a fact in Iraq that has never gone away. Facts, so the expression goes, are stubborn things and 1,300 year-old facts are especially stubborn. The US must bear some of the blame for encouraging and playing a part in managing a coalition of Maliki and Allawi and excluding the Sadrists from this Government – it was understandable but silly and this is a large part why we are seeing this violence. For a fuller explanation it is worth visiting the website of historiae.org, a direct outlet for historical research on topical issues in world politics and reading their view of the role played by Christopher Hill, the US Ambassador in Iraq. The US troop withdrawal was set in motion 3 years ago but it was the process which was more interesting than its outcome. Maliki was seen to be in favour of then against the withdrawal and then used it as an opportunity to set-up Allawi, for a fall. A critical element in the stability and growth of the country was turned into a political battlefield. The US military pulling out does not mean that the US will have a reduced presence – the US Embassy will continue to have an astonishing 15,000 and 16,000 staff in Iraq and about 5,000 armed contractors guarding them. This will be the USA’s largest diplomatic presence in the world. From an oil and gas industry perspective, Exxon-Mobil’s decision is interesting; this is a company which does analysis and assessment very well, they picked 6 of the most sensitive blocks that were possible to pick for their very public venture into Kurdistan. When Maliki started talking to the US Government about Exxon’s presence this turned from a commercial decision to a political / security one. It was a good call by Exxon and they may well get away with the decision – and probably flush out a couple of other big oil majors into moving into Kurdistan . The announcement last week to pass the Oil Law (the same one that has been about to be passed for the last 5 years) without Allawi’s party being involved just shows how the politics has shifted from a Shiite / Sunni issue to a Sadrists plus one of the others issue; that is a development worth watching. But all this has not stopped the investment in Iraq. In 2010 Iraq attracted almost $43 billion in foreign investments – the real surprise is not the magnitude or the destination but the nature of the investments made. The top sector is not Oil & Gas, whatever you are led to believe from the press; the top destinations are residential property (33%), transport (16%), electricity (14%), industry – mainly cement and steel (14%) and then – in 5th place – oil and gas with 13%. Turkey dominates the investments with just over 33%, followed by Italy (12%), France (10%) then South Korea and the USA with the United Kingdom at 9th place with just under 3%. What Iraq really needs is a truly integrated Government focused on Iraqi interests: and this needs Maliki to dump a few of the overtly pro-Iranian figures from his coalition. Allawi needs to abandon the idea of a strategic policy council (this was dumped in late 2010 in all but Allawi’s mind) and the Sadrists need to be properly integrated into the Government in some way (if the Mahdi army is reformed it will not be good) and lastly some sort of long-term military deal with the United States needs to be sorted out. But then …… which country does have a Government that puts national interest ahead of political survival. For investors in Iraq there are going to be periods of investment and periods when you need to keep your head down. Iraq is a different market from most others in that investors will need to understand the political dynamics more fully than the other markets – the costs of making a mistake are too high. Aberdeen energy businesses looking to develop business opportunities in Iraq are able to access free advice through a series of seminars run by Upper Quartile on behalf of Aberdeen City Council. The next seminar in the series will take place at Marischal College on Friday 27th January. For information contact Siobhan Young at siobhan@upperquartile.co.uk. = 29-01-12 From stranglehold to stampede? GKP.L 157 Nearly 3 months ago, I posted details of all the companies that had TSCs in Southern Iraq, and the stringent terms under which they were operating. http://www.iii.co.uk/investment/detail?code=cotn%3AGKP.L&display=discussion&threshold=0&action=detail&id=8915923 Here’s an extract from that post: Anyway, BBBS, from the details above I have concluded that there are 15 large oil companies operating in Southern Iraq: • BP of the UK • SHELL of the UK/Netherlands • Exxon Mobil and Occidental of the USA • PETRONAS of Malaysia • CNPC of China • LUKOIL and GAZPROM NEFT of Russia • TOTAL of France • ENI of Italy • STATOIL of Norway • TPAO of Turkey • SONANGOL of Angola • JAPEX of Japan • KOGAS of South Korea Those in the top half of the list are perhaps the most likely contenders to move into Kurdistan, and could be the reason that Shamaran declares “Additional Industry Interest Imminent”... perhaps also signalling the end to the ICG imposed ‘blacklist’!” >> Well, we already know the impact that EXXON taking up 6 exploration licences in Kurdistan (announced by the KRG in early November 2011) has had, plus the inference that GKP’s SHAIKAN oil field is very firmly on their watchlist. And now it seems that we have confirmation too that TOTAL have joined them there. Who can blame them? TOTAL have an 18.75% share in the Halfaya licence, which offers a paltry $1.40 per barrel for production, even less than the $1.90 per barrel that Exxon was getting at West Qurna-1! And what has always struck me as odd about those TSCs is that the payment was fixed throughout the life-time of the contract, even if oil goes to $200 per barrel - a seemingly miniscule return for the extreme risk of operating in Southern Iraq where ethnic tensions are high the Maliki regime has been becoming ever more authoritarian. Shahristani might be a very tough negotiator but there had to be some incentive to foreign oil companies, which the Maliki government's failure to agree a unified Oil