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INSIDE Baiji refinery begins its 2 comeback Iraq seeks sanctions waiver on 4 vital Iran energy trade

Q&A: SOMO Director General Alaa al-Yassiri Iraq's oil marketing chief discusses rising export capacity, OPEC dynamics, oil trading joint ventures, and the status of a nascent hedging program.

After setting an all-time monthly export record in August, Iraq’s oil sector is aiming for even greater heights. Flares at the Nahr Bin Omar oil field on Jan. 12, 2017. As the director general of the State Oil Marketing Organization (SOMO), Alaa al- Iraq poised to capitalize on OPEC supply drops Yassiri is looking to capitalize further on the country’s rising output. With more than 300,000 bpd of new capacity coming online this year, Iraq is well positioned to take market share as U.S. sanctions snap back on Iran. see SOMO, page 9

Iraq’s production capacity is likely to ex- poses sanctions on Iran and its oil exports. ernment and autonomous Kurdistan Regional pand by more than 300,000 barrels per day OPEC members, along with Russia and Government (KRG) currently have a combined (bpd) by the end of the year, according to other non-OPEC producers, met in Algeria capacity of about 5.13 million bpd - more than an Iraq Oil Report analysis, highlighting the on Sept. 23 to discuss a potential output 300,000 bpd higher than countrywide produc- country’s ability to help compensate for sup- increase to compensate for recent losses tion in August, of 4.81 million bpd. ply disruptions from other OPEC members. of supply, including from Iran – and Iraq is About two-thirds of that unused capacity The Oil Ministry is unlikely to take full ad- well positioned to help fill the gap. resides at two fields under federal government vantage of rising capacity because of other Iraq Oil Report has gathered data from control in Kirkuk - Bai Hassan and the Avana infrastructure bottlenecks, but Iraq’s produc- each of the country’s producing fields to as- Dome of the Kirkuk field - which are partially tion potential still shows its growing impor- sess current production, current capacity, shut in because there is no available route to tance to global oil markets - and U.S. foreign and expected capacity by the end of 2018. market for their full capacity. They could in- policy - as the Trump administration re-im- The analysis shows that Iraq’s federal gov- crease production if authorities in Baghdad and

see OPEC, page 7

DELIVERING THE FUELS THAT ENERGIZE PROSPERITY www.iraqoilreport.com Baiji refinery begins its comeback Despite ongoing violence, the Baiji refinery's resumption of operations marks progress in Iraq's northern oil sector.

The Baiji refinery, taken offline by the war with the self-proclaimed Islamic State (IS) militant group in 2014, has partially re- sumed operations. The 70,000 barrel per day (bpd) Salahad- din-2 unit of the refinery is operating again, albeit not yet at full capacity due to inad- equate power and crude supply, according to a senior North Oil Company (NOC) offi- cial, a Baiji worker, and an industry official. Even if the unit is brought fully online, the re- finery will be operating at less than one-quarter of its former capacity, of 310,000 bpd. But the facility’s nascent comeback still highlights the progress that Iraq’s oil sector has made since territory has been reclaimed from IS control. The Salahaddin-1 unit, which also has a 70,000 bpd capacity, is being refurbished and is expected to begin operations by the end of the year. The oil refinery in Baiji, in 2009. When Baiji went offline, on June 16, 2014, the loss of the country’s largest refin- where NOC-operated fields have been shut- the summer of 2014 and October 2017. The ery was a devastating blow to the oil sector ting in nearly 200,000 bpd of production be- fields can produce as much as 280,000 bpd, and the broader economy. After Baiji was cause there is nowhere to send the crude. and increasing capacity at Baiji should help finally liberated in the summer of 2015, the NOC has produced more than 200,000 bring more of that capacity back online. facility was initially thought to have been bpd since June 2018, with crude flowing to There have been a number of obstacles damaged and looted beyond repair. the Kirkuk refinery; the Baziyan refinery in to the resurgence of Iraq’s northern oil sec- But the Salahaddin-2 unit was largely intact, Sulaimaniya; the Kalak and Ninewa refiner- tor, however, including persistently poor se- and the state-run North Refineries Company ies in Erbil; Baghdad-area power plants and curity. Attacks continue on security and oil (NRC) has been working to bring it online. It be- refineries; and the Siniya refinery, near Baiji. workers and energy sector facilities and in- gan testing at 3,500 bpd in early September, and About 90,000 bpd of NOC’s production has frastructure all throughout northern Iraq. ♦ efforts are ongoing to push it closer to capacity. recently been coming from the Bai Hassan The revival of Baiji is likely to help Iraq field and the Avana Dome of the Kirkuk field, READ THE FULL STORY @ unlock some stranded capacity in Kirkuk, which had been under KRG control between www.iraqoilreport.com

