tag:blogger.com,1999:blog-22991422075002694622024-02-29T00:43:43.020+02:00Alessandro Bacci's Middle EastPetroleum Regulation and TaxationAlessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.comBlogger220125tag:blogger.com,1999:blog-2299142207500269462.post-70184605569006192262022-03-01T23:29:00.112+02:002022-04-03T19:08:23.291+03:00Senior Research Analyst (Legal) for the Middle East and North Africa at S&P Global <p class="MsoNormal" style="line-height: 200%; margin-bottom: 0in; text-align: justify;"><span style="font-family: Georgia, serif; font-size: 14pt; line-height: 200%;">Dear friends, </span><span style="font-family: "Georgia",serif; font-size: 14pt; line-height: 200%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; margin-bottom: 0in; text-align: justify;"><span style="font-family: Georgia, serif; font-size: 14pt;">With the completion of the <a href="https://press.spglobal.com/2022-02-28-S-P-Global-and-IHS-Markit-Complete-Merger" rel="nofollow" target="_blank">S&P Global and I.H.S. Markit merger</a> </span><span style="font-family: Georgia, serif; font-size: 14pt;">at
the end of February 2022, on March 1, I assumed the role of Senior Research
Analyst (Legal) for the Middle East and North Africa at S&P Global. </span></p>
<p class="MsoNormal" style="line-height: 200%; margin-bottom: 0in; text-align: justify;"><span style="font-family: Georgia, serif; font-size: 14pt;">As before the merger, the focus of my work is on petroleum
regulatory and fiscal analysis/consulting covering the Middle East and North
Africa. In addition, though this topic is not linked to the MENA region, I work
consistently on energy taxation (carbon credits and carbon taxes) and energy
financing aspects (CCUS and tax equity). </span></p>
<p class="MsoNormal" style="line-height: 200%; margin-bottom: 0in; text-align: justify;"><span style="font-family: Georgia, serif; font-size: 14pt;">As part of my agreement with S&P Global, I cannot publish the
result of my S&P Global activity on <a href="http://www.alessandrobacci.com">www.alessandrobacci.com</a></span><span style="font-family: Georgia, serif; font-size: 14pt;">. However, this website as
usual continues to be quite a living website as through the initial webpage you
can easily follow my current activity via my tweets, the section “Media
Commentary,” the Facebook page “Alessandro Bacci’s Middle East,” and the
section “Books Worth Reading.” </span></p>
<p class="MsoNormal" style="line-height: 200%; margin-bottom: 0in; text-align: justify;"><span style="font-family: Georgia, serif; font-size: 14pt;">Thank you. </span></p>
<p class="MsoNormal" style="line-height: 200%; margin-bottom: 0in; text-align: justify;"><span style="font-family: Georgia, serif; font-size: 14pt;">Kind regards, </span></p>
<p class="MsoNormal" style="line-height: 200%; margin-bottom: 0in; text-align: justify;"><span style="font-family: Georgia, serif; font-size: 14pt; line-height: 200%;">Alessandro<o:p></o:p></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgz2_O3tkzSAyb7N6VdwWorg5gc6WWgiLb5HNEIOSGmMu5A2gDwGGOrbOPCF94YZ32dEI6zS1PsFLAYgJCIPHdHv6a4QjbPeiTZ1nMgMZTBlqV-YX7HRv5BQvld6HhCQ4EBfE_mvqUYMMKlfS7lX_vKujDDzVFcezZu01_FAN9iiSZBfMBji7pyzmPwWg/s734/S&P%20GLOBAL%20-%20S&P%20Global%20and%20IHS%20Markit%20Complete%20Merger%20(Feb.%2028,%202022).JPG" style="margin-left: 1em; margin-right: 1em;"><img alt="S&P GLOBAL - S&P Global and IHS Markit Complete Merger (Feb. 28, 2022)" border="0" data-original-height="442" data-original-width="734" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgz2_O3tkzSAyb7N6VdwWorg5gc6WWgiLb5HNEIOSGmMu5A2gDwGGOrbOPCF94YZ32dEI6zS1PsFLAYgJCIPHdHv6a4QjbPeiTZ1nMgMZTBlqV-YX7HRv5BQvld6HhCQ4EBfE_mvqUYMMKlfS7lX_vKujDDzVFcezZu01_FAN9iiSZBfMBji7pyzmPwWg/s16000/S&P%20GLOBAL%20-%20S&P%20Global%20and%20IHS%20Markit%20Complete%20Merger%20(Feb.%2028,%202022).JPG" title="S&P GLOBAL - S&P Global and IHS Markit Complete Merger (Feb. 28, 2022)" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><br /></div>Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-34645140915151747292020-03-02T12:00:00.003+02:002022-03-28T00:24:19.530+03:00Upstream Senior Legal Analyst for the Middle East and North Africa at I.H.S. Markit<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div style="line-height: 200%; margin-bottom: 0in;">
<span style="color: black; font-family: "Georgia",serif; font-size: 14pt; line-height: 200%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Dear friends,</span></div>
<br />
<div style="line-height: 200%; margin-bottom: 0in; text-align: justify;">
<span style="color: black; font-family: "Georgia",serif; font-size: 14pt; line-height: 200%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">In March 2020, I started to
work for I.H.S. Markit, </span><span style="background: white; color: #222222; font-family: "Georgia",serif; font-size: 14pt; line-height: 200%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">a London-based global information provider,</span><span style="color: black; font-family: "Georgia",serif; font-size: 14pt; line-height: 200%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"> in relation to petroleum regulatory and fiscal
analysis/consulting covering the Middle East and North Africa. The focus of my work is primarily on the petroleum legal/fiscal
framework of the countries located in the MENA region (from Morocco to Iran). As part of my
agreement with I.H.S. Markit, I cannot publish the result of my I.H.S. Markit activity on <a href="http://www.alessandrobacci.com/">www.alessandrobacci.com</a>. However, this website continues to be quite a living website
as through the initial webpage you can easily follow my current activity via my
tweets, the section “Media Commentary,” the Facebook page “Alessandro Bacci’s
Middle East,” and the section “Books Worth
Reading.” </span></div>
<br />
<div style="line-height: 200%; margin-bottom: 0in;">
<span style="color: black; font-family: "Georgia",serif; font-size: 14pt; line-height: 200%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Thank you.</span></div>
<br />
<div style="line-height: 200%; margin-bottom: 0in;">
<span style="color: black; font-family: "Georgia",serif; font-size: 14pt; line-height: 200%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Kind regards,</span></div>
<br />
<div style="line-height: 200%; margin-bottom: 0in;">
<span style="color: black; font-family: "Georgia",serif; font-size: 14pt; line-height: 200%; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Alessandro</span></div>
<b></b><i></i><u></u><sub></sub><sup></sup><strike></strike></div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-28980056992773896722018-07-09T12:00:00.001+03:002022-03-28T00:24:37.273+03:00Upstream Fiscal Analyst at GlobalData Energy<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="line-height: 40px;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 46.6667px;">Dear friends,<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 40px; text-align: justify;">
<span style="font-family: "georgia" , serif;"><span style="font-size: large;">I<span style="font-size: 14pt; line-height: 46.6667px;">n July 2018, I started to work for <a href="https://www.globaldata.com/" rel="nofollow" target="_blank">GlobalData</a>, <span style="background: white; color: #222222;">a data analytics and consulting company,</span> in relation to petroleum regulatory and fiscal analysis/consulting. The focus of my work is on </span><span style="font-size: 18.6667px;">the petroleum fiscal framework of all countries in all the world regions. </span><span style="font-size: 14pt;">As part of my agreement with GlobalData, I cannot correctly publish the result of my GlobalData activity on </span><span class="MsoHyperlink" style="font-size: 14pt;"><a href="http://www.alessandrobacci.com/">www.alessandrobacci.com</a></span><span style="font-size: 14pt;">. However, this website continues to be quite a living website as through the initial webpage you can easily follow my current activity via my tweets, the section “Media Commentary,” the Facebook page “Alessandro Bacci’s Middle East,” and the section “Books Worth Reading.” </span><span style="font-size: 14pt;"> </span><span style="font-size: 14pt;"> </span></span></span></div>
<div class="MsoNormal" style="line-height: 40px;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 46.6667px;">Thank you.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 40px;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 46.6667px;">Kind regards,<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 40px;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 46.6667px;">Alessandro</span></div>
</div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-80410227673255880752018-06-01T20:00:00.000+03:002019-12-04T00:30:06.814+02:00A Snapshot of South Sudan’s Oil Sector<div dir="ltr" style="text-align: left;" trbidi="on">
<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2jfo8PrmluTn8-9DLF3maIJiuwzBx5qnka30-WZZNBjLUhokdZSD8b6JfCzIFpJdeyRTNdTiPnZYh66LfrDTOloIhPrqoPEnafFIuqMDYsw2DO0mP29CK76TyzbLA-7BC0ofdfgmfp5Gs/s1600/BACCI-A-Snapshot-of-South-Sudans-Oil-Sector-June-2018-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-A-Snapshot-of-South-Sudans-Oil-Sector-June-2018-Cover" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2jfo8PrmluTn8-9DLF3maIJiuwzBx5qnka30-WZZNBjLUhokdZSD8b6JfCzIFpJdeyRTNdTiPnZYh66LfrDTOloIhPrqoPEnafFIuqMDYsw2DO0mP29CK76TyzbLA-7BC0ofdfgmfp5Gs/s1600/BACCI-A-Snapshot-of-South-Sudans-Oil-Sector-June-2018-Cover.jpg" title="BACCI-A-Snapshot-of-South-Sudans-Oil-Sector-June-2018-Cover" /></a></div>
<br />
<br />
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The analysis “</span></b><b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="http://oilandgascouncil.com/articles/alessandro-bacci-south-sudan/" rel="nofollow" target="_blank">A Snapshot of South Sudan’s Oil Sector</a></span></b><b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">,” has
been published by the <a href="https://www.blogger.com/"><span id="goog_507172890"></span>Oil and Gas Council<span id="goog_507172891"></span></a>, the leading network of energy
executives in the world. This analysis is related to Africa Assembly 2018,
which is the largest African O&G finance and investment event. The Oil and
Gas Council will organize Africa Assembly 2018 on June 5-6 in Paris, France.</span></b><b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span></b></div>
<b></b><i></i><u></u><sub></sub><sup></sup><strike></strike><br />
<br />
<div align="right" style="line-height: 200%; margin: 16px 0px 10.66px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">June 1,
2018</span></b></div>
<div align="right" style="line-height: 200%; margin: 16px 0px 10.66px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">London,
United Kingdom</span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">INTRODUCTION</span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">According
to BP Statistical Review 2017, at the end of 2016 South Sudan had 3.5 billion
barrels of proven crude oil reserves, i.e., 0.2% of the world’s proven crude
oil reserves. However, South Sudan, which got its independence from Sudan in
July 2011, because of several problems, such as the lack of independent export
routes, border disputes with Sudan, and since December 2013 an ongoing civil
war, has not been able until now to consistently develop its oil industry; on
the contrary, its oil production is currently declining. As a matter of fact,
in July 2011, South Sudan was producing about 325,000 b/d, while production is now
about 135,000 b/d. In addition to the three above-mentioned main problems, part
of the reason for the oil-production decline is also linked to the mature
status of the oilfields in South Sudan’s Unity State and Upper Nile State. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">All
the countries that rely consistently on natural resources always face difficult
challenges, and they must constantly find a balance between, on the one side, their
need to attract investment to explore and develop natural resources, and, on
the other side, their need to ensure that the government receives a fair share
of the countries’ resource wealth. To continue to develop its oil sector, South
Sudan must bring in both </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">technical expertise and
financial resources, but, as a result of the above-mentioned problems, it’s not
easy to find additional investors. South Sudan’s petroleum fiscal framework is
based on production sharing contracts (P.S.C.s), and the country is currently
developing a model P.S.C. Moreover, South Sudan must pass additional
legislation concerning its hydrocarbons sector. <span style="margin: 0px;"> </span></span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">THE HISTORICAL CONTEXT AND THE
PRESENT PROBLEMS</span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">That
the economic development of South Sudan would not be simple was clear well
ahead of the July 2011 independence from Sudan. History tells us that before
the independence from the United Kingdom in 1956 of what is today’s Sudan and
South Sudan, unrest was already emerging to the surface in southern Sudan.
After the 1956 independence, southern rebel groups started to fight against the
central government in Khartoum for the independence of southern Sudan. Two
civil wars ensued: The </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">First Sudanese Civil War</span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> from 1955 to 1972
and the <span style="margin: 0px;">Second Sudanese Civil War</span>
from 1983 to 2005. The second civil war ended with the Comprehensive Peace
Agreement (C.P.A.) between the government and the southern forces. The C.P.A.
established a timeframe for organizing a referendum for the independence of
southern Sudan. The referendum was held in January 2011, and then South Sudan
became independent in July 2011.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Despite the independence, problems for South Sudan
did not stop. In particular, for South Sudan the three main problems are </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">the lack
of independent export routes, border disputes with Sudan, and since December
2013 an ongoing civil war. </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">First, South Sudan,
which is a landlocked country, is obliged to export its crude oil via pipeline
through Sudan, which requires the payment of high transit fees—oil goes to Sudan’s
refineries and to Port Sudan on the Red Sea from where crude oil is shipped
almost exclusively to China. Some years ago, it was proposed the idea of
constructing a pipeline to Kenya or Djibouti (the latter option via Ethiopia).
However, because of South Sudan’s present declining crude oil production, it’s
difficult to build this second pipeline if there is not a guaranteed amount of
crude oil to ship through the pipeline. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In this regard, a few months after the
independence, South Sudan declared in January 2012 that it would shut down its
production because of disagreement with Sudan about oil transit fees—Sudan had
started to confiscate the oil passing through its territory. Later, the South
Sudan’s army together with Sudanese opposition forces occupied the Heglig
oilfield for about a week before Sudan took it back. This oilfield is administratively
located in Sudan, but it straddles the border between Sudan and South Sudan. Because
the occupying forces had destroyed part of the oilfield infrastructure, Sudan’s
oil production was temporarily reduced by 50%. Only in November 2012, was it
possible to find a solution defining oil transit fees and a compensation
measure for the lost production. Oil production restarted only in April 2013. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">However, the problem of the transit/debt repayment
fee is a big problem for South Sudan. According to the agreement in 2012, South
Sudan was obliged to pay for 3.5 years to Sudan for each barrel of oil shipped
through the Sudanese territory $15 as debt repayment and $9.1 as transit fee for
the oil produced in Upper Nile State (Block 3 and Block 7) and $11 for the oil
produced in Unity State (Block 2 and Block 5A). With such a high amount of fees
paid to Sudan, for South Sudan low oil prices might really eat away at all the
profitability relating to its oil production activity. On top of this, it’s
important to underline that South Sudan’s two main crude oil blends, the Dar
blend (25.0 A.P.I. degrees and sulfur content of 0.11%) and the Nile blend (33.9
A.P.I. degrees and sulfur content of 0.06%) trade at a discount to Brent. While
the Nile blend trades at a small discount, the Dar blend is strongly discounted
because it trades at $7 to $10 less than the Brent’s price. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">After a year of negotiations (South Sudan wanted to
change the terms of the agreement), at the end of 2016, Sudan and South Sudan
extended the fee agreement for three other years. The agreement between the two
parties has not been released publicly, but according to some ministerial sources,
it appears that if oil prices are below $30 per barrel, South Sudan will pay
only the regular transit fees (a $9.1 transit fee for the oil produced in Upper
Nile State and a $11 transit fee for the oil produced in Unity State). But if
prices reach $61 or more, South Sudan must pay, in addition to the standard
transit fee, also the full $15 debt repayment fee. Instead, between the two
thresholds, South Sudan must pay a reduced debt repayment fee according to a
sliding scale.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Second, the border between Sudan and South Sudan at
certain locations, such as around the Abyei area and the Heglig oilfield, is
disputed. The reason is that in those areas oil fields straddle the border
between Sudan and South Sudan. The Abyei Area is an area of 4,072 square miles.
The 2004 Protocol on the Resolution of the Abyei Conflict accorded
"special administrative status" to the area. According to the
protocol, this area was declared, on an interim basis, to be at the same time
part of both Sudan and South Sudan. Instead, Heglig is a small town on the
border between Sudan’s South Kordofan State and South Sudan’s Unity State. Both
countries claim the Heglig area, but it’s presently administered by Sudan.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Third, the ongoing civil war, which started in
December 2013, between forces of the government (Sudan People's Liberation
Movement) and opposition forces (Sudan People's Liberation Movement in
Opposition). Several ceasefires have been reached since January 2014, but
nothing has resulted in a definitive and permanent agreement. In specific, the Compromise
Peace Agreement (C.P.A.), signed in August 2015, seemed to be the right one, but
then in July 2016 fighting started again. Currently, rebel in-fighting is a major
part of the fighting. According to the United Nations, in 2017 out of a
population of 12 million, there were 1.5 million people who had fled to
neighboring countries (primarily to Kenya, Sudan, and Uganda) and more than 2.1
million of people who were internally displaced. In addition, fighting occurs
in agricultural lands as well, and, as a result, this year, also during harvest
time in January, more than 5.0 million people did not have sufficient food to
eat. So, it’s almost sure that in the summer of 2018 half of the country’s
population will be on the brink of famine. <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Recently, the United States and the international
community have increased theirs sanctions on South Sudan as a response to the
present chaotic destabilization in the African country. In February 2018, the United
States announced that it was implementing restrictions on the export of defense
articles and defense services into South Sudan. And then, in March 2018, the
United States imposed sanctions on 15 South Sudanese oil operators because
according to the United States money from these oil companies was used for
purchasing weapons and funding irregular militias, which undermine the peace,
security, and the stability of the country.<span style="margin: 0px;">
</span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">OIL
IMPORTANCE FOR SOUTH SUDAN’S ECONOMY <span style="margin: 0px;"> </span></span></b><b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">For
many developing countries that export raw commodities, commodities play a
substantial role in their economy, and South Sudan does not escape this
condition, and it is one of the most oil-dependent countries in the world. In
fact, South Sudan has an economy practically exclusively relying on the export
of crude oil. Harvard University’s Atlas of Economic Complexity shows that in
2016, 98.71% of South Sudan’s exports (for an amount of $1.39 billion) was categorized
as “petroleum oils, crude.” The remaining, but almost negligible, export
included other oil seeds and oleaginous fruits, dried leguminous vegetables, flour
and meals of </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">oil seeds or oleaginous fruits, and
peanuts; vessels and other floating structures for breaking up (scrapping);
ferrous waste and scrap, and re-melting scrap ingots of iron or steel;
commodities not specified according to kind; and cotton, not carded or combed.
And, in the previous years after the independence, the percentage of crude oil
exports was more than 99%. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">At the same time, oil accounts for 98% of the
government’s annual operating budget and 60% of the G.D.P. </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">These
numbers tell that, apart from the petroleum sector, South Sudan’s economy is a
subsistence economy based on agriculture and humanitarian assistance. In
practice, for an economy so strongly dependent upon the export of a single raw
commodity, a reduction in production and/or a decline in the price of the
exported commodity has always a devastating impact. And, this is what happened
between 2014 and 2017, when in South Sudan oil production declined, and oil
prices were low on the international markets. <span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">THE OIL COMPANIES IN SOUTH SUDAN </span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Most
of South Sudan’s proven oil reserves are in the Mugland Basin and in the Melut
Basin, which straddle the border between Sudan and South Sudan. However, as in many
other African countries, hydrocarbons exploration has been quite limited, and a
large part of South Sudan’s territory is still unexplored for oil and gas—additional
exploration is required, but it needs high expertise and important financial
resources because of the difficult geographic conditions of part of the
territory (for instance, the Sudd). As of today, the associated natural gas is
primarily flared or reinjected—the country has 3 trillion cubic feet of proven
natural gas reserves.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In
South Sudan there are currently three main oil consortia:</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">1 — Greater Pioneer Operating Company (G.P.O.C.),
which comprises China’s C.N.P.C (40%), Malaysia’s Petronas (30%), India’s
O.N.G.C. (25%), and South Sudan’s Nilepet (5%). <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">2
</span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">— Dar Petroleum Operating Company (D.P.O.C.), which
comprises C.N.P.C. (41%), Petronas (40%), Nilepet (8%), China’s Sinopec (6%),
and Egypt’s Tri-Ocean Energy (5%)<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">3
</span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">— Sudd Petroleum Operating Company (S.P.O.C.),
which comprises Petronas (67.9%), O.N.G.C. (24.1%), and Nilepet (8%) </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">A
simple look at the companies involved shows that most of the investors in South
Sudan’s oil sector are primarily Asian oil companies. This is due to the
difficulties in the 1980s and 1990s between Sudan’s government (when South
Sudan was still part of Sudan) and the United States. These difficulties forced
Western oil companies (for instance, U.S. Chevron, Canada’s Talisman, and
Austria’s O.M.V.) out of Sudan, so the Asian companies filled the vacuum left
by the Western companies. <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">G.P.O.C. is the operator at Block 1 (Unity field,
Toma field, and Munga field), Block 2 (Heglig field and Bamboo field), and
Block 4 (Diffra field and Neem field). D.P.O.C. is the operator at Block 3 and
Block 7 (Palogue field and Adar-Yale field). S.P.O.C. is the operator at Block
5 (Mala field and Thar Jath field). G.P.O.C. produces exclusively the Nile
blend, while D.P.O.C. and S.P.O.C. produce the Dar blend.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In any case, these Asian companies are not presently
investing in South Sudan as much as they should. Without consistent investments
in both enhanced oil recovery (E.O.R.) and in new exploratory activity, South
Sudan’s production could become less than 100,000 b/d in just a few years. According
to the World Bank, on current reserve estimates, oil production is expected to
reduce progressively in the coming years and to become insignificant by 2035.