and Gas Law more than a year after taking office has clearly negated. Assuming that Total’s entry into Kurdistan is soon confirmed, it seems obvious that what was just a single super-major choosing to break the stranglehold previously applied by Baghdad will soon become something of a stampede. It is interesting too that Ashti Hawrami (Kurdistan’s Natural Resources Minister) made these comments to the FT in an interview published on the KRG website on 22 November 2011 only 2 weeks after the Exxon news broke http://web.krg.org/articles/detail.asp?lngnr=12&smap=02010200&rnr=73&anr=42363 Extract: FT: Do you expect other super majors to follow EXXON into Kurdistan? Dr Hawrami: Yes. I think the region is becoming very dynamic, in fact, it has been dynamic over the last 12 months. There is a lot of activities going on, and you are aware of the acquisition of Genel Energy by Vallares. That’s just an example; I think there will be others to follow.>> Hmmm.... Does ENI-one really think that the release of the news at this time (with the OGL continually having obstacles put in its path) is purely OCCIDENTAL? Or can we expect to see several more super-majors breaking rank in Southern Iraq and SHELL-ing out huge sums for prospects in the much more business-friendly environment of Kurdistan, I wonder? There is little doubt that confidence is building. And in the next few weeks, it looks very likely that long-term holders will be well rewarded, and their resolve to stick it out throughout the very testing Iraqi political impasse.... TOTAL-ly EXXON-erated! Yes, CJ, the 'landscape' is definitely changing! AIMHO and please DYOR GLA, scaramouche ============ Reko Diq damages claim ‘exaggerated’ By Shahbaz RanaPublished: May 14, 2018 0 SHARES SHARE TWEET EMAIL STOCK IMAGE STOCK IMAGE ISLAMABAD: There are glaring flaws in the Tethyan Copper Company’s (TCC) damages claim of $11.43 billion in the Reko Diq mining case that may reduce it by as much as 61 per cent, officials maintained. The company, they said, exaggerated its future profits by underrating tax and royalty obligations by as much as 61 per cent. The damages claim was filed in the International Court for Settlement of Investment Disputes (ICSID) of the World Bank. The hearing for quantifying damages will start on Monday (today) in London, lasting till May 24. Reko Diq is part of the Tethyan Magmatic Arc, a mineralised belt that originates in Eastern Europe and runs through Iran and Pakistan before ending in Afghanistan. Pakistan’s legal and tax experts have submitted another report in the court, hoping that it will have ‘substantial impact’ on the damages claims, sources told The Express Tribune. Pakistani authorities did not quantify the impact in dollar terms, but their internal correspondence suggested that the TCC had understated its royalty and tax obligations towards the state of Pakistan up to 61 per cent. In 2012, the TCC filed claims in the ICSID after the Balochistan government turned down the company’s lease request. Sources said that the TCC had built its case around damages on its investment in Pakistan and future profits from mineral extraction over a period of 56 years. They said that the claims were based on wrong application of tax provisions by TCC in addition to understating royalty. The royalty had to be paid at the time of materialization of five per cent on gross receipt basis but TCC calculated it on the basis of two per cent net, they said. According to Rule 102(4) of Balochistan Mineral Rules of 2002: “The fair market value, in respect of any mineral or group of minerals which has been disposed of, shall be determined by reference to the first point at which it was disposed of, without allowing for any deductions from the gross amount so determined.” But the TCC worked out the figure on the basis of net smelting. Balochistan government had increased royalty rates from two per cent to five per cent in 2009, sources said. The Chinese firm, operating the Saindek gold-copper project in Balochistan, has been paying royalties at the enhanced rate of five per cent, sources said. Over a 56-year lease period, the difference in payment of royalty alone would have been in billions of dollars. This single point could again lower the TCC’s claim by at least 40 per cent, sources said. The TCC has also not included the impact of indirect taxes, including the federal excise duty, in its deductions, the sources said. Pakistan government had not given any exemptions on federal excise duty and other taxes, sources asserted. This would cause a dent in TCC’s claim, reducing it by another 21 per cent, sources claimed. Pakistan has hired a legal firm GST, out of Washington DC, that advised the federal government to take a tax expert on board. The authorities engaged Dr Ikramul Haq as tax expert, a Supreme Court lawyer and an expert in international tax laws. The Office of the Attorney-General is vigorously defending TCC’s ‘outlandish claim’ through its International Arbitration Unit, according to a briefing to a parliamentary body. Pakistani authorities expressed the hope that arguments about tax and royalty payments would be crucial for minimizing TCC’s damages claim. Although at this stage Pakistan believes that the damages claim was unjustified. The Supreme Court and the federal and provincial authorities mishandled the TCC case, according to the proceedings of the Public Accounts Committee. During the ICSID proceedings, the jurisdiction and liability were decided against Pakistan: The tribunal found that the country had breached the Bilateral Investment Treaty of 1998 between Pakistan and Australia. The PAC also questioned the manner in which successive provincial governments allowed changes in ownership, delegating it from one Australian company to two others between 1998 and 2006 despite the fact that there was no such clause in the original Chagai Hills Joint Venture Exploration Agreement. In 2013, the SC declared that the agreement and all its successor agreements were void ab initio and that the TCC had no legal rights to explore and mine in Reko Diq.