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90642 GW Iraq Oil Report Ad_AW.indd 1 09/08/2018 12:07 www.iraqoilreport.com

Iraq seeks sanctions waiver on vital Iran energy trade Iraq depends on Iran for more than one-third of its power generation - a major sticking point as Washington prepares to re-impose sanctions.

Iraq is negotiating with the U.S. for ex- Iraq’s gas and power imports from Iran But despite the looming sanctions dead- emptions from the impending snap-back accelerated during the Obama administra- line, the Iraqi electricity sector’s reliance on of sanctions against Iran, arguing that it tion, in the context of a multi-lateral deal to Iran has been steadily increasing. cannot cut consumption of Iranian electric- relax U.S. and European sanctions against In 2017, Iran began sending gas through ity and natural gas immediately without Iran’s energy sector in exchange for an in- a newly completed pipeline, which crosses suffering serious economic harm and so- spection regime designed to ensure the the border in Diyala province and then cial instability. freeze of Iran’s nuclear weapons programs. dog-legs southward to Baghdad. An Iraqi delegation was in Washington in But now that the Trump administration That pipeline is now averaging about late September seeking a waiver for its cross- has decided to walk away from that deal, 1,250 million standard cubic feet per day border trade, meeting with senior officials in Iraq is scrambling to adjust to the new re- (mscf/d), according to the senior Ministry the State Department, Treasury Department, ality. Even though the U.S. is re-imposing of Electricity official, and is responsible for and National Security Council, according to sanctions without its European allies, it still more than 4,000 megawatts of combined multiple officials familiar with the talks. wields the potent ability to restrict access power generation at multiple gas-fired power plants. To the south, a second newly built gas pipeline crosses the border into province, carrying about 250 mscf/d, ac- cording to the Electricity Ministry official. An Iranian company Tadbir built and tested the pipeline, but it cannot be confirmed at time of publication if it is the same Tadbir that is sanctioned by the U.S. government. Iranian gas began flowing to the Iranian- built Rumaila investment power plant in July, according to an official in the Basra Electricity Directorate, adding 310 megawatts to the grid. That plant was built and commissioned by Ira- nian company MAPNA Group, which is still do- ing work at the site directly and supervising its local partner Shamara Holding Group. Iraq has also been importing electricity directly from Iran, via cross-border lines. In the hot summer months of 2017, Iranian U.S. President Donald J. Trump greets Iraqi Prime Minister Haider al-Abadi at the White House supply to Iraq averaged over 1,300 mega- on March 20, 2017 in Washington DC. watts, according to Electricity Ministry data A central point of contention appears to to the dollar market - a serious threat for obtained by Iraq Oil Report. be Iraq’s imports of Iranian natural gas and a country like Iraq that depends on dollar- The importance of that power supply electricity. denominated oil exports for more than 90 came into stark relief in July 2018, when Iraq now depends on Iran for more than percent of its revenue. Iran’s direct power supply to Iraq dropped one-third of its power supply, according to Case in point: Iraq has trucked a total of to approximately 100 megawatts. Iraqi a senior Iraqi Ministry of Electricity official, 500,000 barrels from Kirkuk to Iran so far officials sent mixed messages about the including imports of natural gas that fuel this year, and is rushing to get stocks to 1 reason for the stoppage, with one Iraqi about 5,000 megawatts worth of power gen- million barrels so it can sell the oil onto a electricity official saying it was because eration and more than 1,000 megawatts of tanker ship before U.S. sanctions are fully of unpaid bills to Iranian companies, and direct electricity purchases via cross-border re-instated on Nov. 4, according to Alaa al- another official saying it was because of high-voltage lines. Iraq’s total power supply Yassiri, the director general of the State Oil Iran’s struggles to meet its own domestic is currently about 14,000 megawatts. Marketing Organization. demand.