Good news is that in March 2018, Petronas extended its contract to explore and
produce oil and gas in Block 3 and Block 7 as part of the D.P.O.C. consortium. At
the same time, Petronas committed to invest in the resumption of production at
the conflict-hit Unity field (Block 1A), which, together with other oil fields,
had been shut down in 2013 because of fighting activities in the area. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">It’s important to underline that the </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">D.P.O.C.
consortium is the only one of the three main operating consortia in South Sudan
that continued with its oil production at its fields while fighting made the
other two production areas, the S.P.O.C. and G.P.O.C., inaccessible to the
operators. Some months ago, the government of South Sudan conducted security
surveys in relation to the S.P.O.C. and G.P.O.C., areas, and then it declared
that they are once again safe for oil operations. The improved conditions on
the two areas was verified by a security risk assessment conducted by a private
sector contractor. <span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">SOUTH SUDAN’S PETROLEUM FISCAL
REGIME</span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In
South Sudan, the Ministry of Petroleum and Mining is the institution managing
the petroleum sector. Instead, the National Petroleum and Gas Commission (N.P.G.C.)
is the main policymaking and supervisory body. Among its main tasks there is to
approve the petroleum agreements on behalf of the government. The Nile
Petroleum Corporation (Nilepet) is South Sudan’s national oil company. Until
today, Nilepet has had a limited role in the on-the-ground oil operations
because of its limited technical expertise and limited financial resources.
Nilepet has very small stakes in the operating consortia. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">There
are three main legal documents that define the structure of South Sudan’s
petroleum fiscal framework: South Sudan’s Transitional Constitution, the 2012 Petroleum
Act, and the 2013 Petroleum Revenue Management Act. In 2012, South Sudan passed
the 2012 Petroleum Act, which defines in a general manner South Sudan’s
petroleum fiscal regime. Additional legislation must be enacted—a model production
sharing contract (P.S.C.) is under development. South Sudan’s petroleum fiscal
system is based on P.S.C.s. Many oil blocks were already allocated by the Sudan
Government before South Sudan became independent in July 2011.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Below
there is a list of the main, but still very generic, features of the 2012 Petroleum
Act: <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—<b style="mso-bidi-font-weight: normal;">Art. 7 (Principles and Objectives) 1</b>
affirms that petroleum existing in its natural state in the subsoil of the
territory of South Sudan shall be owned by the people of South Sudan and
managed on their behalf by the government. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—<b style="mso-bidi-font-weight: normal;">Art. 17 (Reconnaissance Licenses) 2</b> affirms
that a reconnaissance license grants a non-exclusive right to undertake data
collection (including seismic surveying), processing, interpretation and
evaluation of petroleum data in the area stipulated in the license. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—<b style="mso-bidi-font-weight: normal;">Art. 17 (Reconnaissance Licenses) 3</b> affirms
that if deemed necessary to establish a commercial basis for an exploration
survey in a block or portion of a block, the Ministry of Petroleum and Mining shall
announce an open, transparent, non-discriminatory and competitive public tender
for an exclusive reconnaissance license in an area not already covered by a
reconnaissance license. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—<b style="mso-bidi-font-weight: normal;">Art. 18 (Tendering Procedure and
Qualification Requirements) 1</b>, affirms that exploration, development, and
production of petroleum shall be carried out in accordance with the terms of
petroleum agreements, the 2012 Petroleum Act, and any other applicable
law.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—<b style="mso-bidi-font-weight: normal;">Art. 18 (Tendering Procedure and
Qualification Requirements) 2</b> affirms that petroleum agreements shall be
entered after an open, transparent, non-discriminatory and competitive tender
process conducted in accordance with applicable law governing public
procurement.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—<b style="mso-bidi-font-weight: normal;">Art. 20 (Incorporation and Organization
Requirements) 1</b> affirms that an entity entering into a petroleum agreement
shall be incorporated and registered as a company in South Sudan in accordance
with the applicable law. This company shall be incorporated as a single-purpose
company exclusively for petroleum activities in South Sudan.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—<b style="mso-bidi-font-weight: normal;">Art. 25 (Term) 1</b> affirms that a
petroleum agreement may be entered into for a period not exceeding 25 years. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—<b style="mso-bidi-font-weight: normal;">Art. 26 (Exploration Period) 1 </b>affirms that
petroleum agreements shall provide for an exploration period not exceeding six
years from the effective date of the agreement.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—<b style="mso-bidi-font-weight: normal;">Art. 26 (Exploration Period) 2 </b>affirms
that the exploration period shall consist of a first commitment period and up
to two optional commitment periods as determined in the petroleum agreement. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—<b style="mso-bidi-font-weight: normal;">Art. 33 (Restrictions on Flaring and
Venting) 1,2, and 3 </b>affirm that gas flaring or venting is prohibited,
unless specifically authorized or in the event of an emergency. Investors are
therefore obliged to invest in necessary facilities in order to utilize any gas
they produce. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"> </span>—<b style="mso-bidi-font-weight: normal;">Art.
68 (Fees) 1</b> affirms that a contractor shall pay surface rental fee for the
contract area retained under a petroleum agreement as prescribed in the
regulations. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—<b style="mso-bidi-font-weight: normal;">Art. 69 (Royalties and Bonuses)</b> affirms
that a contractor shall pay such bonuses or royalties as may be prescribed in
regulations or as agreed in a petroleum agreement. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—<b style="mso-bidi-font-weight: normal;">Art. 70 (Taxes and Customs)</b> affirms
that a person conducting petroleum activities in South Sudan shall pay taxes
and customs duties in accordance with the applicable law. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—<b style="mso-bidi-font-weight: normal;">Art. 71 (Production Sharing in Petroleum
Agreements)</b> affirms that production sharing shall be as agreed in a
petroleum agreement. The Ministry of Petroleum and Mining shall develop a model
petroleum agreement in cooperation with the Ministry of Finance and Economic
Planning.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Presently,
there are no ring-fencing rules in South Sudan. The corporate income tax (C.I.T.)
is variable according to the magnitude of the investor’s business. If the
business has a turnover of up to 1 million South Sudanese pounds, of up to 75
million South Sudanese pounds, or of 75 million South Sudanese pounds or more,
the C.I.T. tax rate will be 10%, 20%, and 25%, respectively. These rates apply
to income deriving from oil and gas operations. Taxable income consists of
worldwide income for resident companies minus the allowed deductions. For
companies that are not resident in South Sudan, taxable income consists of only
the profits sourced in South Sudan minus the allowed deductions.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The incurred exploration costs
are deductible over the useful life of the asset. The deduction is based on the
actual costs incurred, the units extracted, and the estimated total extractable
units. The incurred losses can be carried forward for five years, but carryback
is not available. A loss from oil and gas operations can be offset against any
profits available during the successive five-year period.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The Investment Promotion Act
provides for various tax incentives, including capital allowances ranging from
20% to 100% of eligible expenditure, deductible annual allowances ranging from
20% to 40% and depreciation allowances ranging from 8% to 10%. A foreign tax
credit is granted to any resident company paying foreign taxes on income from
business activities outside South Sudan.</span></div>
<br />
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<br /></div>
<b></b><i></i><u></u><sub></sub><sup></sup><strike></strike></div>
<iframe height="1200" src="https://drive.google.com/file/d/13ZGElHHJ8B3mGgfT7YNeZiMqLKSPQxht/preview" width="915"></iframe>
</div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-51337864971536003832018-05-16T19:00:00.000+03:002018-06-02T16:31:00.622+03:00Algeria’s and Libya’s Petroleum Fiscal Frameworks<div dir="ltr" style="text-align: left;" trbidi="on">
<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgELGtZu3i53M60qcWaT8tGA5NIIb26As2lveZKkltdtPtLDLuAw0UdVqH9BpT-Q98ZdmGYC6q0I4UivPl2XrE-AlPupVH3Eh7hXQy3r2sxK6bNXri67YhqAYJ0TZBTIAHlybnP4qRaYWDZ/s1600/BACCI-Algerias-and-Libyas-Petroleum-Fiscal-Frameworks-May-2018-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Algerias-and-Libyas-Petroleum-Fiscal-Frameworks-May-2018-Cover" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgELGtZu3i53M60qcWaT8tGA5NIIb26As2lveZKkltdtPtLDLuAw0UdVqH9BpT-Q98ZdmGYC6q0I4UivPl2XrE-AlPupVH3Eh7hXQy3r2sxK6bNXri67YhqAYJ0TZBTIAHlybnP4qRaYWDZ/s1600/BACCI-Algerias-and-Libyas-Petroleum-Fiscal-Frameworks-May-2018-Cover.jpg" title="BACCI-Algerias-and-Libyas-Petroleum-Fiscal-Frameworks-May-2018-Cover" /></a></div>
<br />
<br />
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The analysis “<a href="http://oilandgascouncil.com/articles/alessandro-bacci-algeria-libya/" rel="nofollow" target="_blank">Algeria’s and Libya’s Petroleum Fiscal Frameworks</a>,” has been published by the <a href="http://oilandgascouncil.com/" rel="nofollow" target="_blank">Oil and Gas Council</a>, the leading network of energy executives in the world. This analysis
is related to Africa Assembly 2018, which is the largest African O&G
finance and investment event. The Oil and Gas Council will organize Africa
Assembly 2018 on June 5-6 in Paris, France.</span></b></div>
<b></b><i></i><u></u><sub></sub><sup></sup><strike></strike><br />
<div align="right" style="line-height: 200%; margin: 16px 0px 10.66px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">May 16,
2018</span></b></div>
<div align="right" style="line-height: 200%; margin: 16px 0px 10.66px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">London,
United Kingdom</span></b></div>
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<br /></div>
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">INTRODUCTION</span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Algeria
and Libya are two of the world’s most important petroleum-producing countries. According
to BP Statistical Review of World Energy 2017, Algeria owns 12.2 billion
barrels of proven oil reserves (0.7% of the world’s total) and 4.5 trillion
cubic meters of proven natural gas reserves (2.4% of the world’s total, 11<sup>th</sup>
position in the ranking), while Libya owns 48.4 billion barrels of proven oil
reserves (2.8% of the world’s total, 9<sup>th p</sup>osition in the ranking) and
1.5 trillion cubic meters of proven natural gas reserves (0.8% of the world’s
total). However, it’s worth noting that, as of today, Algeria and Libya have still
large swathes of territory completely unexplored for hydrocarbons. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Algeria
with an annual production of 91.3 billion cubic meters is the leading natural
gas producer in Africa, while Libya with 10.1 billion cubic meters is the fourth.
With reference to crude oil production, recent data show that Algeria is
currently producing about 1.5 million barrels per day (in 2007, its production
was close to 2.0 million barrels per day), while Libya, the holder of Africa’s
largest proven crude oil reserves, is currently producing about 1.0 million
barrels per day (in 2007, its production was more than 1.8 million barrels per
day). The main export market for the hydrocarbons of both countries is Europe. <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">For
both Algeria and Libya, hydrocarbons have long been the backbone of the
economy. In specific, according to the International Monetary Fund (I.M.F.), in
Algeria, hydrocarbons account for about 30% of the G.D.P., 60% of government revenues,
and almost 95% of export earnings. In Libya, because of the ongoing civil war,
it’s difficult to have a reliable evaluation. In any case, in Libya, in 2012, i.e.,
after the demise of Gaddafi’s regime and before the beginning of the Second Libyan
Civil War (2014-present), oil and gas accounted for 60% of the G.D.P., almost
96% of government revenues, and 98% of export earnings.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">It’s
clear from the above data that these two countries share a similar economic
structure although Algeria has a more diversified G.D.P. composition than Libya
has. Algeria has a preponderant role as a natural gas exporter, while Libya has
an analogous role in relation to crude oil. What is interesting is that, in
order to improve the development of their respective petroleum (oil and gas)
sector, both countries will need to modify their petroleum fiscal frameworks because
of the changed petroleum fiscal landscape at the global level. Of course,
amending the petroleum fiscal framework is presently secondary in either country
to solving its respective present political challenges. <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">At
the political level, Algeria is currently facing important challenges primarily
linked to the tough economic conditions (the reduction in oil prices is the
main culprit), the complicated presidential election scheduled for May 2019,
and the terroristic menace originating from Algeria’s neighboring countries.
Despite the increase in the price of oil that has occurred over the last few months,
the Algerian government has little room for maneuver because of its limited
financial resources, and it faces now more difficulties in economically
appeasing the demonstrators currently carrying out strikes across the country as
it had done in the past. In fact, in the past, the country used to avert unrest
by redistributing its oil revenues. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">For
Libya, because of the Second Libyan Civil War, the present conditions are much
more complicated. The country is at the mercy of the conflict among </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">rival factions seeking control over the territory
and the oil reserves. Presently, there are two main factions: the first one is the
Government of National Accord, which is supported by the United Nations and
controls the Tripoli area and an area of southwestern territory along the
border with Algeria, and the second one is the Tobruk-led government, which
controls all central and eastern Libya and has the loyalty of the Libyan
National Army under the command of General Khalifa Haftar.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">THE
PREMISE: A CHANGING PETROLUEM FISCAL LANDSCAPE</span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The main problem with the petroleum contracts is linked
to one of their principal characteristics, i.e., their long duration; many
times, three decades is quite a normal duration. And, during these decades, the
economic profitability based on the initial contractual terms may change
consistently. The petroleum business is subject to price cycles linked to several
factors—sometimes real boom-bust cycles. So, the best approach when drafting a petroleum
contract is to provide it with real flexibility capable of withstanding a different
economic landscape. In other words, flexibility that is not based on purely
maintaining the status quo present at the time of the signature (for instance,
thanks to a strict stabilization clause), but that is based on maintaining a
correct equilibrium between the involved parties (for instance, thanks to an
equilibrium or outcome-based clause). </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In other words, the goal must be to ‘account for’ in
a fair and equitable manner and not just ‘take into account’ the different
economic conditions. However, this is easier said than done. On top of this, an
additional hurdle is that when drafting a petroleum contract, the involved
actors behaviorally give a lot more attention to the economic conditions
present at the time of the signature. This tendency is the normal trend. The
problem is that the economic conditions present at the time of the signature
might radically change in just few months. For example, in June 2014, the price
of a barrel of oil (Europe Brent crude spot price) was about $115, while in
December 2014, i.e., six months later, the price was $65 (a 43% decline). <span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">At the end of the 1990s and beginning of 2000s, the
price of a barrel of oil sustained an upward trend. Chindia, i.e., China and
India, increased year after year its oil consumption, and the U.S. had still to
begin its fracking operations. So, the governments of oil-producing countries started
to engage in revising the substantial contractual terms that were the
foundations on which the international petroleum companies had based their
decisions to sign the petroleum contracts. As a result, relevant changes
occurred especially when originally the contracts had been signed in times of
low oil prices (for example, in those 15 years between 1985 and 1999). </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Presently, after the price decline that started in
June 2014, the petroleum fiscal frameworks and the relating contracts of
several countries have been recently incapable of attracting a reasonable
number of international oil companies (I.O.C.s). So, some of these countries
are thinking of amending their fiscal frameworks and contracts—see, for example,
the recent changes in Iraq. However, at the time of this writing, the price of
oil has increased for the past ten months because of politically motivated
production restriction, increased demand, reduced investment in the past years,
and geopolitical tensions (for instance, in Venezuela and Iran).<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">ALGERIA’S
PETROLEUM FISCAL FRAMEWORK</span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Algeria became independent from France in 1962, but
some relevant hydrocarbon discoveries had already occurred in the 1950s. In
fact, in 1956 were discovered the Hassi Messaoud and the Hassi R’mel oil fields—still
today, the country’s two largest oil fields. Then, in 1963, Algeria established
Sonatrach, its national petroleum company. At the beginning of its petroleum
operations, Algeria’s petroleum legal regime was based on petroleum concessions,
which were released by the French authorities. Some years later, in 1970,
Algeria began to expropriate some foreign petroleum companies, and, by the end
of the year, all the assets of the non-French petroleum companies present in
Algeria had been nationalized. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Then, the following year, the Algerian government
nationalized a 51% stake in each of the concessions still managed by the French
petroleum companies. At the same time, the government nationalized completely
the gas sector and the oil and gas pipelines companies. The result was that, in
just few years, the petroleum sector was almost completely controlled by the
Algerian government. On top of this, in 1980, also France’s Total was obliged
to exit the market when the government refused to extend the association
agreements with the company. Technically, the petroleum sector was not
completely closed to the I.O.C.s, but the terms were so harsh that the I.O.C.s
were not much interested any longer into investing in Algeria.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">After this last change, some problems materialized
quite soon because in those years the oil prices declined and because Sonatrach
did not really have the technological expertise to develop a petroleum sector
that at that time started to have some mature fields requiring top-notch petroleum
skills. Understanding these difficulties, in 1986, Algeria passed a new
hydrocarbon law, Law No. 86-14, which introduced the production sharing
contracts (P.S.C.s) and risk service contracts in Algeria. The idea was to relax
the offered fiscal terms with the specific goal of attracting again the
technologically savvy I.O.C.s to Algeria. The problem was that the offered
conditions were not sufficiently good to lure the I.O.C.s back to Algeria.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">However, in 1991, when the Parliament passed some
amendments to Law No. 86-14, Algeria was able to attract one more time the
I.O.C.s back to Algeria. The amendments concerned improved fiscal terms and the
general conditions relating to the investment operations (the possibility of
benefiting from international arbitration was an essential element). This move was
successful because in the 1990s I.O.C.s coming from very different geographic
areas returned to invest in Algeria in partnership with Sonatrach, which
maintained a minimum 51% stake in all the upstream projects.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Then, in April 2005, Algeria introduced Law No.
05-07, whose goal was to modify the oil and gas sector framework. It was
created al Naft, which is the body responsible for the organization of the
licensing rounds and the award of the contracts, and the Hydrocarbon Regulatory
Authority, which is responsible for technical matters. This law reintroduced in
Algeria tax and royalty petroleum agreements (concessions) and blocked with
reference to future agreements the application of both the P.S.C.s and the risk
service contracts. According to this law, the I.O.C.s were supposed to pay a
proportional royalty linked to the location and the production of a field and
to pay income tax based on a sliding scale increasing with the increase in the
hydrocarbons production. It’s worth noting that, despite the enactment of Law
No. 05-07, the P.S.C.s entered by Algeria under Law No. 86-14 were still valid—in
other words, the new law did not act retroactively invalidating those contracts.
<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In addition, Law No. 05-07 abrogated the necessary
requirement that Sonatrach had a 51% stake in all the upstream projects. However,
this abrogation lasted for just a year because, in July 2006, Order No. 06-10
reintroduced Sonatrach’s mandatory 51% stake. In practice, the risk of the
exploratory phase in Algeria is all on the I.O.C.s, but then, when there is a
commercially viable discovery, Sonatrach must get at least a 51% stake. The
order also introduced retroactive taxation concerning all the P.S.C.s executed
before Law No. 05-07, and it introduced in relation to contracts signed under
Law No. 86-14, a windfall profits tax applied at rates ranging from 5% to 50% according
to the production level when the arithmetic price of oil exceeds $30 a barrel. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Then, in February 2013, Law. 13-01 introduced some
incentives for the development of unconventional oil and gas. According to this
law, the taxation is now based on profit and not on total revenue. At the same
time, with reference to the unconventional resources, this law lowered the tax rates
and permitted a longer exploration phase (11 years for the unconventional
resources versus 7 years for the conventional resources) and longer
operating/production periods (30 years and 40 years for unconventional liquids
and gaseous hydrocarbons, respectively, versus 25 years and 30 years for
conventional liquids and gaseous hydrocarbons, respectively).</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">As of today, in Algeria exploration and/or
exploitation activities must follow the signature of a tax and royalty
petroleum agreement, i.e., a concession. Al Naft’s selection of a contracting
party is done via a tender procedure, although the Minister for Hydrocarbons
may opt for a direct agreement with a specific contractor. The Algerian </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">state has the right to ownership over discovered or undiscovered
natural resources located on the soil or subsoil of the national territory.
Sonatrach still has have in any agreement a participation stake of at least
51%; a joint operating agreement signed by Sonatrach and its partners (national
or foreigner partners) is attached to the agreement. It’s important to
underline that all the foreign contracting parties to an agreement must
establish an Algerian branch. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">With reference to the taxation
concerning petroleum agreements signed under Law No. 05-07, as amended, hydrocarbons
areas are divided among four different zones, i.e., Zone A, Zone B, Zone C, and
Zone D. Taxation is based on four separate components: the surface area tax,
the royalty tax, the petroleum income tax, and the additional profits tax.