4 www.iraqoilreport.com

Whatever the reason for the reduced crude oil production, and much of which is nies that have been in slow-moving talks with power transmission, it deepened the chasm wastefully burned instead of being used. the Oil Ministry over projects that could help between Iraq’s electricity supply and demand. One project to reduce associated gas boost domestic gas and power supplies. As temperatures were routinely spiking flaring and increase fuel for power genera- If, on the other hand, the next Cabinet is above 120 degrees Fahrenheit, citizens were tion is making headway. The Oil Ministry dominated by officials closely aligned with unable to operate their air conditioners – and and Houston-based Orion Gas Processors Iran, Iraq is less likely to endorse a plan the government’s electricity failures helped are in the final stages of long-standing ne- that involves enlisting international compa- fuel a protest movement around southern gotiations to capture flared gas from the nies to offset energy purchases from Iran. Iraq, including demonstrations that caused Nahr Bin Umar field. In a worst-case scenario, if U.S. sanc- minor supply disruptions at Basra oil fields A senior oil industry official who does tions begin to bite in Iraq, it would play into and drew security forces away from counter- business in Iraq said the government is ne- an emerging narrative by Iran-linked po- insurgency operations in northern Iraq. gotiating contracts with an apparent sense litical groups seeking to cast suspicion on Iranian electricity transfers to Iraq are of urgency, evidence that the potential American intentions in the country. now back up over 1,200 megawatts, ac- waiver on Iraq’s own dealings with Iran is in In Basra, for example, signs have recently cording to Electricity Ministry data. But the turn prompting constructive development been posted in public areas accusing U.S. disruptions in July and August illustrated a of projects that would increase domestic Consul General Timmy Davis of being respon- powerful lesson about the ways in which a gas supply capacity. sible for turning peaceful Iraqi protests into faltering electricity sector can undermine the But the outcome of the broader nego- violent riots, which recently destroyed politi- country’s stability - and Iraqi leaders are now tiations between Baghdad and Washington cal party buildings and the Iranian consulate. arguing to their American counterparts that is uncertain, and likely depends on the di- The U.S. consulate has denied the anon- they cannot realistically end their imports of rection of Iraq’s ongoing, protracted gov- ymous allegations and encouraged Iranian gas and electricity immediately. ernment formation process. to question the motives of lawless groups Instead, according to two officials familiar Iraqi Prime Minister Haider al-Abadi, who is who are looking to deflect blame for with the negotiations, the Iraqi delegation is viewed as friendly to the U.S., has all but con- their destruction, using a hashtag motto proposing a multi-year plan to build up do- ceded defeat following a disappointing show- “#checkthesource.” mestic gas and power supply to displace the ing in the May elections. His fortunes were But in a highly partisan media environ- country’s dependence on Iran. In exchange, further diminished when Grand Ayatollah Ali ment, Iraqi perceptions are less likely to be the U.S. would grant sanctions exemptions. al-Sistani - at the height of this summer’s pro- affected by well researched facts than by In the most optimistic scenario, accord- test movement - issued statements against a the visceral reality of power cuts — and if ing to one official involved in the negotia- continuation of the political status quo. Baghdad and Washington cannot reach a tions, U.S. sanctions could actually function If key posts in the next Cabinet are held by deal, Iraq’s electricity problems could soon to give new urgency to Iraqi gas projects Western-friendly leaders, then it seems plau- be blamed on U.S. sanctions. ♦ that have languished - including various sible the U.S. will work with Iraq to wean the plans to increase the capture of associated country’s electricity sector off of Iran - a pros- READ THE FULL STORY @ gas, which is generated as a byproduct of pect that could also benefit American compa- www.iraqoilreport.com

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For multi-user, corporate, academic and NGO rates, contact [email protected]. www.iraqoilreport.com Your job depends on being well Iraq poised to capitalize on OPEC supply drops informed about Iraq's energy, OPEC, cont’d from page 1 Iraq production capacity (bpd) New capacity End-2018 August Current expected by projected Erbil were to reach a political deal to send feder- production capacity al exports through the KRG-controlled pipeline end-2018 capacity political and security developments. Federal Iraq (subtotal) 4,384,000 4,686,000 251,000 4,937,000 to Turkey, or if the Oil Ministry is actually able to bring 140,000 bpd of promised capacity back Basra Oil Company 3,270,000 3,355,000 137,000 3,492,000 online at the damaged and looted Baiji refinery. Missan Oil Company 470,000 470,000 82,000 552,000 But even if Kirkuk oil remains shut in, Dhi Qar Oil Company 197,000 205,000 32,000 237,000 southern Iraqi oil fields are still expected to Midland Oil Company 210,000 210,000 0 210,000 Iraq Oil Report readers get more provide an additional 250,000 bpd by the North Oil Company 237,000 446,000 0 446,000 end of the year, according to Iraq Oil Report’s Kurdistan region (subtotal) 426,000 445,000 59,000 504,000 analysis. That would bring federally controlled Iraq-wide total 4,810,000 5,131,000 310,000 5,441,000 of the story before anyone else. production capacity to nearly 5 million bpd. All figures are based on data gathered by Iraq Oil Report staff from each of Iraq's producing fields. Much of that incremental production is slat- ed to come from the Rumaila oil field, where ca- And the Khurmala Dome of the Kirkuk field, a time. Now, according to multiple industry pacity could now rise as high as 1.6 million bpd operated by the Kurdish company KAR Group, officials, all four can be used simultaneously, by the end of 2018, according to a field official. is continuing to ramp up production. The field though the system is still operating at rough- The state-run Basra Oil Company (BOC) offi- averaged about 105,000 bpd for most of 2017, ly half of its nameplate capacity because of cially projects the field will top out at 1.5 million but industry officials say output is rising. Ac- limited onshore pumping infrastructure. bpd this year, but recent development work cording to development plans shared with If KAAOT can be successfully rehabilitated, it has given cause for greater optimism. Specifi- the Turkish government, which were obtained could add as much as 300,000 bpd of addition- cally, a new treatment unit at a gas-oil separa- and published by Wikileaks, the field is slated al export capacity, though the potential time- tion station in North Rumaila is likely to come to hit 200,000 bpd by the end of 2018, on its line for such a breakthrough remains unclear. online before year’s end, the field official said, way to a plateau of 275,000 bpd in 2020. Even if Iraq’s export infrastructure is which will add a further 100,000 bpd in capacity. struggling to meet the pace of production Bottlenecks The state-run Missan Oil Company (MOC) is growth, progress on both fronts has inspired also expecting significant production increases Not all of Iraq’s new production potential optimism from Alaa al-Yassiri, the man re- from the “Eastern Missan” cluster of fields - is likely to be realized - at least in the short sponsible for marketing the country’s oil. Buzurgan, Fakka, and Abu Gharb - which are term - because of limited export capacity. In a recent interview with Iraq Oil Report, operated by the China National Offshore Oil Beyond the political disagreements that Yassiri, the director general of the State Oil Company (CNOOC). Those fields are currently are keeping roughly 200,000 bpd of Kirkuk Marketing Organization (SOMO), said Basra Get your access today. pumping a combined 200,000 bpd, according production off the market, the country is Gulf exports have occasionally risen above 3.7 to MOC Media Director Khalid Wahim, and are consistently pushing the limits of its south- million bpd - proof that the system can handle expected to hit 280,000 bpd by the end of 2018. ern export capacity. more output. Yassiri said he expects to be able www.iraqoilreport.com/subscribe Other significant increases are expected At the beginning of 2018, when Iraq tried to average 3.7 million bpd on a monthly basis from Zubair, operated by ; West Qurna to sustain exports above 3.5 million bpd, a - more than 100,000 bpd above the record oil 1, operated by ExxonMobil; and three pipeline failure caused the total shut-down sales in August - by the end of the year. fields under the authority of the state-run of the antiquated Khor al-Amaya Oil Termi- Another potential outlet for new Iraqi pro- Dhi Qar Oil Company (DQOC). nal (KAAOT) in the Basra Gulf. KAAOT has re- duction is the Shuaiba refinery in Basra, KRG production capacity is also set to mained offline amidst delayed rehabilitation which is undergoing upgrades and an expan- rise, by nearly 60,000 bpd. Now that the re- work, and Iraq’s exports dipped below 3.5 mil- sion that could see it increase capacity to gional government has established a consis- lion bpd for the first five months of the year. more than 310,000 bpd – an increase of about tent track record of monthly payments to oil Exports have surged back above 3.5 mil- 100,000 bpd – by early 2019. It’s currently tak- companies, the companies in turn are put- lion bpd since June - and hit an all-time month- ing in just 160,000 bpd, said Hossam Hussein ting more money into field development. ly record of 3.583 million bpd in August - par- Wali, the director general of the South Refin- Norway’s DNO, operator of the Tawke license, tially because other infrastructure has come eries Company, due to the extreme amount is continuing to bring new production online at online to compensate for the loss of KAAOT. of salinity in local water sources. ♦ the Peshkabir field, which is likely to add another Iraq’s single point mooring (SPM) system 15,000 bpd of production before the end of the includes four operational buoys, but until re- READ THE FULL STORY @ For multi-user, corporate, academic and NGO rates, contact [email protected]. year, according to company presentations. cently, only three of them could be used at www.iraqoilreport.com