However, each zone has a different taxation level. The surface area tax, equal
to the product of the surface of the contractual area and a specific price per
square kilometer, depends primarily on the tax zone and on the type of activity
carried out. The surface area tax is a non-deductible charge from the tax base
for the calculation of other different taxes. This surface area tax is
considered for the determination of the rate that is used for determining the </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">petroleum income tax.</span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The royalty is a percentage of
the ‘value of production minus transport costs’ calculated on a deposit by
deposit basis. Its value is 5.5% to 20%. The different percentages depend on
the level of production and on the specific zone. No matter what the production
is, unconventional hydrocarbons have all a 5% rate. The royalty is a deductible
charge from the tax base for the calculation of the </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">petroleum income tax and of the additional profits tax.</span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"> </span></span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The petroleum income tax is also determined on a deposit
by deposit basis. Its rate is linked to the profitability of the investment. It
has a minimum rate of 10% to 30% and a maximum rate of 40% to 70% depending on
whether the deposit is conventional, unconventional, or geologically complex. Petroleum
income, determined on a deposit by deposit basis, is defined as the value of
the production minus the following deductions: the royalty, the annual
investment tranches for the development with their uplift values, the annual
investment tranches for research with their uplift values, the abandonment
and/or restoration costs, the training costs, the costs relating to the gas
reinjected into the deposit. </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The</span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> petroleum income tax
</span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">is a deductible charge from
the tax base for the calculation of the</span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> additional profits tax.</span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"> </span></span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The additional profits tax is applied to the consolidated
profit of all the oil activities carried out by the investors in Algeria. It’s
due by all the entities in an </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">exploration
or production contract, and it is based on the annual profits after the
petroleum income tax. The royalty, the petroleum income tax, the depreciation,
the reserves for abandonment or restoration costs are all deducted for the
calculation of the taxable basis. There are two applicable rates: 30% and 15% (the
latter rate is for profits that are reinvested). According to Law No. 13-01,
for unconventional oil and gas, small deposits, and underexplored areas that
have complex geology and/or that lack infrastructure, each company that is
party to the agreement is subject to a reduced rate set at 19% (instead of the
standard 30%) according to some specific conditions and depreciation rates. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Instead, the contracts signed under Law No. 86-14 have
three different main taxes: the royalty tax, the income tax, and the above-mentioned
windfall tax. With these contracts, royalty is due on the gross income, and
it’s paid by Sonatrach </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">at a rate
of 20%. The royalty rate can be reduced to 16.25% for zone A and 12.5% for zone
B. Moreover, The Ministry of Finance can reduce the royalty rate further to a
limit of 10%. The income tax is fixed at the rate of 38%, it applies to the
profit made by a foreign partner, and it is paid by Sonatrach on its behalf.</span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> <span style="margin: 0px;"> </span><span lang="EN" style="margin: 0px;"></span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">According to an analysis by Rystad Energy and the
Boston Consulting Group, Algeria’s government take was 88% between 2009 and
2014. The government take may be defined as the government share of ‘gross
revenues’ minus ‘costs.’ Indeed, this value is very high. It’s true that to
analyze a petroleum contract, the government take parameter might not be a
perfect indicator, but it’s also true that it may well serve as a useful
initial reference point (Johnston 2003), and for this reason it’s used
internationally as the measure for defining the competitiveness of a country’s
petroleum fiscal system. The government take is even more important when oil
prices decline and when the companies reduce their investments as well, because
it’s exactly at that time that countries compete to attract the reduced number
of possible investors. <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Algeria is currently planning to amend its
hydrocarbons law to attract investors because the last invitations to tender have
resulted in negative outcomes. For example, in 2014, Algeria was capable of
awarding only 4 blocks out 31 blocks on offer. All this said, it’s also true
that the precarious security environment, especially in the areas far from the
coastline, does not help to attract the I.O.C.s. An auction was planned for the
second part of 2015, but it was canceled because of the negative results of the
previous tenders. These negative results call for a more enticing regulatory
framework (better tax provisions) capable of better balancing the interests of
both Algeria, on the one side, and the I.O.C.s, on the other side. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Algeria needs both technical expertise and
financial resources to explore those two-thirds of territory still today
completely unexplored for oil and gas, and at the same time to start tapping
its shale oil and shale gas resources. Maintaining Sonatrach’s 51% majority
stake in all of Algeria’s hydrocarbons projects is probable is not tenable any
longer; it’s time that the I.O.C.s have a larger role in the projects. Still
today, Sonatrach owns about 80% of all oil and gas production. Similarly, the
present tax law, which was drafted when oil prices were high, might be modified
to better account for a different range of oil </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">prices. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">LIBYA’S
PETROLEUM FISCAL FRAMEWORK</span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Libya’s petroleum development started in 1955 with
the promulgation of Law. No. 25, a.k.a., the Petroleum Law. In the same year,
Libya granted its first concessions—what was immediately interesting was that
the concessions concerned small areas and that there were relinquishment
obligations included. This law has been amended over the course of the
following decades several times, and it’s still today the backbone of the
country’s petroleum sector. Those first concessions gave the I.O.C.s the complete
control over all the petroleum operations. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">By the end of the 1960s and beginning of the 1970s,
Libya started requesting tougher fiscal terms from the I.O.C.s. In specific,
Libya wanted to have a larger share of the petroleum revenue, and, in 1970, it
increased its royalties from the concession agreements with the I.O.C.s to a
55% share. Then, in 1972-1973, the concessions were transformed into
participation agreements in which Libya’s National Oil Corporation (N.O.C., the
petroleum state company) was entitled to a 51% stake. <span style="margin: 0px;"> </span>And, in 1973, a 51% stake in each of the concessions
whose concessionaries had previously refused to transform their concessions
into participation agreements was nationalized.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In 1974, Libya introduced its first exploration and
production sharing contracts (E.P.S.A.s). In practice, the government decided
to have a petroleum fiscal framework based on production sharing contracts
(P.S.C.s). Until today, Libya has introduced four versions of the E.P.S.A.s.
Today’s contract is the E.P.S.A. IV, which was used for the first time in January
2005 on the occasion of the first licensing round after the lift of the
sanctions against Libya in 2004. The E.P.S.A. IV terms are quite tough, but this
contract was quite successful in 2005 because at that time oil prices were rising,
there were not many interesting acreages on offer across the globe, and Libya’s
coastline is quite close to Europe, which has a large oil-importing market. In
fact, the 2005 E.P.S.A. IV licensing round, which was a sealed-bid round, saw
15 blocks on offer and an average of 7 bids per block. <span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Since 2005, Libya has held four licensing rounds based
on the E.P.S.A. IV. The first one in January 2005, the second one in October
2006, the third one in December 2006, and the last one in December 2007 (the
latter exclusively for gas fields). In general terms, the first three rounds
were quite successful (on average they had an 87% award rate), while the fourth
one, the gas round, had only a 50% award rate. The reason for the disappointing
result of the fourth round was that at least some of the I.O.C.s were quite
unhappy with the strict terms and operating conditions. In fact, the winning
I.O.C.s had all low production sharing percentages. <span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In any case, today if an I.O.C. wants to carry out
petroleum operations in Libya, unless it takes over an existing interest, it
must enter an E.P.S.A. IV with N.O.C. In general, if there is the need for
I.O.C.s, the government organizes a bid round. I.O.C.s make their bids, and the
winning company will open a branch office in Libya. The E.P.S.A. IV model provides
for a contractual period of 30 years (5 years for the exploration and 25 years
for the exploitation). </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">According to the E.P.S.A. IV, the I.O.C.s must bid
the percentage of gross production directly reserved for the N.O.C.—later in
the project, when the cumulative costs will be quite low, this share of gross
production will appear more as a sort of regressive royalty. In case there is a
tie on the gross-production percentage reserved for N.O.C., the signature bonus
will be the tiebreaker. In 2005, the first time that Libya used the E.P.S.A.
IV, the blocks on offer were quite large (on the order of more than 2 million
acres each); large blocks may be a drag on the I.O.C.s because, in such a
situation, companies might have important sunk costs before the discovery of a
commercially exploitable quantity of hydrocarbons.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In addition to the signature bonus, each block on
offer has several production bonuses linked to the cumulative production coming
out of the block. The E.P.S.A. IV requires N.O.C to pay 50% of capital
expenditures (capex) and its share (percentage) of operating expenditures (opex,
this share corresponds to the gross-production percentage reserved for N.O.C.,
i.e., the first (and fundamental) bid parameter. N.O.C. does not directly cover
the exploration costs. These costs are directly expensed by the I.O.C.s, which
could recover them as cost oil.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The I.O.C.s’ cost oil comprises three elements:</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">1 — 100% of exploration costs</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">2 — 50% of capex</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">3 — the ‘%’ of opex corresponding to the ‘%’ of the
I.O.C.s’ gross production </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In any calendar year, a specific percentage of
production must be allocated to the I.O.C.s for cost recovery until the cumulative
value of such allocation equals the cumulative petroleum operations
expenditures incurred by the I.O.C.s. Thereafter, any excess of such allocation
to the I.O.C.s (Excess Petroleum) shall be allocated to the I.O.C.s according
to the formula: ‘Base Factor’ multiplied by ‘A Factor’ multiplied by ‘Excess Petroleum.’</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The base factor at the indicated levels of the
average total daily production in barrels of crude oil and liquid hydrocarbon
by-product, is defined by a specific table according to which the various
levels of production have a different base factor. In practice, if, for
example, excess oil is 50,000 b/d, the base factor will be for the first 20,000
barrels 0.95, for the second 10,000 barrels 0.80, and for the remaining 20,000
barrels 0.60. If we multiply each tranche of barrels by its corresponding base factor,
sum the results, and then divide the result of the sum by the overall excess
oil, we will get the final base factor. Instead, the A factor is the result of
dividing the I.O.C.s’ cumulative revenues by the relating expenditures (the sum
of both capex and opex). According to the obtained ratio, the I.O.C.s will use
a different A factor as expressed in a specific table. N.O.C. pays the taxes on
behalf of the I.O.C.s.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The overall result of the 2005 E.P.S.A.s was that
the government had a government take on the order of about 88% across all the
blocks. This percentage was very high despite the government participated in
50% of capex and in a percentage of opex corresponding to the percentage value
of its reserved gross production. And, according to an analysis by Rystad
Energy and the Boston Consulting Group, Libya’s government take was 76% between
2009 and 2014. The basic idea is that the contractual terms of the E.P.S.A. IV
are quite harsh. According to these terms, some discoveries, despite being
quite large, may sometimes not be sufficiently large to declare them
commercially viable.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Already before the commencement of the hostilities
against Colonel Gaddafi, in Libya there was the idea of passing a new and more
encompassing hydrocarbon law with specific chapters covering natural gas and enhanced
oil recovery (E.O.R.) projects. Moreover, immediately after the demise of
Colonel Gaddafi’s regime, some of the discussions focused on the structure and
the management of the hydrocarbons industry with specific attention given to
expanding the downstream sector, reforming the subsidies, restructuring N.O.C.,
and amending the upstream contracts.<span style="margin: 0px;"> </span>N.O.C.
was thinking of having another bid round as well. However, because of the
ongoing civil war, all this program has been put on the backburner. <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The I.O.C.s would like Libya to present an updated
version of the E.P.S.A. with more attractive terms with reference to the
companies’ profitability. At the same time, the companies would like to have
some reforms concerning the way the management committee works, the application
of force majeure, and the training and employment of Libyan nationals. In
specific, the problem with the management committee is that sometimes this body
is incapable of taking decisions because there is no unanimous decision, which
is instead mandatorily requested. If there is this deadlock, the matter at hand
is then passed to the </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">senior management. However, it’s not guaranteed
that a solution will be found also at this level. So, delays may be a regular
occurrence, which has a negative impact on the contractual obligations.</span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<br /></div>
<b></b><i></i><u></u><sub></sub><sup></sup><strike></strike></div>
<iframe src="https://drive.google.com/file/d/1WeOfcxq8UCPB4c3hPnKrsUUJlzFs3Ifp/preview" width="915" height="1200"></iframe><br /></div>Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-86096786603355558842018-05-07T09:00:00.000+03:002018-05-09T01:04:22.928+03:00Iraq’s Fifth Licensing Round: Some Preliminary Considerations After the Auction<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiTOvkEFj2YRAJplnNl7Qqi_dbCwuMyhm1nJnvE5qMCbxa11DqET0_vii_UQNORXPIXUdp8EITkPdpcTade5mkP9wdnav3hdi3Rrq9sByFRDqiYBZ2ygv6nkeygPaefnL4ujbrj3OR4G0J1/s1600/BACCI-Iraqs-Fifth-Licensing-Round-Some-Preliminary-Considerations-After-the+Auction-May-2018-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraqs-Fifth-Licensing-Round-Some-Preliminary-Considerations-After-the Auction-May-2018-Cover" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiTOvkEFj2YRAJplnNl7Qqi_dbCwuMyhm1nJnvE5qMCbxa11DqET0_vii_UQNORXPIXUdp8EITkPdpcTade5mkP9wdnav3hdi3Rrq9sByFRDqiYBZ2ygv6nkeygPaefnL4ujbrj3OR4G0J1/s1600/BACCI-Iraqs-Fifth-Licensing-Round-Some-Preliminary-Considerations-After-the+Auction-May-2018-Cover.jpg" title="BACCI-Iraqs-Fifth-Licensing-Round-Some-Preliminary-Considerations-After-the Auction-May-2018-Cover" /></a></div>
<br />
<br />
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">My analysis “<a href="http://www.iraq-businessnews.com/2018/05/07/fifth-licensing-round-some-preliminary-considerations/" target="_blank">Iraq’s Fifth Licensing Round: Some Preliminary Considerations After the Auction</a>” has been
published by <a href="http://www.iraq-businessnews.com/" rel="nofollow" target="_blank">Iraq Business News</a> on May 7, 2018</span></b></div>
<span style="font-family: "georgia";"></span><br />
<div align="justify" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: center;">
</div>
<span style="font-family: "georgia";">
<div align="right" style="line-height: 200%; margin: 16px 0px 10.66px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">May 7,
2018</span></b></div>
<div align="justify" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: center;">
</div>
<div align="right" style="line-height: 200%; margin: 16px 0px 10.66px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">London,
United Kingdom</span></b></div>
<div align="justify" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: center;">
</div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">ABSTRACT
— Iraq’s fifth licensing round was related to the offering of 11 oil and gas
blocks. In specific, 10 onshore blocks located along the Iraqi borders with
Kuwait and Iran, and 1 offshore block in the Persian Gulf waters. In the end,
six blocks were awarded, while five of the exploration blocks did not receive
any bids. One initial explanation for the mixed result might be that the Iraqi
government, for political reasons linked to the upcoming national elections,
had previously changed the date of the auction. So, the international oil
companies (I.O.C.s) did not have sufficient time to study the dossier relating
to the 11 blocks on offer. With reference to the contracts, the Ministry of Oil
has introduced some amendments that have changed the structure of Iraq’s
service contracts. The amended contract is different in that it sets a link
between oil prices and the remuneration given to the I.O.C.s. At the same time,
it introduces a 25% royalty on gross production. Thanks to the new contractual
structure, the government would like to force the contractors to act in a more
efficient manner.</span></div>
<div align="justify" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: center;">
</div>
<br />
<div align="center" style="line-height: 200%; margin: 16px 0px 10.66px; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="http://www.iraq-businessnews.com/2018/05/07/fifth-licensing-round-some-preliminary-considerations/" target="_blank">Iraq’s
Fifth Licensing Round: Some Preliminary Considerations After the Auction</a></span></b></div>
<div align="justify" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: center;">
<br /></div>
<div align="justify" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: center;">
<br /></div>
<div align="justify" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: center;">
<br /></div>
<div align="justify" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: center;">
<br /></div>
</span></div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-21619597361387812332018-04-26T05:30:00.000+03:002018-05-01T03:11:44.300+03:00Current Trends Concerning Petroleum Service Contracts in the Middle East<div dir="ltr" style="text-align: left;" trbidi="on">
<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhMl7JQR7BBC9sth8y4b6QsSvZu6gNprmbtztcIlX1dpguRDqtPZWnEd2e1vvT-RZTcu0p3XFs1PsQOiWZlc7qO4iHBm9NoI8ox3N00cchGHpZOR4PpIUglvKsAcJgRG9wDFLrbuVZ8r_DU/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-Cover.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-Cover" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhMl7JQR7BBC9sth8y4b6QsSvZu6gNprmbtztcIlX1dpguRDqtPZWnEd2e1vvT-RZTcu0p3XFs1PsQOiWZlc7qO4iHBm9NoI8ox3N00cchGHpZOR4PpIUglvKsAcJgRG9wDFLrbuVZ8r_DU/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-Cover.JPG" title="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-Cover" /></a></div>
<br />
<br />
<br />
<div align="right" style="line-height: 200%; margin: 16px 0px 10.66px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">April
26, 2018</span></b></div>
<br />
<div align="right" style="line-height: 200%; margin: 16px 0px 10.66px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">London,
United Kingdom</span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Dear
friends, </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">I
would like to share with you the presentation that I gave at the European
Chapter Event International — Petroleum Scholar Workshop, which was organized
in London, United Kingdom, by the <a href="https://www.aipn.org/" rel="nofollow" target="_blank">Association of International Petroleum Negotiators (A.I.P.N.)</a> on April 26, 2018. <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Thank
you. </span><span style="font-family: "georgia" , serif; font-size: 10.5pt; line-height: 200%; margin: 0px;"></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Best