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For details on discounts, contact us at [email protected]. www.iraqoilreport.com Investors. Q&A: SOMO Director General Alaa al-Yassiri SOMO, cont’d from page 1 It depends on supply and demand. Sim- But does Iraq have the capacity? Everyone Corporate executives. ply, if the producers, the member states of knows that Iraq has the capacity for in- In an interview at his office in Baghdad, OPEC, reach the conclusion that supply is creasing the production. Yassiri spoke with Iraq Oil Report about less than demand, certainly there will be What is Iraq’s expectation for increas- Country managers. how Iraq is positioning itself for success. seeking for a decision for alternatives for ing exports over the coming months? Export capacity from Iraq’s southern [OPEC members] that have the ability for How much by end of this year? By the outlets is set to expand further this year, an increase. end of 2019? Government leaders. Yassiri said, which could enable the federal government alone to average 3.7 million barrels per day (bpd) in exports. SOMO is also working to expand an initiative to squeeze every possible dollar Your future clients are reading out of its exports via joint venture arrange- ments with the trading arms of internation- al oil companies. this advertisement. And the Iraqi government is even study- ing a potential hedging program, which could help stabilize revenue expectations for the oil-dependent country - though that proposal still appears to be unfunded, and in its very early stages. Iraq’s surging oil sector is also influenced by the decisions of OPEC and other pro- ducers as they examine production quotas ahead of the next full meeting in December. You have mentioned compensating the market for the reduction of supply from Iran. Do you mean that OPEC mem- Alaa al-Yassiri, the director general of Iraq’s State Oil Marketing Organization, at the Nov. 30, 2017, bers might increase their production to OPEC meeting in Vienna. account for a reduction from Iran? We didn’t refer specifically to Iran. We What is Iraq’s export capacity cur- I think exports will be 3.7 [million bpd] Reach your target audience today. did refer to supply and demand. It means rently? by the end of 2018, if Ceyhan is not includ- that OPEC producers in their meetings, they We already reached that capacity. Cur- ed. If it is included, it’ll be different. There discuss the issue of the supply and demand rently we have the capacity for exports of will be more. For the end of 2019, in fact it www.iraqoilreport.com/advertise of crude oil. So they [OPEC producers] look 3.7 million bpd, just from the south. But depends of the amount of production. Ac- at whether the supply is suitable to meet the there is the possibility for an increase of cording to our current export capacity, we demand. According to this, follow up and a this capacity. The work is going on for in- already have it. study, the target production is decided. creasing it, and also the work is going on For the [oil sale] contracts for 2019, Iran is a founding member state of for looking for other outlets for exports, we have a lot of demand. But how much OPEC, and all the members [of OPEC] for example activating the pipeline to Cey- are we going sign for? We won’t know un- should help Iran to get out of its crisis. Not han. It is possible for this to add an amount til this November. As we will have a com- as some people think, that it [Iran’s crisis] is 400,000 bpd of exports. plete plan for 2019, about how much real to be a benefit for others. The question is: does Iraq have the abil- production we will have, and how much If we talk about OPEC’s job, yes, OPEC is ity to increase the production? The answer will be consumed locally, and then I’ll be in- supposed to keep stability in the market. I is yes. Iraq has the ability to increase the formed about the amount available for the mean the stability of supply and demand. production. How much the ability will be? exports. Any amount that the Oil Ministry As a result, if there is no stability, there will It depends on plans, investment of money, decides, SOMO will be able to export it. be damage for consumers and producers. and time frames. Some increases could be Khor al-Amaya terminal has been of- What is Iraq’s proposal for achieving done immediately, some for the middle fline for most of the past two years. Can term, and some others for the long term. you explain specifically what exactly For details on discounts, contact us at [email protected]. this stability?

9 www.iraqoilreport.com needs to happen on a technical level in this hedging program could be through it, as preparing the studies. And for the TBI, they order for it to become operable again? it has dealings with the CBI and the Finance consider it as a commercial activity they study, We can use this facility. But it is not run Ministry. Also it [TBI] has experience with and if they reach to a specific stage, may be or maintained by SOMO. According to the SOMO, as it is a commercial bank, and they they’ll get profits. As I said, there is no money reports I have, the problem is in the off- made good efforts, and there were meet- for this hedging program. shore pipelines. It needs special experience ings. But it is still a study. Iraq has enough crude production and ability to do that. We are still continu- How would Iraq benefit from a hedg- capacity to export from the north. What ing our pressures on the company that is ing program? are the main reasons that the federal doing the work. So far, there is good prog- As I mentioned earlier, the benefit will government is not using the Kurdistan ress in their efforts. But the responsibility be decided by the policy of the state. If the pipeline to Turkey? of this work is on the Basra Oil Company policy of the state wants to guarantee rev- There are several reasons for this. They (BOC). enues according to a specific oil price that are known to many people. There are po- What is the maintenance schedule go to the treasury of the state, it may use litical, financial, and legal reasons. There planned for the SPMs and ABOT? a hedging program. For example if it is de- are differences about the interpretation In fact, the maintenance and the man- cided in the budget $60 for a barrel, so by of some items of the constitution by our agement of the SPMs, and the other termi- using the hedging program [the state] will brothers in the region (KRG), which the fed- nals, is the responsibility of the BOC. But not get less revenues than what is decided. eral government doesn’t accept. there are periodical maintenance works for them. Usually, each SPM takes about one month. But does SOMO do the mainte- nance? The answer is no. It is the BOC that does such work. Trade Bank of Iraq and SOMO are studying the hedging program still. We know it has to be approved by Cabinet or Parliament first. But on a technical level can you explain the status of it? This hedging program with the Trade Bank of Iraq is still a study. It is not yet reached [to the level of] a project. Yes, it does need an approval from the govern- ment. But it is still a study. This study has been submitted to us from different parties. Some through our custom- ers, the IOCs submitted to us some studies related to the hedging program. Also from the TBI. I did personally speak to the head of the TBI, Mr. Faisal, as this issue is a sovereign one, Tankers dock at the al-Basra Oil Terminal. because the issue of the crude oil is not only looking for new markets. This issue is related But if the policy in the budget of the We are very convinced that any exports to the general budget of the state. It is sup- state is getting as much as possible of the for any produced oil in Iraq should be posed to be that when the budget is decided, revenues, by any price, but in this case if through SOMO only. And this is the main whether it takes this matter of hedging in con- there will be risks of any decrease in the and central issue of difference. Our broth- sideration or not. Because in the budget the price of oil, and then there will be an im- ers in the region export the oil [indepen- expected price of oil is estimated. pact on the general budget of the state. dently]. According to us, it is violating the So this hedging program should be ap- In fact, [the hedging program] doesn’t constitution and to the financial manage- proved by the Iraqi Finance Ministry and the connect to SOMO. But it is more connected ment of the state. It raised big problems. It , as they are responsible to the monetary policy of the state. needs much discussion. We hope that the for the monetary policies in Iraq. For us, How much money will Iraq have to next government will sort out this issue, SOMO, will help and explain if this is pos- commit for such a plan? and there will be good understandings. sible to be implemented. That’s why I did re- No, there is no money allocated for this As a result, all the parties are losers, if quest to speak to the Trade Bank of Iraq, as program. In SOMO there is no money allocat- the current mechanisms continue as they it is an Iraqi bank and a specialized one, and ed for this. Our customers - for no money - are are. It is a sovereign commodity, so it sup-