regards, </span><span style="font-family: "georgia" , serif; font-size: 10.5pt; line-height: 200%; margin: 0px;"></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Alessandro</span><span style="font-family: "georgia" , serif; font-size: 10.5pt; line-height: 200%; margin: 0px;"></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px;">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjO1nsCDN4EzJU9HJUAJBFuFlxpZ4t3q8AvS0XunjPcSKFQzBq9sSYm0OWTOId1vjfddwubr9PXDEjAHbTYvmt7LQtr1DAnGOkKEUbfX5JWMfCwwLhKyIS7epgZPQ66ZKie6L5OTFXOoxFQ/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-1.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-1" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjO1nsCDN4EzJU9HJUAJBFuFlxpZ4t3q8AvS0XunjPcSKFQzBq9sSYm0OWTOId1vjfddwubr9PXDEjAHbTYvmt7LQtr1DAnGOkKEUbfX5JWMfCwwLhKyIS7epgZPQ66ZKie6L5OTFXOoxFQ/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-1.JPG" title="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-1" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7YfB-KPG15vuMhlJo4wc0qRPD3M0XbIs2MdCMXjLafiMdImDm_4nheVq9QGSnEkBhsRns6vB7Y2itsPJBIiqAiUgmboGmY33lLg4juSPISR1sEFX8QcTSFc2EFUTJAeDSGEplFeTgHprf/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-2.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-2" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7YfB-KPG15vuMhlJo4wc0qRPD3M0XbIs2MdCMXjLafiMdImDm_4nheVq9QGSnEkBhsRns6vB7Y2itsPJBIiqAiUgmboGmY33lLg4juSPISR1sEFX8QcTSFc2EFUTJAeDSGEplFeTgHprf/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-2.JPG" title="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-2" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_Z6fSxkwWQur6MK2Lei4Ib43nx7DhczN0Mhgo1CDaIrz1whXIf86_j3yat9Ki5IbmtH7n4s0y8SlV5GZICRFhQc9fy95RYQH7xz4y3gFJDBk4B7D4LSA_b6tIKun3w7pCgohOQbQ0sgr8/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-3.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-3" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_Z6fSxkwWQur6MK2Lei4Ib43nx7DhczN0Mhgo1CDaIrz1whXIf86_j3yat9Ki5IbmtH7n4s0y8SlV5GZICRFhQc9fy95RYQH7xz4y3gFJDBk4B7D4LSA_b6tIKun3w7pCgohOQbQ0sgr8/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-3.JPG" title="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-3" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAeiAPnnlrioTCdEmThBt5SComXjcBz2hxlfTZKzuejiTx-1r5myyPXyh2vyG-VeARC6BR81ALQbk0t9krFuQP08OXo8GXwvDluCY-ouxXpTzUtbzcxm2Ls5k6EqxZY-32cSHcgBHlWbDd/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-4.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-4" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAeiAPnnlrioTCdEmThBt5SComXjcBz2hxlfTZKzuejiTx-1r5myyPXyh2vyG-VeARC6BR81ALQbk0t9krFuQP08OXo8GXwvDluCY-ouxXpTzUtbzcxm2Ls5k6EqxZY-32cSHcgBHlWbDd/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-4.JPG" title="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-4" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXIlN6RU567_FOLCOzvP5Hr4G46Xzeabxnkvz3b01OZ4Pmoa0yN10DiUPvqswYEXiouCDiT2YP3oocx3gMbDQlKErq_ZnJWyDISOr1KTNqMrM56ZAaRxWFUeSgh6u2AZUmzdmMJdkcIwxF/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-5.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-5" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXIlN6RU567_FOLCOzvP5Hr4G46Xzeabxnkvz3b01OZ4Pmoa0yN10DiUPvqswYEXiouCDiT2YP3oocx3gMbDQlKErq_ZnJWyDISOr1KTNqMrM56ZAaRxWFUeSgh6u2AZUmzdmMJdkcIwxF/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-5.JPG" title="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-5" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdxx8Iew3FDyd8m53E-LbB-5B2E9moxa3ovOy7RytaY08IdAI0F13IqWjtfhNeqU15iVuhJvUKtv0CoKiLip0q5KYfnKxFLo-uVqs1NlSTN6N5X1iCWhk0qW28bX0gkO1_mOqIS1FvnZuC/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-6.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-6" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdxx8Iew3FDyd8m53E-LbB-5B2E9moxa3ovOy7RytaY08IdAI0F13IqWjtfhNeqU15iVuhJvUKtv0CoKiLip0q5KYfnKxFLo-uVqs1NlSTN6N5X1iCWhk0qW28bX0gkO1_mOqIS1FvnZuC/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-6.JPG" title="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-6" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh63pE6YV4FHD3yFyt-vshp450q5rXJN8Hiq8s58pJgDDvO4Fdq7lL7-lLDCuK7W5hywMQ6pECBpADAVLk4W7h96FIrQWt8uqQiybVZeERYj0LGJCBKZxNnsoGfQtmYp4DZY4EkyJ3aNmuD/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-7.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-7" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh63pE6YV4FHD3yFyt-vshp450q5rXJN8Hiq8s58pJgDDvO4Fdq7lL7-lLDCuK7W5hywMQ6pECBpADAVLk4W7h96FIrQWt8uqQiybVZeERYj0LGJCBKZxNnsoGfQtmYp4DZY4EkyJ3aNmuD/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-7.JPG" title="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-7" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKCavMtDOmVBwK6GYw0Y1JLWPUDfugD_SuCiw-ZrNXwFyrenYAkqGXsrYaajk_G-i9LTVRKXdYWa9AsNEk5wZHhyxJAD6d2epC5rep8gzBdx-xrkDQFlz-vh2vp5a9_8uk0xGpkPZwb0Aw/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-8.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-8" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKCavMtDOmVBwK6GYw0Y1JLWPUDfugD_SuCiw-ZrNXwFyrenYAkqGXsrYaajk_G-i9LTVRKXdYWa9AsNEk5wZHhyxJAD6d2epC5rep8gzBdx-xrkDQFlz-vh2vp5a9_8uk0xGpkPZwb0Aw/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-8.JPG" title="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-8" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhgOL_BH-ee-V7-hCtABXmyzKGlyvkkjPvrerTlIJ3Odxtx8x1nHAi2FcHOZ2yhK47EauDwFNo46WHijk7Pm4GMFXCrhiw-YkokSz2SYTukvbyWFPxrUiaCBVTg3JdqUXAHgBClvtHRUW8k/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-9.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-9" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhgOL_BH-ee-V7-hCtABXmyzKGlyvkkjPvrerTlIJ3Odxtx8x1nHAi2FcHOZ2yhK47EauDwFNo46WHijk7Pm4GMFXCrhiw-YkokSz2SYTukvbyWFPxrUiaCBVTg3JdqUXAHgBClvtHRUW8k/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-9.JPG" title="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-9" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjnCfEonMVHyC_UlJrSNbB1ZUOvdpcLzQ97NBEKW7ElRNwNmjV659rG1F7sYv61EtsTDADYBYkcWEQepywqpddNfV0KkLi6GhDAyDw8wVZzQQoY6-fUpBiWk_oZ3Gd0WIpl0V2M0R2PjanD/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-10.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-10" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjnCfEonMVHyC_UlJrSNbB1ZUOvdpcLzQ97NBEKW7ElRNwNmjV659rG1F7sYv61EtsTDADYBYkcWEQepywqpddNfV0KkLi6GhDAyDw8wVZzQQoY6-fUpBiWk_oZ3Gd0WIpl0V2M0R2PjanD/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-10.JPG" title="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-10" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzY4a012sveXtgI7T36LWmJtX8NAAe7ZT9KdR0Yhz38oGzvGLzybJuqAz2dOZb4F_qDFV19SkKrNgwPyAE7wp8e9NQBEMVnNDrh433k2m6vBD0Zuxw63w_7hcs9zv4fnlK7t93VesLkzc3/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-11.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-11" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzY4a012sveXtgI7T36LWmJtX8NAAe7ZT9KdR0Yhz38oGzvGLzybJuqAz2dOZb4F_qDFV19SkKrNgwPyAE7wp8e9NQBEMVnNDrh433k2m6vBD0Zuxw63w_7hcs9zv4fnlK7t93VesLkzc3/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-11.JPG" title="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-11" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjv2oHGhw61V-E52NXHcNINhA1cpIxTMetfIOqFnSZzRLoDuXQbmvCE6tHzC4hl5x4wLwwqPLD5gK7-UOuYwr_evdNsXDf1GGl8BQZtqefN-lXmwddsohkPKlzfdglPVYqdiuacwmUDQ_7G/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-12.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-12" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjv2oHGhw61V-E52NXHcNINhA1cpIxTMetfIOqFnSZzRLoDuXQbmvCE6tHzC4hl5x4wLwwqPLD5gK7-UOuYwr_evdNsXDf1GGl8BQZtqefN-lXmwddsohkPKlzfdglPVYqdiuacwmUDQ_7G/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-12.JPG" title="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-12" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhEu1XjfxLt8wArOlCXZxfXDCsnv-mZqMIaYGDNeDBCL3mxCyH1xwW_pXgddiZnbQC9MIx1PPY7Kyb-sOHNEZbb-vJCuLhuoCr8LOcuJhb_SImfvSXeJyIdZ3jXiqV1VXIc4V6huPHuLICS/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-13.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-13" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhEu1XjfxLt8wArOlCXZxfXDCsnv-mZqMIaYGDNeDBCL3mxCyH1xwW_pXgddiZnbQC9MIx1PPY7Kyb-sOHNEZbb-vJCuLhuoCr8LOcuJhb_SImfvSXeJyIdZ3jXiqV1VXIc4V6huPHuLICS/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-13.JPG" title="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-13" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhyj-jysGSrN8L_cIxotaqybfq-tqji4UE2tJlaorg0TIb0egr94R8CgZyL27776wd0dzwFpQ8ZkkQc-ZaPhiECAm7Ca3bM2WWDUwhBprmIVdRDeOESiD9d8yLzQm8DuX5s4AP3Avoq0Poa/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-14.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-14" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhyj-jysGSrN8L_cIxotaqybfq-tqji4UE2tJlaorg0TIb0egr94R8CgZyL27776wd0dzwFpQ8ZkkQc-ZaPhiECAm7Ca3bM2WWDUwhBprmIVdRDeOESiD9d8yLzQm8DuX5s4AP3Avoq0Poa/s1600/BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-14.JPG" title="BACCI-Current-Trends-Concerning-Petroleum-Service-Contracts-in-the-Middle-East-April-2018-14" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<br /></div>
<b></b><i></i><u></u><sub></sub><sup></sup><strike></strike><span style="font-family: "calibri";"></span></div>
<iframe height="1200" src="https://drive.google.com/file/d/1F5LWSUvdWZkWDQEovA8x5EMD-AKHvvV3/preview" width="915"></iframe>
</div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-37331741648013147012018-04-12T14:33:00.000+03:002018-04-12T14:49:32.940+03:00Kuwait’s Petroleum Sector: What Is the Right Strategy?<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjF8VOVl5LG7Dk5ckDN57pWmdhuxlUR520Py1BZ7LgJDZ6AvCGvm5VtiqyUCSxukfd4Fp6DQ24XnwGH7xH2nEUj3UDNUuxKZNRD0Q1osvF-SXWxUEBLlefWBcRS_-jMOjE-vcf_rYRMn2iE/s1600/BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-Cover" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjF8VOVl5LG7Dk5ckDN57pWmdhuxlUR520Py1BZ7LgJDZ6AvCGvm5VtiqyUCSxukfd4Fp6DQ24XnwGH7xH2nEUj3UDNUuxKZNRD0Q1osvF-SXWxUEBLlefWBcRS_-jMOjE-vcf_rYRMn2iE/s1600/BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-Cover.jpg" title="BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-Cover" /></a></div>
<br />
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The
analysis “Kuwait’s Petroleum Sector: What Is the Right Strategy?” has been written
for the 5<sup>th</sup> Kuwait Oil and Gas Summit, which is organized by <a href="http://www.thecwcgroup.com/" rel="nofollow" target="_blank">The C.W.C. Group</a>, an energy and infrastructure conference, exhibition and training
company. The 5<sup>th</sup> Kuwait Oil and Gas Summit will take place in Kuwait
City, on April 16-17, 2018.</span><span style="font-family: "calibri";"> </span></b></div>
<b></b><i></i><u></u><sub></sub><sup></sup><strike></strike><span style="font-family: "calibri";"><b><br /></b></span>
<br />
<div align="right" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: right;">
<b><span style="color: black; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">April 12, 2018</span></b><span style="color: black; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span></div>
<br />
<div align="right" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: right;">
<b><span style="color: black; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">London, United Kingdom</span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">With
101.5 billion barrels of oil (BP Statistical Review of World Energy 2017), Kuwait
owns the world’s seventh largest proven oil reserves, or 5.9% of the world’s proven
oil reserves. The country’s economy is dominated by the oil sector. In fact, more
than 50% of the G.D.P, 92% of export revenues (from oil and oil products and
fertilizers), and 90% of the government income come all from the oil sector
(C.I.A. World Factbook, 2018). With reference to natural gas, Kuwait, with 1.8
trillion cubic meters (Tcm) of natural gas (BP Statistical Review of World
Energy 2017), on par with Norway and Egypt, owns the world’s 16<sup>th</sup>
largest proven natural gas reserves, or 1.0% of the world’s proven natural gas
reserves. <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Kuwait
has a production capacity of about 3.1 million barrels per day (MMb/d) and an
effective production of about 2.7 MMb/d. Kuwait’s production of about 250,000
b/d at the Wafra (onshore) and Khafji (offshore) fields in the Partitioned
Neutral Zone, which is the border region between Kuwait and Saudi Arabia, has
been shut down since 2015. At the current rate of production, Kuwait’s oil should
last for almost 88 years, while gas reserves for more than 100 years. Kuwait,
as well as the other Persian Gulf producers, has a couple of important
advantages: very low production costs and a geographic position at the
crossroads of three continents (Europe, Africa, and Asia), which permits Kuwait
to easily export oil and oil products to more than one market.</span><br />
<span style="font-family: "georgia";"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEillk6dgTla299mAPGnWucs42yY-432B6Kknk9wIiZ1YOy1lVk-mIkgF0n8PXEH_0OOJy4BcsRkBnY-ex99nQ7zZMnYRQBqXRdfGWPRtBe1UYsJvizoJkEsZZrpfBZuDM-mCcJ6MyrhA_Vd/s1600/BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-1" border="0" data-original-height="488" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEillk6dgTla299mAPGnWucs42yY-432B6Kknk9wIiZ1YOy1lVk-mIkgF0n8PXEH_0OOJy4BcsRkBnY-ex99nQ7zZMnYRQBqXRdfGWPRtBe1UYsJvizoJkEsZZrpfBZuDM-mCcJ6MyrhA_Vd/s1600/BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-1.jpg" title="BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-1" /></a></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Kuwait
has production costs among the lowest in the world. In fact, it has had until now
production costs of about $8.50 per barrel on average (in specific, $3.70 for
capital expenditures and $4.80 for operating expenditures). Probably, these
production costs will relatively rise in the future because production will
derive from more complex fields. However, because oil is a commodity (despite
different A.P.I. degrees and sulfur content), low production costs are one of
the most important commercial advantages for an oil producer. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">At
the same time, thanks to its geographic position, Kuwait may easily export its
oil to the Asia-Pacific region, which receives about 80% of its oil exports (Kuwait’s
overall exports are estimated at about 2.0 MMb/d). Crude oil is primarily sold
on term contracts, and its crude oil exports have been until recently a single
blend of all the Kuwaiti types of crudes, which is called ‘Kuwait.’ This blend
has 30.5 A.P.I. degrees and 2.6% of sulfur content (it’s defined a sour crude).
Presently, with the help of some Asian refiners, Kuwait is testing in Asia whether there
might be some interest in a new Kuwaiti blend called ‘Super Light,’ which has an
A.P.I. gravity of 48 degrees and 0.4% of sulfur content. In addition, in
August 2018, Kuwait wants to launch the blend ‘Kuwait Heavy,’ which has an
A.P.I. gravity of 16 degrees and 4.9% of sulfur content.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">So,
Kuwait represents a reliable and secure oil producer, which has been in the oil
business since 1938 when oil was discovered four years after the signature of
the concession in favor of a joint venture between Anglo-Persian Oil Company
(today’s British Petroleum) and Gulf Oil (today part of the U.S. company Chevron).
And, for all these decades, apart for a short hiatus linked to the invasion of
Kuwait by Iraq’s army, Kuwait has been one of the world’s most important and
reliable producers. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">However,
because of the evolving energy scenarios linked primarily to geopolitical
considerations, disruptive technologies, and climate change goals, it has
become more difficult for a petroleum-producing country to understand the
future opportunities and challenges concerning the petroleum sector. In
practice, the petroleum industry is in transformation, and all the petroleum-producing
countries (but, it would be more correct to add all the petroleum-importing
countries as well) must learn how to mitigate the present uncertainties. And,
as a producer, Kuwait is not exempt from this difficult challenge. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In
addition, these uncertainties regarding the development of the world’s
petroleum industry are added in Kuwait to an economy that is completely
dependent on the sales of oil and oil products. In fact, despite some attempts,
Kuwait has not succeeded in diversifying its economy and in supporting the
development of the private sector. The public sector employs about 74% of the
citizens. Be it clear that these economic features are quite widespread among
all the Persian Gulf producers (neighboring Iraq is experiencing the same economic
problems in addition to high costs linked to the reconstruction after the ISIS
insurgence). </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The
level of a country’s petroleum dependence can be measured according to several
different methodologies. In any case, three good indicators may be: petroleum
activities representing a sizable share of G.D.P., petroleum rents representing
a sizable share of G.D.P., and petroleum exports representing a sizable share
of the merchandising exports. In brief, Kuwait has high values in relation to
all these three indicators.</span><br />
<span style="font-family: "georgia";"><br /></span></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjoi8qev2mI_EDWPtMzNOAZzy47C9gsAo2PELU3Tuooa1elRY7dB-Su9SFwbMDo1w_Elwa1kxziC76Ne66uGmnW9MibfZRB3NWR2cWQ2EiWiOGv9tEfWkWoba5tLaHWlpN0jNIlu8tQtHis/s1600/BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-2.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-2" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjoi8qev2mI_EDWPtMzNOAZzy47C9gsAo2PELU3Tuooa1elRY7dB-Su9SFwbMDo1w_Elwa1kxziC76Ne66uGmnW9MibfZRB3NWR2cWQ2EiWiOGv9tEfWkWoba5tLaHWlpN0jNIlu8tQtHis/s1600/BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-2.jpg" title="BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-2" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div style="line-height: 200%; margin: 0px 0px 10.66px;">
<b><i><span style="color: black; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">What Did Kuwait Export
in 2016? — Source: The Atlas of Complexity, Harvard University</span></i></b></div>
</td></tr>
</tbody></table>
<div style="text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The
government had passed its first long-term economic development plan in 2010.
The idea was to spend up $104 billion over just four years with the specific
goal of diversifying the economy, bringing investments in Kuwait, and
increasing the private-sector share of the economy. Many of these projects
never materialized because of the uncertain political situation and the delays
in awarding the contracts.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In
Kuwait, diversification is not happening primarily for two reasons. First, because
it’s never an easy task to diversify the economy of a commodity-producing
country. And this is true no matter in what part of the world we are. Also, for
a country like Norway, which is normally considered the model of a successful petroleum-producing
country, diversifying the economy (although not completely) has not been an
easy task, and several specific (of the Norwegian state) factors helped Norway
reach this goal. In fact, for a commodity producer, there is always, behind the
corner, the risk of facing two dangerous phenomena, i.e., the Resource Curse
and the Dutch Disease.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Second,
diversification is not happening in Kuwait because of the difficult
relationships between the National Assembly, on the one side, and the executive
branch, on the other side. Historically, in Kuwait, the relationships between
these two institutional bodies have never been simple, and they have stymied
many economic reforms proposed over the years. A strong confrontation between the
National Assembly and government concerning the way to deal with the management
of the natural resources according to the interpretation of the text of the
Constitution had already materialized in the 1960s.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify; vertical-align: middle;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">However, many petroleum-producing countries find
themselves in dire financial straits after an oil’s price fall, as it occurred
in 2014. So, if a country’s economy is based on just a single pillar, when this
pillar is not any longer stable, there are bad economic consequences for the country.
In practice, a single-pillar economy has lower resilience against shocks
affecting its single pillar than the resilience of an economy based on several
different pillars. And this is what exactly occurred to Kuwait. The adage ‘never
put all the eggs in a single basket’ is true for private investors as it is for
countries. <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify; vertical-align: middle;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In fact, in 2015, for the first time in 15 years,
Kuwait realized a budget deficit. The following year, the deficit increased to
16.5% of the G.D.P. Then, in 2017, the deficit decreased to 7.2%. At the same
time, the government issued $8 billion’s worth of international bonds—there is
a trend in this direction in the Gulf Cooperation Council (G.C.C.) region. Kuwait’s
Fund for Future Generations, the sovereign wealth fund, in which each year Kuwait
saves at least 10% of government revenues, helped cushion Kuwait against the
impact of the reduction in the oil prices. Without capital expenditures and
social allowances, the latter make up two thirds of the private sector
salaries, the economy would have slowed more consistently.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify; vertical-align: middle;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Considering the above points, it appears clear
that Kuwait’s overall economic development must pass through the
diversification of the economy and a boost in private-sector hiring. However,
as economic literature has well explained, this is easier said than done,
especially in a country subject to harsh weather conditions as Kuwait is.
Probably, the best route would be the development of industrial clusters linked
to Kuwait’s characteristics and not a top-down industrial policy established by
the government.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify; vertical-align: middle;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">As the theory of cluster development explains,
clusters pursue competitive advantage and specialization, and they do not
attempt to replicate what is happening in other locations. With clusters, </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify; vertical-align: middle;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">[g]overnments – both national and local – have new
roles to play. They must ensure the supply of high-quality inputs such as
educated citizens and physical infrastructure. They must set the rules of competition
– by protecting intellectual property and enforcing antitrust laws, for example
– so that productivity and innovation will govern success in the economy.