10 www.iraqoilreport.com posed to have one financial manager for Then we interfered and [customs] al- The IPT is purchasing the oil as normal the state. Then the citizens, whether in the lowed these companies to resume their from SOMO, using the same criteria we region or in Baghdad or in Basra, should work. But it was a humbled way. We even have with other companies. know about the mechanisms that the oil asked other companies to provide the Will SOMO have shares as a co-owner is sold through. And know about the rev- transportation. We already have 500,000 of the company? enues, where they go, and who has the au- barrels of oil in Iran. And we are trying to We will have a meeting, with Litasco, in thority to use this money. reach to 1 million, in order to be a com- November. There will be a meeting to reas- I think this issue needs discussions – po- mercial shipment that we could sell, before sess what has been done by us and Litasco, litical, financial and legal – in order to get November 4. It resumed more than a week in order to discuss the next step, if SOMO out of it. ago. will get shares. Right now, SOMO shares If Iraq builds a new pipeline to Tur- How much does Iraq owe to Iran for profits, but it doesn’t have shares. We’ll dis- key, that would mean the country has electricity and gas, which SOMO has to cuss it in November, whether SOMO will buy two pipelines to Turkey. Why is that a pay for via these exports? shares in the company or not. good thing for Iraq? Why not just use This issue is irrelevant. This is a differ- You told us six months ago that the KRG line and repurpose that money for ent issue related to the Iranian gas that is venture was started, that SOMO was other pipeline projects? purchased by a different contract, and how sharing profits, with ZhenHua. What’s The main [northern export] system is Iraq will pay back to Iran in the light of the the status? our pipeline that goes through the [Iraq- American sanctions. In fact, this contract We have a JV with China’s ZhenHua, on Turkey] border to Ceyhan. It was targeted is through the Ministry of Electricity and I similar basis of Litasco, but with different too much. It became unusable because the don’t have any details about it. goals. As with any JV that SOMO joins, it will pipeline was targeted by Daesh. How will Iraqi exports be impacted have different goals. With Litasco we have At the same time, the [KRG] built a new by U.S. sanctions on Iran? goals, and with ZhenHua it is to get knowl- pipeline. International companies are in- Well, if the American sanctions are im- edge about China’s market. It is a big mar- vested in it. When we saw the fees, we plemented in its current form, there will be ket, and ZhenHua is a state-owned com- think there are very high. This is what we an impact on all markets, not only on Iraq. pany. Currently, we have discussions with think, because the distance between Kirkuk There will an impact because the supply other Chinese companies. The Chinese and the borders are not suitable with the and demand will differ. market is very important for us. fees paid for that. What is the status of the approval for With ZhenHua, we are currently in the The federal government, we had a the artificial island for exports? phase of profit sharing. Also in November, route for the old pipeline. And we could There is such a project. I was aware of there will be a meeting in order to decide build on the same route, a new pipeline. the preliminary studies and I talked about on establishing a company, and we’ll share I think this is the normal thing to do. Or it with the DG of the BOC, as it is run by the profits. Then the third stage will be pur- we can use the region’s pipeline, which BOC. They own and will operate it, and then chasing shares from the company. Yes, the needs – as I explained – political, financial, we will use it. But what stage has this proj- goal is to form a JV with ZhenHua, too, own- and legal agreement and understanding. ect reached? And what other real steps are ing 50 percent, like Lima, exactly. The other thing is that we need to agree they taking? In fact, I don’t know the details. We have three phases with the compa- with the investor [in this pipeline], and Lastly, let’s talk about SOMO’s cur- nies. In each, the third phase is purchasing there should be a study about these fees rent and planned trading joint ventures. shares from the company. and who is to be paid, and how these fees Lima, the joint venture with Litasco, Last time we talked, you mentioned were decided. became Iraq Petroleum Trading. How many other joint ventures are being dis- Why is it taking so long to start the much is IPT purchasing each month? cussed. What is the status of those in swap arrangement with Iran? At the beginning, Litsaco with SOMO particular? How will they operate differ- We previously mentioned that this was formed Lima as the core. Then we changed ently than ZhenHua and Litasco? stopped because of logistical reasons. The the name to Iraq Petroleum Trading, IPT. We have reached, with some compa- problem was the customs on the Iraqi side, I don’t have the figures of loading right nies, very advanced stages. For example, not the Iranian side. There are problems now with me. But they are loading not bad we are very close to sign with the Chinese between the transportation companies amounts of oil. company CNOOC. One of the biggest com- and the Iraqi customs commission. For this About the negotiations, selling, and panies in China. We are very close to sign it reason, the customs gave these companies revenues, they are run in the joint venture with CNOOC. Also we have very good nego- three months to resolve their problems. between Litasco and SOMO. Then we will tiations with BP. ♦ The time passed and they didn’t do what allow them to resell the shipment, and we was required, so the customs stopped participate in the selling process and shar- READ THE FULL STORY @ them. ing the profits. www.iraqoilreport.com

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