Finally, governments should promote cluster formation and upgrading and the buildup
of public or quasi-public goods that have a significant impact on many linked
businesses. This sort of role for government is a far cry from industrial
policy. (Porter, 1998) </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">So,
branching out to other industrial sectors according to a cluster logic may be
the correct way. Kuwait might be the location for clusters related to technologies
linked to living in hot environments. For instance, technologies linked to
water desalinization, solar energy, and agriculture in arid lands. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Instead,
with reference to the petroleum sector, the correct
strategy, despite all the present uncertainties, must be continuity with the
past. Here the logic must be to understand what Kuwait can and cannot do now
and in the next years. In fact, notwithstanding all the ongoing discussions,
it’s impossible for Kuwait not to rely on the revenues deriving from the sale
of oil, which has been for the last decades and will continue to be, at least in
the near future, the country’s most important asset. As of today, without oil
revenues, numbers tell us that Kuwait’s economy would come to a grinding halt. Plus,
it’s important to understand that diversifying the economy would take years
before making a dent on the current structure of Kuwait’s economy, which is
dependent on the export of oil and oil products. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In 1997, Kuwait formulated ‘Project Kuwait,’ at
that time a $7 billion 25-year plan having the goal of increasing the country’s
oil production capacity (and compensate for the decline at the supergiant Burgan
field) with the help of international oil companies (I.O.C.s). In specific,
Kuwait wanted to initially increase output at five northern oil fields—Abdali,
Bahra, Ratqa, Raudhatain, and Sabriya—from a production rate of about 650,000
b/d to 900,000 b/d within the following three years. Then in mid-2000s, the basic
idea of the project became to increase the country’s oil production capacity to
4.0 MMb/d by 2020. </span><br />
<span style="font-family: "georgia";"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgkA8LyLXGM0Voni0k-Yg4H1s38CwkwTZbz3j14VjTjxMUZaYCnOvPl6OJxEhFMWHBgOsS-zmrp7_7gSIV6ou3ZBIGWIhspyqeHYkMT9qf9ZdO8XavtkAbtrB7TuZCQFdUK37v6xifscCCY/s1600/BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-3.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-3" border="0" data-original-height="757" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgkA8LyLXGM0Voni0k-Yg4H1s38CwkwTZbz3j14VjTjxMUZaYCnOvPl6OJxEhFMWHBgOsS-zmrp7_7gSIV6ou3ZBIGWIhspyqeHYkMT9qf9ZdO8XavtkAbtrB7TuZCQFdUK37v6xifscCCY/s1600/BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-3.jpg" title="BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-3" /></a></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">This whole project has not materialized until now despite
the authorities have always reaffirmed until recently that this is still an
achievable target. The main reason for the delay is the political opposition to the
I.O.C.s and to the contractual structure offered to them. Many of the new
projects have faced relevant delays because of the National Assembly’s
opposition to the envisaged new contractual structure. For more information
about Kuwait’s petroleum contracts, please see: </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="http://www.alessandrobacci.com/2011/12/kuwaits-o-contractual-framework-and.html"><span style="margin: 0px; text-decoration: none;"><span style="color: blue;">BACCI, A., <i style="mso-bidi-font-style: normal;">Kuwait's Oil and Gas Contractual Framework
and the Development of a Modern Natural Gas Industry</i> (Dec. 2011)</span></span></a></span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In brief, in order to bring in Kuwait the I.O.C.s, at
the end of the 2000s, Kuwait started to offer Enhanced Technical Service Agreements
(E.T.S.A.s), which allow the foreign companies to provide technical expertise
(needed especially for the more challenging fields) and management expertise for
a fee. Kuwait’s politicians have always been quite skeptical about the
transparency of the E.T.S.A.s and whether what Kuwait receives in exchange for
these services is fair. In any case, in the past ten years, Kuwait has signed
some E.T.S.A.s with Shell, BP, and Total, although the development of the
contracts has been marred by several missed deadlines.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Kuwait
won’t probably achieve the target of 4 MMb/d by 2020, but Kuwait Petroleum
Corporation (K.P.C.) has recently affirmed that it intends to invest more than
$500 billion to push its petroleum production to 4.75 MMb/d by 2040. W</span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">hether
the 4.75 MMb/d target includes Kuwait's production from the neutral zone is not
clear. In any case, this increase will derive mostly from northern Kuwait,
which is currently producing 1 MMb/d. </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In
specific, the company should spend $114 billion in capital expenditures over
the next five years and additional $394 billion after the initial five years up
to 2040. </span><br />
<span style="font-family: "georgia";"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhh3DQsYf14pm5ybtnNLPyLI87qmMgsUAsQO-SeYQCHVONa8Rwov3dq8-luE1R6CXQymDdfsZfDh-9_q1Jr6H08FE7xsk0uBkHvOTUh9uhdVDo0ZVPjA_PdZgIQXCsn0eTJ0qPYq56Fer5/s1600/BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-4.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-4" border="0" data-original-height="572" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhh3DQsYf14pm5ybtnNLPyLI87qmMgsUAsQO-SeYQCHVONa8Rwov3dq8-luE1R6CXQymDdfsZfDh-9_q1Jr6H08FE7xsk0uBkHvOTUh9uhdVDo0ZVPjA_PdZgIQXCsn0eTJ0qPYq56Fer5/s1600/BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-4.jpg" title="BACCI-Kuwait-Petroleum-Sector-What-Is-the-Right-Strategy-April-2018-4" /></a></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In
practice, although the petroleum market has changed consistently over the past
10 years, Kuwait proposes again an oil-production expansion plan. And, despite
that Kuwait is subject to OPEC quotas and that OPEC and non-OPEC members are
currently restraining their crude oil production to support oil prices, there is a logic
behind this choice. And Kuwait is not the only country carrying out this type
of plan. In fact, throughout the Persian Gulf oil-producing countries, there is
a medium-term trend toward expanding crude oil production (see for instance the
expansion plans relating to Iraq and Iran as well). </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">With
reference to oil, all these countries share the same advantages that Kuwait
has, i.e., low crude-oil production costs and an interesting geographic position
capable of serving more than one market (the favored one is the Asian market
now). And because oil is a commodity (let’s put aside the differences relating
to A.P.I. degrees and sulfur content) and considering the two above-mentioned
advantages, if oil markets were not affected by distortive political and
economic barriers, it would be evident that the most obvious oil producers in
the world should always be the Persian Gulf producers and Russia as well. Think
of David Ricardo’s theory of comparative advantage. So, summing up, this
medium-term trend tells us that these countries, including Kuwait, are betting
on cashing in on these two mentioned advantages, if not today, on a medium-term
horizon.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">What
Kuwait is slowly trying to achieve is probably the correct strategy under the
present uncertain circumstances. In any case, selling oil and oil products will
require a more detailed attention to the whole petroleum chain, from upstream
to downstream. In fact, competition among producers is increasing both at the
regional and at the international level with the specific goal of capturing
opportunities in the market. For sure, Kuwait is well positioned to take
advantage of the growing oil demand occurring in Asia, but this is true for all
the other Persian Gulf producers as well, and it seems that in the future also
oil producers from other geographic areas might try to sell oil in Asia. For
Kuwait, enhancing customer relationships will be crucial to maintain </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">prearranged
fixed sales agreements, which guarantee a certain cash flow. Because oil is a
commodity, differentiation strategies are not easy to implement. One route
might be to have an enlarged role in relation to oil trading. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">At the
same time, Kuwait must necessarily continue to </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">increase its production of non-associated natural gas; its associated natural gas production makes up 80% of the total natural gas
production. </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">According to BP Statistical Review of World
Energy 2017, Kuwait in 2016 produced 17.1 billion cubic meters (Bcm) of natural
gas, while it consumed 21.9 Bcm. </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The goal is to
increase non-associated gas production to 2.5 billion cubic feet a day (Bcf/d)
in 2040 from the level of 0.5 Bcf/d in mid-2018. </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Kuwait needs large supplies of natural gas to generate
electricity and to carry out water desalination, petrochemical production, and
enhanced oil recovery to boost oil production. </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In
specific, the electricity sector often fails to generate enough electricity to
meet peak demand. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Moreover,
because Kuwait for a good share produces electricity by burning oil and other
liquids, which in this way are not exported, Kuwait is currently losing
revenues from the missed sales of this oil and other liquids. More domestic
natural gas production from non-associated gas fields might free some
quantities of oil for export with consequently the result of increasing the
revenues for Kuwait. The need to increase natural gas availability is quite
urgent because </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">domestic </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">energy
demand is going to double between 2017 and 2030.</span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Kuwait has been relying on L.N.G. imports since
2009 when natural gas consumption overpassed domestic production, and this
trend seems not to abase. In December 2017, K.P.C. signed a 15-year L.N.G. gas
import deal with Shell (the deal will start in 2020) to help Kuwait to continue
to close the gap between its gas demand and its gas production. At the end of
the 2000s, the country started to develop, although slowly, its non-associated
gas reserves, primarily from the Jurassic non-associated gas field (technically
quite challenging) in norther Kuwait. This field was discovered in 2006 and has
35 Tcf of estimated reserves. In 2017, </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">the government approved the second
phase of the North Kuwait Jurassic Gas project, and, finally, this year three early
production facilities, Sabriya and Umm Niqa fields, East Raudhatain field, and
West Raudhatain field are coming online. Together, these facilities will produce
200,000 b/d of light crude and 500 MMcf/d of natural gas.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">See also: </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="http://www.alessandrobacci.com/2011/12/kuwaits-o-contractual-framework-and.html"><b style="mso-bidi-font-weight: normal;"><span style="color: blue;"><span style="margin: 0px; text-decoration: none;">BACCI, A., <i style="mso-bidi-font-style: normal;">Kuwait's
Oil and Gas Contractual Framework and the Development of a Modern Natural Gas
Industry</i> (Dec. 2011)</span> </span></b></a><b style="mso-bidi-font-weight: normal;"><span style="margin: 0px;"> </span></b></span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<br /></div>
<b></b><i></i><u></u><sub></sub><sup></sup><strike></strike></div>
<iframe src="https://drive.google.com/file/d/1VDtBWcrlK9mmKmrmTLY_5NjERknzdMgP/preview" width="915" height="1200"></iframe>Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-64668173167847046642018-04-03T10:30:00.000+03:002018-04-05T21:03:28.859+03:00Lebanon’s Petroleum Sector: The Correct Expectations<div dir="ltr" style="text-align: left;" trbidi="on">
<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoDz2CPdMvy_4m-xPGOReNJqrajaqqDwZlrDR9Z6cayOZ39STz1r-eZB9Fq6gbb-PKumBBv5eilL1SuR7dIXEz0nepIVW0puU52LR3SRf-shRbZxFeJFcUE3rqa_87ppkBqraPRf4vyf5E/s1600/BACCI-Lebanon-Petroleum-Sector-The-Correct-Expectations-April-2018-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Lebanon-Petroleum-Sector-The-Correct-Expectations-April-2018-Cover" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoDz2CPdMvy_4m-xPGOReNJqrajaqqDwZlrDR9Z6cayOZ39STz1r-eZB9Fq6gbb-PKumBBv5eilL1SuR7dIXEz0nepIVW0puU52LR3SRf-shRbZxFeJFcUE3rqa_87ppkBqraPRf4vyf5E/s1600/BACCI-Lebanon-Petroleum-Sector-The-Correct-Expectations-April-2018-Cover.jpg" title="BACCI-Lebanon-Petroleum-Sector-The-Correct-Expectations-April-2018-Cover" /></a></div>
<br />
<br />
<div align="right" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: right;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><b>April 3, 2018</b></span></div>
<b></b><br />
<div align="right" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: right;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><b>London, United Kingdom</b></span></div>
<b></b><br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Dear friends, </span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">I would like to share with you the analysis “Lebanon’s Petroleum
Sector: The Correct Expectations,” which I have recently written on the
occasion of <a href="https://www.cwclebanoninvest.com/#" rel="nofollow" target="_blank">Lebanon International Investment Forum</a>, a two-day investment forum organized
in Beirut, Lebanon by the <a href="http://www.thecwcgroup.com/" rel="nofollow" target="_blank">C.W.C. Group</a> on April 10-11, 2018. </span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Thank you. </span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Kind regards, </span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Alessandro </span><br />
<span style="font-family: "georgia";"><br /></span></div>
<b></b><i></i><u></u><sub></sub><sup></sup><strike></strike></div>
<iframe height="1200" src="https://drive.google.com/file/d/1dpCXWaEJyuabSO8W4lDQ-FVXiGApX5Yf/preview" width="915"></iframe></div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-64665025273838605782018-03-21T10:00:00.001+02:002018-04-21T20:43:24.109+03:00Three Questions About Egypt’s Oil and Gas Sector<div dir="ltr" style="text-align: left;" trbidi="on">
<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFMNBpMIRYQoEZmAgD0mRfa1jUGQOJWQcUmv1ei1-3M6vWrl-Rxzn2qpQLEExvfTjxQxqRs-gSwLD-itWF6VhFCJ7cMtzkGOShaU9OgsJal9GRl5F2dty1uotJgOqeKjHwgPKRcTK8C-WI/s1600/BACCI-Three-Questions-About-Egypts-Oil-and-Gas-Sector-March-2018-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Three-Questions-About-Egypts-Oil-and-Gas-Sector-March-2018-Cover" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFMNBpMIRYQoEZmAgD0mRfa1jUGQOJWQcUmv1ei1-3M6vWrl-Rxzn2qpQLEExvfTjxQxqRs-gSwLD-itWF6VhFCJ7cMtzkGOShaU9OgsJal9GRl5F2dty1uotJgOqeKjHwgPKRcTK8C-WI/s1600/BACCI-Three-Questions-About-Egypts-Oil-and-Gas-Sector-March-2018-Cover.jpg" title="BACCI-Three-Questions-About-Egypts-Oil-and-Gas-Sector-March-2018-Cover" /></a></div>
<br />
<br />
<div style="line-height: 200%; margin-bottom: 4.5pt; margin-left: 0in; margin-right: 0in; margin-top: 4.5pt; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="color: #1d2129; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The analysis “<a href="http://oilandgascouncil.com/articles/alessandro-bacci-egypt/" rel="nofollow" target="_blank">Three Questions About Egypt’s Oil and Gas Sector</a>,” has been published by the <a href="http://oilandgascouncil.com/" rel="nofollow" target="_blank">Oil and Gas Council</a>, the leading network of energy executives in the world. This analysis
is related to Africa Assembly 2018, which is the largest African O&G
finance and investment event. The Oil and Gas Council will organize Africa
Assembly 2018 on June 5-6 in Paris, France. </span></b></div>
<div style="text-align: right;">
<b></b><i></i><u></u><sub></sub><sup></sup><strike><br /></strike></div>
<div style="text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">March 21, 2018</span></b></div>
<div style="text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">London, United Kingdom</span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> </span></b><b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">1 — What
is Egypt’s role in the O&G business on a global scale?</span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Egypt has been one of the first countries active
in the petroleum extraction. In fact, the country has been producing crude oil
for more than a century; Egypt’s first commercial crude oil production started
in 1910 in the Sinai Peninsula. Today, according to BP Statistical Review of
World Energy 2017, the country owns 3.5 billion barrels of proven oil reserves,
which position Egypt as the 6<sup>th</sup> and 27<sup>th</sup> largest holder
of proven oil reserves in Africa and in the world, respectively. Almost 50% of
the oil production occurs in the Western Desert, while the remaining production
is located in the Mediterranean Sea, the Nile Delta, the Gulf of Suez, and
Upper Egypt (the latter is the southern part of the country). </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Despite being a medium-sized oil producer with 691,000
b/d in 2016, Egypt’s oil consumption at 853,000 b/d is higher than its
production (this is not surprising because Egypt has a population of 95.5
million), so Egypt has been recently obliged to import oil from other
countries—mainly from Middle Eastern countries. Over the last forty years,
oil’s share in total primary energy production has consistently been reduced
(it was 95% in 1970 while it is today 44.6%)—of course, oil is the main fuel
used for transportation. <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">However, the real added value in the O&G
business for Egypt derives from the country’s natural gas reserves, which at
65.2 Tcf position Egypt as the 3<sup>rd</sup> and 16<sup>th </sup>largest
holder of proven natural gas reserves in Africa and in the world, respectively.
In 2016, Egypt was the third African natural gas producer with an overall
annual production of 41.8 Bcm. Egypt’s natural gas sector started to expand at
the end of the 1990s because of increased domestic demand and of the idea of
exporting the excess natural gas as L.N.G. In 2009, Egypt’s natural gas production
peaked at 62.7 Bcm, but, then, in 2010, production started to decline. The
reason was that some of the offshore production areas in Mediterranean Sea had
reached the maturity level while at the same investments were lacking because
Egypt was slow in reimbursing the foreign contractors. On top of this, the oil
price reduction in 2014 did not help attract foreign investments in the country.
</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The whole picture changed completely in 2015 when
Italy’s E.N.I. announced the discovery of the Zohr field, a giant offshore gas
field in the Mediterranean Sea at a depth of 1,450 meters with 30 Tcf of gas in
place, of which 22 Tcf of recoverable reserves. In December 2017, E.N.I.
started production at the Zohr field at the level of 350 MMcf/d. From this
level, daily output is set to rise to about 1 Bcf/d in June 2018 and then 2.7
Bcf/d by the end of 2019. In addition to the Zohr field, other gas fields—West
Nile Delta (recoverable reserves of 5 Tcf), Noroos (estimated reserves in place
of 530 Bcf), and Atoll (recoverable reserves of 1.5 Tcf)—are increasing Egypt’s
natural gas production. And the Egyptian Natural Gas Holding Company (EGAS)
intends to launch soon a new licensing round centered on 9 blocks in mature
areas in the eastern part of Egypt’s Mediterranean Sea. Later, this round will
be followed by another round covering frontier areas in the western part of
Egypt’s Mediterranean Sea. Summing up, there is a complete commitment toward
discovering new gas reserves.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">2 — In
addition to O&G reserves, what is Egypt’s added value?</span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Geography and infrastructure. In fact, not only is
Egypt gifted with O&G reserves, but also it is strategically located so
that it is one of the world’s most important transit points for the physical trade
of hydrocarbons. The Suez Canal is a transit waterway for oil and L.N.G.
shipments, while the Sumed Pipeline (whose book capacity is set at 2.5 MMb/d) is
the only alternative route in proximity of the Suez Canal to transport crude
oil from the Red Sea to the Mediterranean Sea if tankers are not able to pass
through the Suez Canal. If it were impossible to navigate through the Suez
Canal or to use the Sumed Pipeline, tankers would be obliged to navigate around
the Cape of Good Hope in South Africa. This would mean to increase both the
costs and the shipping time. The Cape of Good Hope route would mean 15 more
days of navigation to Europe and 8 days to 10 days more of navigation to the
United States. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">However, the recent natural gas discoveries
throughout the eastern Mediterranean Sea in the offshore of Egypt, Cyprus
(Aphrodite field, 4.5 Tcf; Calypso field, believed to hold 6 Tcf<span style="margin: 0px;"> </span>to 8 Tcf), and Israel (Tamar field, 10 Tcf;
Leviathan field, 22 Tcf)—and with the future possibility of natural gas
discoveries offshore Lebanon—for the time being, offshore Syria is completely
out of the picture as a consequence of the civil war ravaging the country) has
additionally increased the geographic importance of Egypt, which might become
in the near future a regional energy hub with particular attention given to the
trading and export of natural gas. The World Bank supports the development of
Egypt’s role as an energy hub. It’s plausible that Egypt will be again a gas
exporter in 2019. In any case, it is premature to know for how long Egypt will
be a gas exporter—it depends on whether there will be new natural gas
discoveries and on the country’s population growth. However, in addition to
exporting its own gas, Egypt could export Cyprus’s and Israel’s gas. In fact, all
the above-mentioned gas fields, the Zhor field included, are located very close
to one another.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">And, of all the mentioned countries, in addition
to its advantageous geographical position, Egypt has already in place an export
infrastructure. Egypt has two L.N.G terminals, one in Idku and one in Damietta.
These terminals, which have a combined capacity of about 19 Bcm per year (Idku,
11.48 Bcm; Damietta, 7.56 Bcm) are currently not used. These terminals might
well be used for exporting Cyprus’s and Israel’s gas. In addition, if Egypt
were able to find a solution to its confrontation with Israel regarding Egypt’s
shut off in 2012 of its gas exports to Israel via the El Arish-Ashkelon Pipeline,
this pipeline (9 Bcm per year) would be again an important natural gas
infrastructure in the region. Three arbitrators at the International Chamber of
Commerce ruled that Egypt’s natural gas companies will have to pay Israeli
Electric Corp. $1.76 billion for halting gas supplies. Instead, the future of
the Arab Gas Pipeline, which connects Egypt to Syria and Lebanon, is difficult
to understand considering the present conflict in Syria. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">It’s necessary to underline that duplicating
L.N.G. export infrastructure in all the involved countries would be economically
illogical. At a time when it is quite important to limit both capital
expenditure (capex) and operating expenditure (opex) per MMBtu of produced
natural gas, building in Cyprus and/or in Israel export infrastructure already
present in Egypt would eat away at the profitability of Cyprus’s and Israel’s
gas exports. So, despite all the difficulties of the eastern Mediterranean
geopolitics, collaboration among the involved actors—and, in specific, between
Cyprus, Egypt, and Israel—would really go a long way in maintaining eastern
Mediterranean natural gas prices competitive on the world markets. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">3 — Is
Egypt’s O&G fiscal framework attracting to international companies?</span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Egypt is one of the oldest oil producers in the
world, which means that in the country there is a lot of experience in managing
petroleum operations. H</span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">ydrocarbon production
is by far the largest single industrial activity, representing approximately 16
percent of Egypt’s G.D.P. And the energy sector is </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">the most important sector for foreign direct investment
(F.D.I.) in the country.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Egypt’s petroleum fiscal framework has changed
over the decades to reflect the evolution in the way of thinking how to
structure a petroleum fiscal framework. Until 1962, Egypt based its framework
on a royalty/tax system, then between 1963 and 1972 it moved to a participation
system, and lastly, since 1973, it has been using a production sharing system. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The production sharing contracts that Egypt has
signed over the years have had in general terms a positive result for both
Egypt and the foreign companies—although it must be clear that unless a
petroleum fiscal system has a lot of flexibility, which is always difficult to
implement, it is improbable that it may always remain the same and give the
same results over the years without any amendments. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">One of the Egyptian P.S.C.s’ most attracting features
to foreign companies is that in Egypt the P.S.C.s are enacted into law. In practice,
this feature has always given foreign companies a lot of confidence that their
investments are protected and upheld by national law. The downside is that,
because of enacting contracts into law, it is then more complicated to
renegotiate or amend the contracts—in fact, it’s required the approval of the
Ministry of Petroleum and of Parliament. In addition, investments in Egypt are
generally protected against expropriation, especially if there is a bilateral
investment treaty between Egypt and the home country of the foreign
investor.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">When there is a commercial oil and/or gas
discovery, </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">a
non-profit joint venture (J.V.) between the contractor company (50% stake) and Egypt’s
competent company (50% stake)—the competent company may be the </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Egyptian General Petroleum Corporation (E.G.P.C.), the
Egyptian Natural Gas Holding Company (EGAS), the Ganoub El Wadi Petroleum
Holding Company (Ganope)—i</span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">s
established as a special joint stock company (the Operating Company). In all
the contracts, the government is entitled to a 10% royalty calculated on the
total quantity produced. However, Egypt’s competent company, and not the
contractor company, pays the royalty. Similarly, the contractor company is
subject to the Egyptian corporate income tax (C.I.T.), which for the O&G
sector is set at the rate of 40.55%. However, who pays the contractor company’s
C.I.T. is Egypt’s competent company, which pays the tax out of the competent company’s
share of the petroleum produced and saved as defined in the P.S.C.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">One of the challenges that continue to trouble
the foreign companies investing in Egypt’s O&G sector is the issue of
delayed payments. The Egyptian government is currently trying to pay out the
remaining backlog of arrears to the I.O.C.s to encourage more foreign companies
to invest in exploration and development activities, but this issue is still
far from being fixed. The government had a peak of arrears at $6.3 billion in
2013, reduced to about $3.5 billion in March 2017.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In the past years, to increase hydrocarbons
production, Egypt has offered more generous percentages for profit and cost
recovery (expenditures with respect to exploration, development, and related
operations). In specific, it raised cost recovery percentage from 35% to 40%.
Still, along the same line, it was decided the abolition of the mandatory
abandonment of part of the concession area every two years—the contractor can
now present a new exploration plan for the concerned area and not abandon it.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">This strategy has paid off because Egypt has
signed several oil and gas exploration deals in the past years. With reference
to natural gas, Egypt has signed natural gas deals according to which it pays
foreign companies a higher price for the natural gas the companies produce—before
the price was $2.65 per MMBtu, while the new prices range from $3.95 to $5.88
per MMBtu. In fact, before this contractual modification, some relevant gas
discoveries remained undeveloped because foreign companies had not found any
profitability in developing those discoveries at the previous prices.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The Ministry of Petroleum has established a joint
committee to redraft the P.S.C.s and to introduce amendments that may
incentivize foreign companies to enter Egypt’s O&G sector. According to the
current timeframe, the committee should be able to present its result by the
end of this year. One of the most important modifications should concern a
reduced reimbursement period to stimulate foreign investment. The foreign
companies already working in Egypt may forward suggestions to the committee.
The basic idea is to provide the P.S.C.s with more flexibility, for instance,
sharing production or surplus and, with natural gas, being able to modify over
the course of the contract the price per MMBtu that Egypt pays to the foreign companies.<span style="margin: 0px;"> </span></span></div>
<br /></div>
<iframe height="1200" src="https://drive.google.com/file/d/1tUKt4DAoWq6XFKxAVqCGHgLZq5DUhR7k/preview" width="915"></iframe>
</div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-54617826402222917062018-02-28T07:30:00.002+02:002018-03-02T19:59:12.178+02:00Iraq Petroleum 2018 — Enhancing International Investment in Iraq's Energy Sector <div dir="ltr" style="text-align: left;" trbidi="on">
<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhn6cQG-ldZUknhi02DGQCXeRcpul5iP2v2Lcs_hd1qr2hBQ_-NsWsox0b7GuontmR-x0yRjax6JQ7aeV7YeEvnhXX4KedXXE_U-k85sgrkh0GyMBUkZeTpal5mt8KVEw6OY27zS3s0qDvx/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-Cover" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhn6cQG-ldZUknhi02DGQCXeRcpul5iP2v2Lcs_hd1qr2hBQ_-NsWsox0b7GuontmR-x0yRjax6JQ7aeV7YeEvnhXX4KedXXE_U-k85sgrkh0GyMBUkZeTpal5mt8KVEw6OY27zS3s0qDvx/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-Cover.jpg" title="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-Cover" /></a></div>
<br />
<br />
<div align="right" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">February 28, 2018</span></b></div>
<br />
<div align="right" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Berlin, Germany</span></b></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Dear friends, </span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">I would like to share with you the document that I prepared
for my speech at the welcome coffee and breakfast briefing “Enhancing
International Investment in Iraq’s Energy Sector” on the morning of February
28, at Iraq Petroleum 2018. <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Iraq Petroleum 2018, as usual organized by the C.W.C. Group,
was held this year in Berlin, Germany, on February 27-28. <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Thank you. </span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Best regards, </span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Alessandro</span><br />
<br /></div>
</div>
<div class="separator" style="clear: both; text-align: center;">
<iframe height="422" src="https://drive.google.com/file/d/1zI53_4XQo4VIYQSFndIIe3EpqY8dWsnQ/preview" width="750"></iframe>
</div>
<div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhsD4WFVvfDDIE6buckStCBzFcQeh1l2MqO8-6cgJzMzLL-UiUdXJwjUowOr1dMwuSancGVSsuop1lkFFfGYTOXjJWVIZP77qBZ0tE6c67I3jBsfjFh1vChlVmXpPtn4b2yW_71DcK_8BMa/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-1.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-1" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhsD4WFVvfDDIE6buckStCBzFcQeh1l2MqO8-6cgJzMzLL-UiUdXJwjUowOr1dMwuSancGVSsuop1lkFFfGYTOXjJWVIZP77qBZ0tE6c67I3jBsfjFh1vChlVmXpPtn4b2yW_71DcK_8BMa/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-1.JPG" title="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-1" /></a></div>
<div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQG3uCBX9PTztSeL_NH11i7oK9WZOMMEA1oxUcQ_nRLEGBwSrV6l2ew2bu2MT07iO_FgWPtLcYkisV4qR0UcHQew9nn4xvuwWeWaCOaH8dEvlsMT1NBsm0vTnx5bswSDdNc3k-AqvmALFb/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-2.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-2" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQG3uCBX9PTztSeL_NH11i7oK9WZOMMEA1oxUcQ_nRLEGBwSrV6l2ew2bu2MT07iO_FgWPtLcYkisV4qR0UcHQew9nn4xvuwWeWaCOaH8dEvlsMT1NBsm0vTnx5bswSDdNc3k-AqvmALFb/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-2.JPG" title="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-2" /></a></div>
<div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgh1f44_ewq0iF87xxp5-2hUhgKzUk5fGCm1rOe9SfaQoscs3ISWGI0kiyejcE_jrP86MFk_tbOwaEPIk_RO2PY-Ke4dfqMuaqaGGdMvOCMijNe0s9dbjDJaey39QnpLS0yc6L3Eq9Ilfpo/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-3.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-3" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgh1f44_ewq0iF87xxp5-2hUhgKzUk5fGCm1rOe9SfaQoscs3ISWGI0kiyejcE_jrP86MFk_tbOwaEPIk_RO2PY-Ke4dfqMuaqaGGdMvOCMijNe0s9dbjDJaey39QnpLS0yc6L3Eq9Ilfpo/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-3.JPG" title="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-3" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQ1vovx2wdolErKTtXo2CK7Qs-10ThyphenhyphenCWLsqGMscxfdwtD4_LdEiLlmrAjOaiBBtzH6bL_dUWoN8kRLQr5BWdx6Og3eNniWcQPmfTmzGymZFSxPc6N23RawOH0-6zz8qo5IT5Ju72vzwoJ/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-4.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-4" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQ1vovx2wdolErKTtXo2CK7Qs-10ThyphenhyphenCWLsqGMscxfdwtD4_LdEiLlmrAjOaiBBtzH6bL_dUWoN8kRLQr5BWdx6Og3eNniWcQPmfTmzGymZFSxPc6N23RawOH0-6zz8qo5IT5Ju72vzwoJ/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-4.JPG" title="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-4" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgC1tSYaNPE2Xv5nI9n3T6N-2juHiXDaU3IMOCQLxxE3zIMosq1ybr9HvO1bIjao4oIVV5EQOt-0InNdJgxfDOTa8U9JlQ50m27yy6dFm3B-V48iiu_WKlc-_c6VSSyleKM6xJQ3QTOIQkg/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-5.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-5" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgC1tSYaNPE2Xv5nI9n3T6N-2juHiXDaU3IMOCQLxxE3zIMosq1ybr9HvO1bIjao4oIVV5EQOt-0InNdJgxfDOTa8U9JlQ50m27yy6dFm3B-V48iiu_WKlc-_c6VSSyleKM6xJQ3QTOIQkg/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-5.JPG" title="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-5" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcEXBQFbF74nterq4NWMV0c5OgmHZBpSqo9F6TuyzwF5ZzwFMa6CktHH-40VrE-BdCOvq0vOXCZnygChyphenhyphenAB-1qCiR252SYIsjaSn8qpoaqflM35gZCAUWLRBKYb8lpJ3HRibO8RmK-bqGP/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-6.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-6" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcEXBQFbF74nterq4NWMV0c5OgmHZBpSqo9F6TuyzwF5ZzwFMa6CktHH-40VrE-BdCOvq0vOXCZnygChyphenhyphenAB-1qCiR252SYIsjaSn8qpoaqflM35gZCAUWLRBKYb8lpJ3HRibO8RmK-bqGP/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-6.JPG" title="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-6" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNVnH4cfM5dEPNDWIRIJBIiqy74W7a3FwnZnos0YPXxHxxgGfR3y4uhdkySR6kpU5ZLhfE5r-xTELHdzBJxvkyMbobPVrMUiGe2O5IEkM6y653AL1YaB19VfVQdkQEU0aFIIKgZeJs8r5k/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-7.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-7" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNVnH4cfM5dEPNDWIRIJBIiqy74W7a3FwnZnos0YPXxHxxgGfR3y4uhdkySR6kpU5ZLhfE5r-xTELHdzBJxvkyMbobPVrMUiGe2O5IEkM6y653AL1YaB19VfVQdkQEU0aFIIKgZeJs8r5k/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-7.JPG" title="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-7" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgn-pToGCxtIUBxEds3SxyMEtGe_avERGpOpH6nT9L8aIphYz7fAnFC71otfXZjrAVQKDALRuzR8SiidY8rWyUJCkf8QHz997OYNVL_7PEDLoIszV0-JNKoJuiTNU0KSHNl4qPmTbx1FaG-/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-8.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-8" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgn-pToGCxtIUBxEds3SxyMEtGe_avERGpOpH6nT9L8aIphYz7fAnFC71otfXZjrAVQKDALRuzR8SiidY8rWyUJCkf8QHz997OYNVL_7PEDLoIszV0-JNKoJuiTNU0KSHNl4qPmTbx1FaG-/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-8.JPG" title="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-8" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5R__bMXFfHu9XEY4TZGVKlau6sExkrPQze5OwvD9laHGKcVzQCrKO9-iR7Y8P_z1vJZVkTPwq0WBWUC-uoRkL0f7WhUITJ5McMnhOrU7qG5MoM7otgZDlEZD1xIO3E0XqZopdwR3PFu8n/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-9.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-9" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5R__bMXFfHu9XEY4TZGVKlau6sExkrPQze5OwvD9laHGKcVzQCrKO9-iR7Y8P_z1vJZVkTPwq0WBWUC-uoRkL0f7WhUITJ5McMnhOrU7qG5MoM7otgZDlEZD1xIO3E0XqZopdwR3PFu8n/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-9.JPG" title="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-9" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvV0KBvBve4rPwSFObf_R7yCLxm0XxC0fjbDDxVYjN7R0nrptxM3znvhU3l_NA7a_2-R5RWsuAbRnUuGk3ahOZG4CblVN_aZpgG5kKA878sUNtHBCze-KtjBzanntZLxf3Ra26kWJ-nEgI/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-10.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-10" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvV0KBvBve4rPwSFObf_R7yCLxm0XxC0fjbDDxVYjN7R0nrptxM3znvhU3l_NA7a_2-R5RWsuAbRnUuGk3ahOZG4CblVN_aZpgG5kKA878sUNtHBCze-KtjBzanntZLxf3Ra26kWJ-nEgI/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-10.jpg" title="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-10" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<div style="text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLXKFv9l-_cbVYZ-yVtabOMW5wybFIcVwlQ5jYtP33zD1CP9tbRtzZRaqWVaFkBBKCXkqj0Hq_PJcUEYOlCR2Ias2oJqTBA0Istn4zi9vW4NNCFpx1X6e8v0XCLgdABUEDcf8DLrFHKMWu/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-11.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-11" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLXKFv9l-_cbVYZ-yVtabOMW5wybFIcVwlQ5jYtP33zD1CP9tbRtzZRaqWVaFkBBKCXkqj0Hq_PJcUEYOlCR2Ias2oJqTBA0Istn4zi9vW4NNCFpx1X6e8v0XCLgdABUEDcf8DLrFHKMWu/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-11.JPG" title="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-11" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrq4Q2dByY2_vlrP1ci3Eq75zNzPSnYLQO8T1t8JP8vAvFdCT3eab_FT0Tbb43CaTd_A2J-jB_TpdA4NOAbqlRcSI2ZNKJ1N1Qr5aKVYD55_yyItU8gJXQIX6tODHP66qmU-NY_g6jlr0-/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-12.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-12" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrq4Q2dByY2_vlrP1ci3Eq75zNzPSnYLQO8T1t8JP8vAvFdCT3eab_FT0Tbb43CaTd_A2J-jB_TpdA4NOAbqlRcSI2ZNKJ1N1Qr5aKVYD55_yyItU8gJXQIX6tODHP66qmU-NY_g6jlr0-/s1600/BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq%25E2%2580%2599s-Energy-Sector-Feb.-2018-12.JPG" title="BACCI-Iraq-Petroleum-2018-Enhancing-International-Investment-in-Iraq’s-Energy-Sector-Feb.-2018-12" /></a></div>
<br />
<br />
<br />
<br /></div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-51235425744155430952018-02-20T12:00:00.000+02:002018-02-22T00:40:06.943+02:00Iraq Petroleum 2018 — Natural Gas Must Be an Asset for Iraq <div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYPsSYpx36yZs79Z0w01JIS2P04MxLNsrGz2cx1QXuUellda0AKlZKUnHSfJcoeiVHPYzmFiUXHFeML2DTPKUk1LjIgUP5AquatdYRR02I2u9u75rOzG2KyXz2juNhqBQ5Wwn9ppUDsl6n/s1600/BACCI-Iraq-Petroleum-2018-Natural-Gas+Must-Be-an-Asset-for-Iraq-Feb.-2018-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-Natural-Gas Must-Be-an-Asset-for-Iraq-Feb.-2018-Cover" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYPsSYpx36yZs79Z0w01JIS2P04MxLNsrGz2cx1QXuUellda0AKlZKUnHSfJcoeiVHPYzmFiUXHFeML2DTPKUk1LjIgUP5AquatdYRR02I2u9u75rOzG2KyXz2juNhqBQ5Wwn9ppUDsl6n/s1600/BACCI-Iraq-Petroleum-2018-Natural-Gas+Must-Be-an-Asset-for-Iraq-Feb.-2018-Cover.jpg" title="BACCI-Iraq-Petroleum-2018-Natural-Gas Must-Be-an-Asset-for-Iraq-Feb.-2018-Cover" /></a></div>
<br />
<br />
<br />
<div align="center" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">My report “<a href="http://www.iraq-businessnews.com/2018/02/20/natural-gas-must-be-an-asset-for-iraq/" rel="nofollow" target="_blank">Iraq Petroleum2018 — Natural Gas Must Be an Asset for Iraq</a>” has been published on February
20, 2017, by <a href="http://www.iraq-businessnews.com/" rel="nofollow" target="_blank">Iraq Business News</a></span></b></div>
<br />
<div align="right" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">February 20,</span></b></div>
<br />
<div align="right" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">LONDON, United Kingdom</span></b></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">ABSTRACT — On February 27-28, 2018, the C.W.C. Group, an
energy and infrastructure conference, exhibition and training company, will
organize in Berlin, Germany, the twelfth edition of <a href="https://www.cwciraqpetroleum.com/?utm_source=Iraq%20Business%20News&utm_medium=Top468x120&utm_campaign=Media%20Partner" rel="nofollow" target="_blank">Iraq Petroleum</a>, which is
one of the major events concerning Iraq’s oil and gas sector. One of the main
topics of Iraq Petroleum 2018 will be the development of Iraq’s natural gas
reserves with the specific goal of strengthening energy-intensive industries to
diversify the Iraqi economy. In Iraq, natural gas might really be the key
driver to develop additional industrial sectors. In fact, natural gas may be
used for power generation (electricity), petrochemicals, fertilizers, and other
heavy industries in which gas is the primary feedstock. In this regard, some
analysts might object that the development of these new industrial sectors
would not really change the picture for Iraq because its economic development
would still be too linked to the oil and gas sector—in practice Iraq’s economy
would continue to be overaffected by the price of oil and gas. This observation
is by no means wrong, but it’s also true that, apart from increasing oil
exports (and in this regard, it will be important to see how Iraq will deal in
the future with OPEC’s quota restrictions) to improve its economic standing
Iraq does not have many alternatives to developing its natural gas resources
and then using them to add other industrial sectors to the economy.</span></div>
<strike><br /></strike>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiVjXWZA9oElRuD1tYktP1p3ZIUvQW1bMMbl7xeVZNI7ZTgDLG-2-1OkiNv8dXmQvzG8c3Ot1AjOorhHP6Q7x2ryvGAi0ZuVxj6V-FsPq797cPA7rqHSwtQv7FpkzFxKbfOhFVAKvHqLSuQ/s1600/BACCI-Iraq-Petroleum-2018-Natural-Gas+Must-Be-an-Asset-for-Iraq-Feb.-2018-1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-Natural-Gas Must-Be-an-Asset-for-Iraq-Feb.-2018-1" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiVjXWZA9oElRuD1tYktP1p3ZIUvQW1bMMbl7xeVZNI7ZTgDLG-2-1OkiNv8dXmQvzG8c3Ot1AjOorhHP6Q7x2ryvGAi0ZuVxj6V-FsPq797cPA7rqHSwtQv7FpkzFxKbfOhFVAKvHqLSuQ/s1600/BACCI-Iraq-Petroleum-2018-Natural-Gas+Must-Be-an-Asset-for-Iraq-Feb.-2018-1.jpg" title="BACCI-Iraq-Petroleum-2018-Natural-Gas Must-Be-an-Asset-for-Iraq-Feb.-2018-1" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiokMxdT_ZgNSzBjjwpavSNSUSC31C9VuxWun6keqiBZi4RYlL9G6wncq7kKPO_mKK3TkDhbgwO_R_1jJTqUXl5Bsj-uvgJbZWkZFYpe4Mz-C7AKllaKazHaiK1pb4IfbhssdzLMqRphUkz/s1600/BACCI-Iraq-Petroleum-2018-Natural-Gas+Must-Be-an-Asset-for-Iraq-Feb.-2018-2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-Natural-Gas Must-Be-an-Asset-for-Iraq-Feb.-2018-2" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiokMxdT_ZgNSzBjjwpavSNSUSC31C9VuxWun6keqiBZi4RYlL9G6wncq7kKPO_mKK3TkDhbgwO_R_1jJTqUXl5Bsj-uvgJbZWkZFYpe4Mz-C7AKllaKazHaiK1pb4IfbhssdzLMqRphUkz/s1600/BACCI-Iraq-Petroleum-2018-Natural-Gas+Must-Be-an-Asset-for-Iraq-Feb.-2018-2.jpg" title="BACCI-Iraq-Petroleum-2018-Natural-Gas Must-Be-an-Asset-for-Iraq-Feb.-2018-2" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjN4GfjKqa9LcqHuNKtn2i8CglYJ5dTr9T_lp7Xo4IdDgO-TBHEr1jjMS8LMT9vSzCMyNlowVNdUUBmzrkl4VVpl-T1yVZI7MA8ocX-QIsInWvynNUNYfQBXZzYpn1ITEbFGfudLJ-XGX57/s1600/BACCI-Iraq-Petroleum-2018-Natural-Gas+Must-Be-an-Asset-for-Iraq-Feb.-2018-3.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Iraq-Petroleum-2018-Natural-Gas Must-Be-an-Asset-for-Iraq-Feb.-2018-3" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjN4GfjKqa9LcqHuNKtn2i8CglYJ5dTr9T_lp7Xo4IdDgO-TBHEr1jjMS8LMT9vSzCMyNlowVNdUUBmzrkl4VVpl-T1yVZI7MA8ocX-QIsInWvynNUNYfQBXZzYpn1ITEbFGfudLJ-XGX57/s1600/BACCI-Iraq-Petroleum-2018-Natural-Gas+Must-Be-an-Asset-for-Iraq-Feb.-2018-3.jpg" title="BACCI-Iraq-Petroleum-2018-Natural-Gas Must-Be-an-Asset-for-Iraq-Feb.-2018-3" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div align="center" style="line-height: 200%; margin: 0px; text-align: center;">
<b><i><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">What Did Iraq Export in 2016? —
Source: The Atlas of Complexity, Harvard University</span></i></b><span style="font-family: "georgia" , serif; margin: 0px;"></span></div>
</td></tr>
</tbody></table>
<br />
<br />
<br />
<br /></div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-60679182351963572622018-02-07T21:30:00.000+02:002018-02-27T22:41:14.701+02:00Iraq Petroleum 2018 — The Importance of Improved Fiscal Terms<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgiwsvQWRTPhmPFrxCZd15eh2vtiwqE2-PTkntuFKdzdpzFNLlb6NOcU6VBoIMLtNYcrYQxsb21nlWCBJet5MlbNfoJKvazp_cCMfgI34YGpXN6X0cXaZe6fNo0KkYOtSCZU_FNwa6tjdYi/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-Cover" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgiwsvQWRTPhmPFrxCZd15eh2vtiwqE2-PTkntuFKdzdpzFNLlb6NOcU6VBoIMLtNYcrYQxsb21nlWCBJet5MlbNfoJKvazp_cCMfgI34YGpXN6X0cXaZe6fNo0KkYOtSCZU_FNwa6tjdYi/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-Cover.jpg" title="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-Cover" /></a></div>
<span style="font-family: "georgia";"><br /></span>
<span style="font-family: "georgia";">
<br />
</span><br />
<div align="center" style="line-height: 200%; margin: 0px; text-align: center;">
<span style="font-family: "georgia";"><b><span style="color: black; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">This analysis has
been written for Iraq Petroleum 2018, which is organized by </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="http://www.thecwcgroup.com/" style="-webkit-text-stroke-width: 0px; orphans: 2; word-spacing: 0px;" target="_blank"><b><span style="margin: 0px; text-decoration: none;"><span style="color: blue;">The C.W.C. Group</span></span></b></a><b><span style="color: black; margin: 0px;"><span style="-webkit-text-stroke-width: 0px; float: none; margin: 0px; orphans: 2; word-spacing: 0px;">, </span><span style="-webkit-text-stroke-width: 0px; margin: 0px; word-spacing: 0px;">an energy and
infrastructure conference, exhibition and training company. This year, the
conference will take place in </span><span style="-webkit-text-stroke-width: 0px; float: none; margin: 0px; orphans: 2; word-spacing: 0px;">Berlin, Germany, on February 27-28, 2018.</span></span></b></span></span></div>
<span style="font-family: "georgia";">
<br />
<div align="right" style="line-height: 200%; margin: 0px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">February
7, 2018</span></b></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">LONDON — After the important military victories
obtained in the past months against the Islamic State, 2018 must be for Iraq
the year of the country’s political and economic consolidation. In May 2018, there
will be the parliamentary elections of the Council of Representatives, which
will in turn elect the Iraqi president and prime minister. At the same time, it
is quite evident that political stability is deeply intertwined with the
development of Iraq’s economy. And, if on the one hand, without strong and
unified political institutions, there won’t be credible economic development,
on the other hand, without a strong economic sector, there won’t be firm and
lasting political institutions. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Relaunching and improving Iraq’s economy cannot be
separated from supporting and expanding the development of the petroleum (oil and
gas) industry in the country. Today, Iraq’s economy is the world’s most
dependent on oil. Approximately 58% of the country’s G.D.P. and almost 94% of
its exports are petroleum oils; oil provides more than 90% of government
revenues and 80% of foreign exchange earnings. These numbers tell that thinking
of alternative economic routes—other than the hydrocarbons route—to provide the
Iraqi government with the economic resources necessary to manage the country is
premature. Oil is Iraq’s national treasure. In January 2018, Iraq produced 4.36
million barrels of crude oil per day and exported from its southern ports 3.53
million barrels per day—Iraq’s total exports should be higher if we add 200,000
barrels per day exported by the Kurdistan Regional Government (K.R.G.) to
Ceyhan, Turkey.<span style="margin: 0px;"> </span></span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"><br /></span></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbABYXATxbG-Y3DwrWUjXTdkaGb6hsOdYB5x2Nt64CVZLf-65GgK1_24mbOzx6zQ84YIO4es7o7Y4DvCWPB4Lmp5L9jR1ydAI992Ih3wjtZBfZrKnXzeYVxB8v_0rra83mDy2vQjkOlBSk/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-1.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-1" border="0" data-original-height="431" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbABYXATxbG-Y3DwrWUjXTdkaGb6hsOdYB5x2Nt64CVZLf-65GgK1_24mbOzx6zQ84YIO4es7o7Y4DvCWPB4Lmp5L9jR1ydAI992Ih3wjtZBfZrKnXzeYVxB8v_0rra83mDy2vQjkOlBSk/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-1.JPG" title="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-1" /></a></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"><br /></span></span></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjeQp9qvYEAIay7ZhDZ7IjdYPamT4deQrAi1RhifomWKWh-kbK57hTZ8sZ3M4Dh8iRw1K_ETymYa-bISeov9slnlqf9DTyBY6U8aPZeGYyoLiPpdeaitGdMLzKGgQM3SICiEJgkW1kCzxK9/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-2.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-2" border="0" data-original-height="422" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjeQp9qvYEAIay7ZhDZ7IjdYPamT4deQrAi1RhifomWKWh-kbK57hTZ8sZ3M4Dh8iRw1K_ETymYa-bISeov9slnlqf9DTyBY6U8aPZeGYyoLiPpdeaitGdMLzKGgQM3SICiEJgkW1kCzxK9/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-2.jpg" title="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-2" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div align="center" style="line-height: 200%; margin: 16px 0px 10.66px; text-align: center;">
<b><i><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">What Did Iraq Export in 2016? — Source: The Atlas
of Complexity, Harvard University</span></i></b></div>
</td></tr>
</tbody></table>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Absolutely, this does not mean to rule out the
development of other economic sectors apart from the petroleum sector, but it’s
an honest assessment of what can be done and what cannot be done at this point
in time. The draft federal budget law of Iraq for 2018 confirms this point
(data of November 2017). In fact, the draft law reveals estimated revenues of
more than 85.331 trillion dinars, of which about 72 trillion dinars comes from
the oil sector. The oil revenue was calculated on the basis of $43.4 per barrel
of oil, but of course, higher oil prices mean a higher oil-sector revenue. Presently,
Iraq’s overall development must pass through the production of oil and gas. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Prime Minister Haider al-Abadi has recently stated
at the World Economic Forum, in Davos, Switzerland, that his country might need
up to $100 billion to fix its crumbling infrastructure and severely damaged
cities. The prime minister made very clear that Iraq cannot provide this amount
through its own budget, nor will donations provide it. These economic resources
must arrive in Iraq in the shape of foreign direct investment (F.D.I.).</span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">THE
I.O.C.s’ APPROACH AS FOR INVESTING IN IRAQ</span></b></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">With reference to the oil and gas sector, the
international oil companies (I.O.C.s) are carrying out more than one approach
concerning whether to invest in Iraq. In general, the I.O.C.s do not share the
same vision regarding their investment presence throughout the world. Minister
of Oil Jabbar Al-Lueibi has recently called on the I.O.C.s to participate in
tenders organized by the Ministry of Oil and affirmed that Iraq is improving the
work conditions for foreign firms that want to do business in the country. <span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In Iraq, Anglo-Dutch Shell wants to exit its oil
investments, while U.S. Chevron wants to continue investing in the country with
the idea of possibly expanding its portfolio. In specific, Shell, with the
approval of the federal government, has very recently sold its 20% stake in the
giant oil field West Qurna 1 to Japan’s Itoche Corporation. In West Qurna 1,
the other members of the operating consortium are U.S. ExxonMobil (the
operator, 33% stake), PetroChina (25%), Iraq's state-run Oil Exploration
Company (12%) and Indonesia’s Pertamina (10%). Moreover, Shell wants to divest
of its stake in the giant oil field Majnoon as well; it’s currently planning to
hand over its stake to Basra Oil Company (B.O.C.) by the end of June 2018—the
Iraqi government is forming an executive committee to operate the field after
the withdrawal of Shell. Presently, at the Majnoon field, Shell is the operator
(45% stake), while the other members of the consortium are Malaysia’s Petronas
(30%), and Iraq's state-run Missan Oil Company (25%). In addition to Shell, also
Petronas wants to exit this investment. <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Conversely, Chevron affirmed in mid-January 2018
that it intended to return to its investments in the K.R.G. with the goal of restarting
there its drilling operations, which it had stopped last fall when the tension
between the K.R.G. and Iraq proper had mounted up. At the same time, Chevron might
form a consortium with Total and PetroChina to develop the Majnoon oilfield. Moreover,
the Iraqi authorities declared last fall that China National Petroleum
Corporation (C.N.P.C.), British Petroleum, and Italy’s E.N.I. were all possibly
interested in taking over a stake in the Majnoon oil field. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">After the events of last October between the
K.R.G. and Iraq proper, the presence of an additional oil major, Chevron, in both
the K.R.G. and in Iraq proper might really be a diplomatic tool capable of helping
appease the tense relationships between Erbil and Baghdad. In this regard, four
months after the reoccupation by the federal troops of the oil fields around
Kirkuk, it’s still unclear how the K.R.G. and Iraq proper will solve their
quarrel—a point of convergence between the two parties might be found on the
basis that the K.R.G. needs cash while Iraq proper wants to continue exporting crude
oil via the Kurdish pipeline. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In specific, it will be interesting to understand
whether in the whole Iraq (Iraq proper and the K.R.G.), after the political
developments of the past four months, it will be prolonged the coexistence of
two types of petroleum contracts, i.e., technical service contracts (T.S.C.s)
in Iraq proper and production sharing contracts (P.S.C.s) in the K.R.G. In
fact, since the signature of the first P.S.C. by U.K.-Turkish Genel Energy and
the K.R.G. for the Taq Taq field in July 2002 (before the fall of Saddam
Hussein, although the contract was then amended in January 2004) the federal
government has been declaring the K.R.G. P.S.C.s illegal because according to
the federal government the only authority wielding the power to sign off on petroleum
contracts for the whole Iraq is the federal government. It’s in the last ten
years that the K.R.G. has signed most of its P.S.C.s.</span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">IRAQ AND
THE I.O.C.s WANT TO CHANGE THE PRESENT T.S.C.s</span></b></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">When Iraq reopened its petroleum sector to the
I.O.C.s, it chose to use T.S.C.s because they permitted Iraq to retain more
control over the reserves and produced oil and gas while maintaining full
control over the production rate and operation progress. Despite the reasons
behind this choice, it’s a matter of fact that presently neither the government
nor the I.O.C.s are happy with the T.S.C.s. So, if Iraq wants to improve the
attractiveness of its upstream petroleum sector, it has to revise the terms of
the T.S.C.s. In fact, if on the one hand, the Iraqi petroleum model contract
gives satisfactory results to the Iraqi government when oil prices are high, on
the other hand, it has a disastrous impact on the Iraqi coffers when oil prices
are low. The reason is that, despite low oil prices, the federal government
must always pay the same fees to the I.O.C.s. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Below are the key features of Iraq’s T.S.C.s (the
following information comes from the Rumaila T.S.C.—Rumaila was an already
producing field when the federal government auctioned it off in 2009):</span></div>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Duration </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—<b style="mso-bidi-font-weight: normal;"> </b>The duration of T.S.C.s in Iraq is 20
years extendable to 25 years.</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">License </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—<b style="mso-bidi-font-weight: normal;"> </b>The license is held by one of Iraq’s
national oil companies (N.O.C.s). In the original T.S.C., the N.O.C.s had a 25%
stake in the winning consortium, but over the years this stake in some of the
T.S.C.s has been reduced.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><b style="mso-bidi-font-weight: normal;"><span style="margin: 0px;"> </span></b></span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Signature
Bonus</span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> — The I.O.C.s pay a signature bonus in cash upon the
signature of a T.S.C. The initial T.S.C.s envisaged the signature bonus as
recoverable, in practice, it was a soft loan that the I.O.C.s made to the
government. It seems that the government of Iraq has now slashed some signature
bonuses and transformed them into lower unrecoverable payments. </span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Remuneration
Fee </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—
(1st bid term in the bid round) The I.O.C.s receive a fixed remuneration fee
per barrel of crude oil applicable for all calendar quarters during any given calendar
year. This fee is determined on the basis of an R-factor calculated at the end
of the preceding calendar year for the field. The remuneration fee starts at
the level that was the bid by the I.O.C.s. However, as the profitability of the
operations goes up, the fees go down on the basis of a percentage scale in the
contract.</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Baseline Production
Rate </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">— This is the field’s production rate before any development.
The contracts assume that this baseline production rate declines at the
compounded annual rate of 5%.<b style="mso-bidi-font-weight: normal;"></b></span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Incremental
Production During a Period of Time </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">— This is the incremental volume
of net production from the field during the said period that is realized in
excess of the deemed net production volume at the baseline production rate.<b style="mso-bidi-font-weight: normal;"><span style="margin: 0px;"> </span></b></span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Petroleum
Costs Recovery </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">— The I.O.C.s receive reimbursement through
service fees relating to the costs and expenditures incurred and/or the
payments made by the I.O.C.s in connection with or in relation to the conduct
of petroleum operations (capex and opex are included, but the corporate income
taxes paid in Iraq are not included) determined in accordance with the
provisions of the T.S.C.s.</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Petroleum
Operations </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">— Petroleum operations encompass all appraisal,
development, redevelopment, production operations, and any other related
activities. </span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Supplementary
Costs Recovery </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">— Supplementary costs are non-petroleum costs,
which primarily include the signature bonus (now it would probably more correct
to say “included”) and de-mining costs. Service fees payments cannot exceed 50%
of the deemed revenue of the incremental production. </span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Plateau Production
Target </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">— (2<sup>nd</sup> bid term in the bid round) All the contracts
have a set production plateau to achieve in a specific time frame. </span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Corporate
Income Tax (C.I.T.) </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">— It’s set at 35%. The government deducts the 35%
C.I.T. from the remuneration fees to the I.O.C.s. The income tax is received as
crude oil. </span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Payments
to Contractors</span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> — The I.O.C.s are required to withhold 7% of all
the payments to subcontractors and to remit these deductions in cash to Iraq’s
General Commission on Taxes.</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Force
Majeure </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">— The non-performance or delay in performance by either party
of its obligations or duties under this contract shall be excused if and to the
extent that such non-performance or delay is caused by force majeure.</span></div>
</li>
</ul>
<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjubgIxlUP3QKidDZFjEEDbrnauhlQvJ3RBhqLsQ0MZ71Y2bhzQhZlmfcdz9epTPdO1lyB8TKK7Zm1YTyMJKbe-w-wp73wL-t8_lVS5YaQIACoZ7xSjv6l92XIvs5cBPa_5wgAsiB_mbMnL/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-3.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-3" border="0" data-original-height="174" data-original-width="800" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjubgIxlUP3QKidDZFjEEDbrnauhlQvJ3RBhqLsQ0MZ71Y2bhzQhZlmfcdz9epTPdO1lyB8TKK7Zm1YTyMJKbe-w-wp73wL-t8_lVS5YaQIACoZ7xSjv6l92XIvs5cBPa_5wgAsiB_mbMnL/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-3.jpg" title="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-3" /></a></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgewIoWhBl-p6mcyZARlInDDw0J1Ncnom4Tkppp37h9CrvktLI4lO5QsgHKCU2xnwqWI1re3SgLq4eDoAcVFsvk2rUnUKfOLiVQbmQZpQS6kY-nYPwZvsynOKjmicf3fvNYAoGwL2XrIyhd/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-4.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-4" border="0" data-original-height="431" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgewIoWhBl-p6mcyZARlInDDw0J1Ncnom4Tkppp37h9CrvktLI4lO5QsgHKCU2xnwqWI1re3SgLq4eDoAcVFsvk2rUnUKfOLiVQbmQZpQS6kY-nYPwZvsynOKjmicf3fvNYAoGwL2XrIyhd/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-4.JPG" title="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-4" /></a></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFyawXxzb8GCGvpgyxi2ifsKplFmQGkhRWGXwG3Tx_sdc74cIcjjARs4Ca4kieXDMFKdPNZfUkJCtm5fwRdgAs3RoLYZ5vwW7BVCAoe_sz6h_im8he4OtQlJ44NK0OteCpO4r-_pt1vbD7/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-5.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-5" border="0" data-original-height="431" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFyawXxzb8GCGvpgyxi2ifsKplFmQGkhRWGXwG3Tx_sdc74cIcjjARs4Ca4kieXDMFKdPNZfUkJCtm5fwRdgAs3RoLYZ5vwW7BVCAoe_sz6h_im8he4OtQlJ44NK0OteCpO4r-_pt1vbD7/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-5.JPG" title="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-5" /></a></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2yyKK_l0mM9SPpYpsu95YykByy4g7nGZpbxwKQwsM0OtBPT2gvo1qxcnWENBcUkQvkSJIgDPSaNVOw2VNpNZf1SRXCgNROURdSJF1xuXdFqP7R2KcflulIg680VZZS7PO0p9QmDbrofz_/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-6.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-6" border="0" data-original-height="431" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2yyKK_l0mM9SPpYpsu95YykByy4g7nGZpbxwKQwsM0OtBPT2gvo1qxcnWENBcUkQvkSJIgDPSaNVOw2VNpNZf1SRXCgNROURdSJF1xuXdFqP7R2KcflulIg680VZZS7PO0p9QmDbrofz_/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-6.JPG" title="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-6" /></a></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">According to the T.S.C.s, the payments from the
federal government to the I.O.C.s are based on production levels and not on the
specific project revenue—it’s always a fixed amount for every barrel of crude
oil produced. So, with low oil prices, the government earns necessarily less.
In September 2016, Platts, one source of benchmark price assessment in the
physical energy market, estimated that </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">the
proportion of oil revenues paid in cost recovery and remuneration fees was
around 16% when oil prices were above $100 per barrel, but that it rose to as
high as 48% with significantly lower crude oil prices.</span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">And, to add insult to injury, as per their
contract, until they reach the established production plateau, the I.O.C.s must
increase their crude oil production. And the more barrels are produced, the
more fees the federal government must pay to the I.O.C.s despite low oil
prices. In general, this payment is done in kind, which means that, with low
oil prices, the federal government needs a greater volume of crude oil to pay
the I.O.C.s. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">At the same time, the I.O.C.s have never been
particularly fond of the T.S.C.s because the reimbursement fee was quite low
for production after a certain threshold and because there were important
upfront costs they had to sustain. In any case, at the time of their signature,
the I.O.C.s decided to invest in Iraq because</span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span></div>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">it was important to re-enter Iraq after the
nationalization of the 1970s</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">the first two rounds concerned already-discovered
large fields (no exploratory risk)</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">the cost recovery was quite rapid so that project
financing costs were reduced </span></div>
</li>
</ul>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgi239pXNRJYsbj4upnRYIyaAVAXhGmq1vmF2AtFHyyaZngIYqMB4ZzedE60pRThcG8O76BoJfKKIYDZtvHC2Mn-dwV815RMRAzfXfb7WoV-3W0DPcWg43Um6QCAf2XKnxTqKlyUXSvWNtI/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-7.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-7" border="0" data-original-height="431" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgi239pXNRJYsbj4upnRYIyaAVAXhGmq1vmF2AtFHyyaZngIYqMB4ZzedE60pRThcG8O76BoJfKKIYDZtvHC2Mn-dwV815RMRAzfXfb7WoV-3W0DPcWg43Um6QCAf2XKnxTqKlyUXSvWNtI/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-7.JPG" title="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-7" /></a></div>
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">However, also for the I.O.C.s. there is something
more. With low oil prices, the T.S.C.s prescribe that the I.O.C.s’ remuneration
should remain the same, but if the federal government is not able to pay, it
will postpone its payments, i.e., the I.O.C.s will have increased financing
costs. In addition, cost recovery is capped to a percentage of “deemed value,”
which is “net production” in a quarter multiplied by the “provisional export
oil price” for that quarter. This means that with low oil prices, there could
be a decrease in the amount received by the I.O.C.s. as well. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Additionally, on the one hand, the I.O.C.s
complain consistently about procurement procedures in Iraq. In fact, the
applied lowest price principle initially reduces the costs, but later it increases
them because the subcontractors to obtain their contracts propose low bids,
which are impossible to carry out in the future if not with additional
expenditures. However, on the other hand, because Iraq obtains 100% of the
revenue after cost recovery and remuneration fee, the I.O.C.s get more profit
if the costs are higher. In the end, there is no real incentive for the I.O.C.s
to be cost efficient; what is missing is a way for the I.O.C.s to work in a
more efficient and cost-effective manner.</span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Summing up, independently of what investment
strategy the I.O.C.s want to carry out in Iraq, the sure recipe for the Iraqi
government to getting a better profitability for itself from the country’s
petroleum sector is to improve the terms of its T.S.C.s. At the same time, with
the present oil prices, improved fiscal terms are of paramount importance also to
attract the I.O.C.s. This logic holds true for both oil and gas fields on offer
through licensing rounds and for oil and gas fields on offer through direct
negotiations.</span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">THE PAST
FOUR BID ROUNDS AND THE “PROJECT” </span></b></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Until now, Iraq has organized four bid rounds
since 2009:</span></div>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">First Round (June 2009)</span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> — This
round included the supergiant oil fields Rumaila, Zubair, and West Qurna 1,
which had been until then under the operatorship of Iraq’s South Oil Company
(S.O.C., today known as Basra Oil Company, B.O.C.). In total, eight fields were
on offer. Companies were bidding on two parameters: remuneration fee and
plateau production target. Initially, this bid round auctioned off successfully
only the Rumaila oil field to BP for a remuneration fee of $2, but, on the
bidding day, BP did not sign any contract and all the other seven auctioned fields
were not assigned. Only after some months, did BP sign its contract for Rumaila.
However, it was a modified version of the contract because, while the
remuneration fee stayed the same, </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">the
cost recovery was quicker so that project financing costs were reduced giving
the company an improved net present value (N.P.V.)—according to BP, after the
amendments, the return on the investment was about 20%. Thanks to the improved
terms, after the Rumaila signature, Iraq signed contracts also for Zubair, West
Qurna 1, and Maysan (oil).<span style="margin: 0px;"> </span></span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Second
Round (December 2009)</span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> — In this second bid round, Iraq awarded seven
oil fields: Majnoon, West Qurna 2, Halfaya, Garraf, Badra, Qaiyarah, and
Najmeh. The three other fields on offer did not receive any bids; companies
were probably worried by the security conditions on the fields or they could
not see an interesting profitability in signing T.S.C.s for those fields.</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Third
Round (October 2010)</span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> — Iraq had not been able to sign off on a single gas
contract with its first two bid rounds, so the country organized a round where
there were on offer only three gas fields: Akkas, Siba, and Mansuriya. In fact,
developing dedicated gas production for supplying domestic power plants and the
petrochemical industry was preferred to using associated gas obtained from the
oil fields. Few small companies showed up the day of the bid round, but all the
three gas fields were awarded.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Fourth
Round (May 2012)</span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> — The fourth round pertained to auctioning 12
blocks (called block 1, 2, 3, and so on) scattered throughout the country with
the goal of exploring for oil. In other words, we are not talking of
rehabilitating or increasing the production of already producing fields but of
exploring for oil. This bid was unsuccessful for Iraq because only three blocks
(blocks 8,9, and 10) were awarded. The reason for the failure was that the
terms were not guaranteeing the oil companies sufficient profits.<span style="margin: 0px;"> </span></span></div>
</li>
</ul>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"><br /></span></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgRbM3ySRfqjiDkF0IaZ4kLHxwLd4bxAOjJKTdhsJsjZ4j_u-O62XmO3KhNNi1jDgkCB2ztp6GvNEtiicaPPUEPpEtrTJFUVyub_PtnBz33o5-yenosOOnK4rfavz846BNtLcneSc4pV5Gj/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-8.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-8" border="0" data-original-height="760" data-original-width="800" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgRbM3ySRfqjiDkF0IaZ4kLHxwLd4bxAOjJKTdhsJsjZ4j_u-O62XmO3KhNNi1jDgkCB2ztp6GvNEtiicaPPUEPpEtrTJFUVyub_PtnBz33o5-yenosOOnK4rfavz846BNtLcneSc4pV5Gj/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-8.jpg" title="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-8" /></a></div>
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">So, in the end, despite some difficulties, especially
for the first bid round, the first three bid rounds have been successful for
Iraq. Instead, the fourth one has not provided Iraq with a positive outcome. In
any case, it was with the three first rounds that Iraq literally opened its oil
and gas sector to the I.O.C.s. It’s important to underline that, if the
companies had been able to meet their contract targets, the eleven oil contracts
signed with the first two bid rounds would have increased the country’s oil
production by about 11.7 million barrels by 2018. <span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The four bid rounds show the importance of finding
a balance between the government’s interests and the companies’ interests.
However, at the same time, licensing rounds are a very good tool for finding
out how a government and the interested companies view the assets on offer.
Many a time, value evaluation of the assets may be completely different. For
example, in Iraq, in the first licensing round, with reference to the Bai
Hassan field, there was a significant difference between the remuneration fee
offered by a consortium formed by U.S. ConocoPhillips, and two Chinese
companies, China National Offshore Oil Corporation (Cnooc) and Sinopec. The
companies requested a remuneration fee of $26.70, but the maximum remuneration
fee that Iraq was available to pay was $4.00. As a result, Iraq did not award
Bai Hassan. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Over the course of the years since the signature
of the contracts, Iraq has already revised twice the country’s production
target. At the time of the four bid rounds, Iraq had envisaged to reach 12
million barrels per day of oil output capacity by 2018. Now, the general goal,
revised the last time in 2015, is to have a production of 5.6 million to 6
million barrels per day by 2020. A first revision occurred in 2014 when the
production target was moved to about 8.4. million to 9.0 million barrels per
day by 2020. In this regard, the plateau revisions in Rumaila’s contract are
quite emblematic. When the contract was signed in 2009, the plateau was set at
2.85 million barrels per day. Then, in 2014, the plateau was reduced to 2.1
million barrels per day by 2020. Finally, in October 2017, it emerged that BP
was again in discussions with the Ministry of Oil over the output levels at
Rumaila, which is currently producing 1.5 million barrels per day. At Rumaila,
the additional problem is that the main reservoir declines at a rate of 17%
every year so that BP needs to add 250,000 barrels per day every year to just
maintain the present production level. Apart from Rumaila’s T.S.C., some other
contracts have been amended since signature, but the nature of the amendments
has not been made public.</span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The idea of organizing a fifth licensing round
with improved fiscal terms for the I.O.C.s was on the radar of the Ministry of
Oil already in the summer of 2012. However, after five years and half, this
fifth licensing round or direct negotiations between the Ministry of Oil and
the I.O.C.s with no auction have still to materialize. Over this period, the
Ministry of Oil has announced at least three times its intention to put on
offer some additional oil and gas fields. The most recent line of action dates
to July 2017 when the Ministry of Oil announced the launch of a new project
(it’s called the “Project”) to explore, develop, and produce nine onshore and
offshore exploration blocks in south and middle Iraq near the borders with Iran
and Kuwait. Also in this case, according to the Ministry of Oil, there is the
willingness to modify the fiscal terms with the collaboration of the I.O.C.s as
well. The official timetable calls for the submission of bids and awards at the
end of June 2018. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Five out of the nine blocks included in this
project are in Basra Governorate. They are the three blocks Khudher Al-Mai,
Jebel Sanam, and Al Fao on the Kuwaiti border, the Sindibad block (including
the Sindibad oilfield, which is jointly owned by Iraq and Iran, and which could
have 3 billion barrels of recoverable oil) along the Iraqi-Iranian borderline,
and the Arabian Gulf block in the Arabian Gulf. The other four blocks are in
four different governorates, all on the Iraqi border with Iran. The Naft Khana
block is in Diyala Governorate, the Zurbatiya block is in Wasit Governorate,
the Shihabi block straddles between Wasit Governorate and Missan Governorate,
and the Huwaiza block is in Missan Governorate.</span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">RECOMMENDATIONS
FOR IMPROVING THE FISCAL TERMS</span></b></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">When we analyze Iraq’s oil sector, one point is
quite clear: in comparison to other OPEC members, Iraq’s reserves/production
ratio has always been quite high—at the beginning of 2017, Iraq’s Ministry of
Oil declared that the country’s proven reserves had increased to 153 billion
barrels from a previous estimate of 143 billion barrels. This means that, on a
proportional basis, Iraq has always had a production lower than that of many other
OPEC members. So, logic would require that Iraq increase its oil production, if
the country wants to fully benefit from its oil endowment. And, to obtain this
target, it is important to improve the fiscal terms of the current and the
future oil and gas contracts so that both the government and the I.O.C.s might
obtain a higher profitability. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Rather than completely change the terms of the
T.S.C.s, it appears now that the federal government intends to make some
adjustments to the current contractual framework—incentivizing cost control
will be a priority, but it seems that the Ministry of Oil is thinking of
reducing the cap on the amount of admissible cost recovery and remuneration to
a fixed dollar amount.</span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In specific, the T.S.C.s’ revised fiscal terms
will have to address these two main points:<span style="margin: 0px;">
</span><span style="margin: 0px;"> </span></span></div>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Lack of
Cost Efficiency</span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> — There is no alignment between the government
and the I.O.C.s on obtaining the lowest costs per barrel. So, if the I.O.C.s
have higher costs, they will have more oil costs to recover the incurred costs,
and consequently their remuneration per barrel will be higher. In practice,
this means that the I.O.C.s will obtain higher net revenues when costs are
higher; no cost efficiency from the side of the I.O.C.s.</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The
I.O.C.s’ Income Is Not Sensitive to the Price of Oil</span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> —<span style="margin: 0px;"> </span>The remuneration fee depends on an R-factor
(the ratio of cumulative cash receipts to cumulative expenditures in the
conduct of the petroleum operations), but it’s fixed according to the envisaged
thresholds, so the remuneration fee is delinked from the oil price. In
practice, the Iraqi T.S.C.s are attractive to the I.O.C.s with low oil prices
because they have a guaranteed fee per barrel (and the companies will obtain
more in-kind barrels from the government to pay the remuneration fee when oil
prices are low). Instead, the Iraqi T.S.C.s are relatively unattractive to the
I.O.C.s with high oil prices because the remuneration fee is fixed (in this
case, the added profitability goes all to the government; plus, the I.O.C.s reduce
investments exactly when the government would like to expand production).<span style="margin: 0px;"> </span></span></div>
</li>
</ul>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">There is
an enormous variety in the way governments and the I.O.C.s may structure their
petroleum contracts, but every one of the arrangements has different pros and
cons. Today, throughout the world there is no specific fiscal system getting
more ground, although we are witnessing some new fiscal solutions. The starting
point of all the petroleum contracts is that the more attractive the resource
base is, the tougher will be the fiscal terms. However, the beginning of the
exploitation of unconventional oil and gas resources since 2009 has brought
about a reduction in government take. On a global scale, old service contracts
show a poor alignment of governments’ goals with I.O.C.s.’ goals.</span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The main general
recommendations (general because more research is needed to produce a
step-by-step plan of action) to develop T.S.C.s with improved fiscal terms are</span></div>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Providing the T.S.C.s With More Flexibility</span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> –
Indeed, the signed T.S.C.s have the same structure, but, in the end, they vary
considerably along a variety of dimensions, such as, scope of the agreement, remuneration
fee, plateau, other terms of the contract, assumptions about international
markets prices, and so on. Unless the model T.S.C. is more flexible in
accommodating all these different parameters, it is difficult to continue with
a single model. The present T.S.C.s are probably too simple.</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Rethinking the R-Factor Effects</span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> — Under
the present T.S.C.s, if the I.O.C.s incur an additional expenditure, this
expenditure will result in lowering the R-factor (in fact, an additional cost
increases the value of the denominator in the R-factor ratio) in addition to
the reduction in government income because of the reduction in the net revenue
share. And, of course, a reduction in the R-factor will increase the losses for
the government.</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Considering Oil Price Fluctuations </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">—<b style="mso-bidi-font-weight: normal;"> </b>The present T.S.C.s do not consider
oil price fluctuations; remuneration fees are fixed even if oil prices
experience a dropdown of more than 50%. Under high oil prices, the present
T.S.C.s are unattractive to the I.O.C.s while under low oil prices they are
attractive. <b style="mso-bidi-font-weight: normal;"><span style="margin: 0px;"> </span></b></span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Finding incentives to Oblige the I.O.C.s to
Be More Cost Efficient </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">— According to the present T.S.C.s, if the
I.O.C.s have higher costs they will recover more petroleum costs (in other
words, the per barrel remuneration will be higher). Right now, for the I.O.C.s there
is an incentive to spend more.<span style="margin: 0px;"> </span><b style="mso-bidi-font-weight: normal;"></b></span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Introducing the Effect of Inflation — </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The
present T.S.C.s are not adjusted for inflation. So, if during the 20-year term
of the T.S.C.s, significant inflation happens in the United States, the value
of the per-barrel fee in real terms would quickly decline. <b style="mso-bidi-font-weight: normal;"></b></span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Considering the Introduction of a System
Based on a Lower Net Revenue Share and a Flexible Royalty (Van Meurs, 2017) </span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">— In
order to encourage efficient operations, the net revenue sharing rate should
not exceed 60% to the government. The flexible royalty might be based on three
different royalties: one royalty rate based on the daily field production,
adjusted also for oil gravity and well depth; one royalty rate based on the oil
price at the delivery point; and one royalty rate based on well productivity.
This system could permit good returns at the same time to both the government
and the I.O.C.s under different oil-price scenarios and provide strong
incentives for the I.O.C.s to reduce costs.</span></div>
</li>
</ul>
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><div style="line-height: 200%; margin: 0px; text-align: justify;">
<br /></div>
</span><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEilstjoxvNjJRSj2T4RWhFOZF7_cXwpwIMwt9YNe18td9utEfem8iGt1noOIXepDSM89Bx6SXWFdheByUqqPt1bx7HUW0g97_85fgw4a1WAabvsZhak-zIWq5GSKHoSK6olrd7ujEaCednd/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-9.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-9" border="0" data-original-height="431" data-original-width="750" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEilstjoxvNjJRSj2T4RWhFOZF7_cXwpwIMwt9YNe18td9utEfem8iGt1noOIXepDSM89Bx6SXWFdheByUqqPt1bx7HUW0g97_85fgw4a1WAabvsZhak-zIWq5GSKHoSK6olrd7ujEaCednd/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-9.jpg" title="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-9" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div align="center" style="line-height: 200%; margin: 16px 0px 10.66px; text-align: center;">
<b><i><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Flexible Royalty Formula — Source: Pedro van
Meurs, “What Suggestions for an Iraq Single Fiscal Model for Upstream Petroleum,”
April 2017 </span></i></b></div>
</td></tr>
</tbody></table>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4P5S9fquEMqICFUeEArdCAW91Y9_mHKLKZ_fbYdoAaHuPOxBuDwQsQCxVwdskbABHdyghV6Bd-ZYFrnCVKsr992ydsQ5HjCZ7u8FgwuRtJkUafhwdnwpRDjb0YRYqjNpWLhpeGSa6oxyy/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-10.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-10" border="0" data-original-height="442" data-original-width="770" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4P5S9fquEMqICFUeEArdCAW91Y9_mHKLKZ_fbYdoAaHuPOxBuDwQsQCxVwdskbABHdyghV6Bd-ZYFrnCVKsr992ydsQ5HjCZ7u8FgwuRtJkUafhwdnwpRDjb0YRYqjNpWLhpeGSa6oxyy/s1600/BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-10.JPG" title="BACCI-Iraq-Petroleum-2018-The-Importance-of-Improved-Fiscal-Terms-Feb.-2018-10" /></a></div>
<br />
<br />
<br />
</span></div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-64879807727957859392018-01-15T20:00:00.000+02:002018-01-23T11:42:27.675+02:00Comments About OPEC and Oil Prices to AzerNews<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgcJBA5FN__GCXjkyFGKenkIlmTQKhYJFk-Cq5czf2RqdbrJ_aYY0iNl1_D7v5ihMvbiccyFHsRKHXHG6Y3bNAn5bBESw5c2aEv6Yh_CO2JsdCJmPlFC7F1yO3XN0oki8IadpJnBKZOGDhj/s1600/BACCI-Comments-About-OPEC-and-Oil-Prices-to-AzerNews-Jan.-2018-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Comments-About-OPEC-and-Oil-Prices-to-AzerNews-Jan.-2018-Cover" border="0" data-original-height="470" data-original-width="890" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgcJBA5FN__GCXjkyFGKenkIlmTQKhYJFk-Cq5czf2RqdbrJ_aYY0iNl1_D7v5ihMvbiccyFHsRKHXHG6Y3bNAn5bBESw5c2aEv6Yh_CO2JsdCJmPlFC7F1yO3XN0oki8IadpJnBKZOGDhj/s1600/BACCI-Comments-About-OPEC-and-Oil-Prices-to-AzerNews-Jan.-2018-Cover.jpg" title="BACCI-Comments-About-OPEC-and-Oil-Prices-to-AzerNews-Jan.-2018-Cover" /></a></div>
<br />
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Below you may read my comments about OPEC and oil prices, which I emailed to Ms. Sara Israfilbayova, a business journalist with <a href="https://www.azernews.az/" rel="nofollow" target="_blank">Azernews</a>, an
English-language Azerbaijani newspaper. Ms. Israfilbayova had asked me some
interesting questions about the present state of the oil markets. After my
reply, Ms. Israfilbayova introduced my comments into her article “<a href="https://www.azernews.az/oil_and_gas/125403.html" rel="nofollow" target="_blank">Expert: OPEC’s Success Depends On What Happens in U.S. (INTERVIEW)</a>,” which was
published by AzerNews, first, on January 15, on its online edition, and then, on
January 17-18, in its paper edition. <span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"></span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3TY2HTUE_y19-SHuW0AvnI_z7ddvnkXitVidgQ4OtKAV76q8hJttLZ4-1quIBoqOIKjXnlcwNNfTuPduNKzIDLiAXUs1GYQYJfhHB2XQsbk1hMh4B3OhaXJIdlm6I3Mg7t0R9O6IiZluw/s1600/BACCI-Comments-About-OPEC-and-Oil-Prices-to-AzerNews-Jan-2018-1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Comments-About-OPEC-and-Oil-Prices-to-AzerNews-Jan-2018-1" border="0" data-original-height="1352" data-original-width="800" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3TY2HTUE_y19-SHuW0AvnI_z7ddvnkXitVidgQ4OtKAV76q8hJttLZ4-1quIBoqOIKjXnlcwNNfTuPduNKzIDLiAXUs1GYQYJfhHB2XQsbk1hMh4B3OhaXJIdlm6I3Mg7t0R9O6IiZluw/s1600/BACCI-Comments-About-OPEC-and-Oil-Prices-to-AzerNews-Jan-2018-1.jpg" title="BACCI-Comments-About-OPEC-and-Oil-Prices-to-AzerNews-Jan-2018-1" /></a></div>
<b></b><i></i><u></u><sub></sub><sup></sup><strike><br /></strike>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjql8UGW71HZcah69CwoU3kZFI83vpKWUX-Jg5F1cxssIAN2DxtQm_0eOWpNYzdGOXgjutZ4s4PwRDgZY6GFKS50Csxr6_jNO_GwXMyhMswlyo_PzzY9x9ni60yGMzpCw6kTOt8Lu9ZikkJ/s1600/BACCI-Comments-About-OPEC-and-Oil-Prices-to-AzerNews-Jan-2018-2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Comments-About-OPEC-and-Oil-Prices-to-AzerNews-Jan-2018-2" border="0" data-original-height="1296" data-original-width="800" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjql8UGW71HZcah69CwoU3kZFI83vpKWUX-Jg5F1cxssIAN2DxtQm_0eOWpNYzdGOXgjutZ4s4PwRDgZY6GFKS50Csxr6_jNO_GwXMyhMswlyo_PzzY9x9ni60yGMzpCw6kTOt8Lu9ZikkJ/s1600/BACCI-Comments-About-OPEC-and-Oil-Prices-to-AzerNews-Jan-2018-2.jpg" title="BACCI-Comments-About-OPEC-and-Oil-Prices-to-AzerNews-Jan-2018-2" /></a></div>
<br />
<div style="text-align: right;">
<br /></div>
<div style="text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">January 15, 2018</span></b></div>
<div style="text-align: right;">
</div>
<div style="line-height: 200%; margin: 0px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">LONDON</span></b></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Q1. The OPEC+ decided to
extend its production cuts till the end of 2018. Do you think it will be
effective or not? Is there any chance of new countries joining the agreement?</span></b></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">It’s difficult to know whether the decision of prolonging by
nine months the production cuts (in total 1.8 million barrels per day out of
the market) until the end of 2018, taken by the Organization of Petroleum
Exporting Countries (OPEC) and some non-OPEC producers including Russia at the
end of November 2017, will be effective until December 2018. However, what is sure
is that when the decision was taken, the production cuts were conceived as a component
that might help to at least partially stabilize the oil prices—OPEC countries
and the non-OPEC countries included in the agreement represent almost 60
percent of global oil production. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Extending the cuts, OPEC and some non-OPEC oil-producing
countries, the latter led by Russia, did probably the right move in their quest
to fight the global supply glut and to keep oil prices at about $60 per barrel.
In addition, it was a good result the inclusion of Nigeria and Libya, two OPEC
members that because of internal problems (attacks on oil facilities in Nigeria
and an ongoing civil war in Libya) had previously been exempted from the initial
cuts. If the deal goes through the whole 2018, the 24 countries that are now
party to the agreement must stuck to their commitments. In December 2017, the
OPEC members implemented 121 percent of the pledged cuts showing an optimal
adherence to the deal—in total OPEC pumped about 32.47 million barrels of oil in
December. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The extension deal will be reassessed in June 2018 at OPEC’s
next scheduled meeting. In specific, this point is quite important to Russian
oil companies, which wanted only a six-month extension and not a nine-month
extension. In fact, Russian companies consistently fear that the already higher
oil prices might permit the U.S. shale industry to gain market share at their
expense.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Q2. What are your
predictions for the oil prices after the deal prolongation in 2018?</span></b></div>
<br />
<div style="line-height: 200%; margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In these initial days of 2018, Brent prices are close to $70
per barrel, the highest value since 2014. However, there are several signs that
market might be overheating. In practice, we have probably arrived at these
prices too prematurely. Prices are currently high because of several factors.
Among the most relevant, it’s worth mentioning: the extension cuts, declining
inventories in the U.S. (partially linked to cold weather conditions as well),
unrest in Iran and other areas, strong global economic growth, and oil future
purchases by hedge funds and financial institutions (long positions). In
specific, with reference to economic growth, recently the U.S. Energy
Information Administration (E.I.A.) raised its 2018 world oil demand growth by
100,000 bbl/d from its previous estimate. If oil prices continue to be about
$60 to $65 a barrel, it’s more than probable that U.S. oil production might
well be on the rise again. </span></div>
<br />
<div style="line-height: 200%; margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Over the course of the past months, Saudi Arabia and Russia
have discussed consistently about a target price floor that could permit them
to support oil prices, reduce the oil glut, and avoid losing market share to
the benefit of the U.S. shale oil producers. The idea was that the best floor
price was about $60 per Brent barrel. In addition, in the United States, 2017
was the year of an important mindset change across shale oil producers. In
practice, from a growth-at-any-cost approach, shale oil producers realigned
themselves with the basic concepts of return on capital and cash flow
generation. However, if West Texas Intermediate (W.T.I.) rises and stays above
$60, it will be quite difficult not to experience an increase in the U.S. shale
oil production because, at that value, companies could consistently expand
their profitability margins. </span></div>
<br />
<div style="line-height: 200%; margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In practice, according to Barclays, at $60 a barrel, in 2018 U.S.
shale production could increase by 1.4 million barrels per day (versus 1
million barrels at $50 to $55 a barrel), which would be equivalent to
neutralizing almost one quarter of the OPEC/non-OPEC implemented cuts. In sum,
this would mean lower oil prices. Of course, if a major geopolitical event
occurs—for instance, an intensification of the proxy wars between Saudi Arabia
and Iran or additional turmoil in Venezuela—this might always produce undersupplied
markets, i.e., higher oil prices. <b style="mso-bidi-font-weight: normal;"></b></span></div>
<br />
<div style="line-height: 200%; margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Q3. The success of OPEC
largely dependents on the U.S. Thus, the OPEC countries face a dilemma. On the
one hand, they need high prices, and on the other, prices should not reach such
a high level, because in this case it will push the U.S. to increase production
of shale oil. In your opinion, what should be done in this case?</span></b></div>
<br />
<div style="line-height: 200%; margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Definitely, OPEC’s success is dependent on what happens in the
United States, i.e., whether U.S. shale oil producers are able to increase
production nullifying OPEC’s efforts at curbing production in order to support
prices and reduce inventories. Indeed, OPEC’s game is absolutely not an easy
game, because Saudi Arabia and the other oil-producing countries need first to
find and then to maintain an oil price that satisfies, at least partially,
their budget requirements, that cuts commercial oil inventories down to the
five-year average to rebalance the oil market, and that does not guarantee
excessive profitability to the U.S. shale oil producers. Of course, such an
equilibrium is not easy to achieve and to maintain. </span></div>
<br />
<div style="line-height: 200%; margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The next six months will tell us a lot more about how the U.S.
shale oil industry will respond to these new higher prices. It’s evident that if
shale oil output begins to increase faster than it was expected, OPEC and
non-OPEC oil producing countries will be forced to halt production cuts earlier
than they have thought. For the time being, according to Saudi Arabia, in
December 2017, O.E.C.D. inventory stocks were still 150 million barrels too
high. In addition, calendar spreads for 2018 have tightened significantly over
the last six months hinting at a sustained period of oil undersupply. In
general, drilling rates, i.e., an increase in production, follow the changes in
the future markets with a gap of 4 to 5 months.<b style="mso-bidi-font-weight: normal;"></b></span></div>
<br />
<div style="line-height: 200%; margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Q4. What other method can
be offered to balance the oil market?</span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">No, too much is currently at stake in order to think of other reliable
and implementable strategies to balance the oil markets. In specific, the
emergence and the real impact of the U.S. shale oil industry must still be
fully understood. As mentioned above, only in the past year has the U.S. shale
oil industry succeeded in implementing a more financially sound behavior. On
top of this, if on the one hand, the 24 countries that are now party to the
agreement concerning the production cuts have been able to extend the cuts, on
the other hand, they have already shown significant differences concerning the
strategy for managing oil prices. </span></div>
<div>
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="font-family: "times new roman"; font-size: small;"><br /></span></span></div>
<div>
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="font-family: "times new roman"; font-size: small;"><br /></span></span></div>
<div>
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="font-family: "times new roman"; font-size: small;"><br /></span></span></div>
<div>
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="font-family: "times new roman"; font-size: small;"><br /></span></span></div>
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<br /></div>
</div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-18768215834346781042017-12-20T21:30:00.000+02:002018-02-21T18:21:09.124+02:00Iraq’s Fifth Licensing Round<div dir="ltr" style="text-align: left;" trbidi="on">
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: right;">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgBloOZZzX1Lwdz7uXnRoXwDPXGKvkaFmANuvEScI2-jNvn_gzh5Nbw-PYrNLzz_KC3RBZquCRh6Zf6LD9rRSXX_dHMdnTJH6-FnbKxpTeWiAZSDLarQZD8CksHv07AnfhahTgWLXxMTQKj/s1600/BACCI-Iraqs-Fifth-Licensing-Round-Dec.-2017-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Iraqs-Fifth-Licensing-Round-Dec.-2017-Cover" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgBloOZZzX1Lwdz7uXnRoXwDPXGKvkaFmANuvEScI2-jNvn_gzh5Nbw-PYrNLzz_KC3RBZquCRh6Zf6LD9rRSXX_dHMdnTJH6-FnbKxpTeWiAZSDLarQZD8CksHv07AnfhahTgWLXxMTQKj/s1600/BACCI-Iraqs-Fifth-Licensing-Round-Dec.-2017-Cover.jpg" title="BACCI-Iraqs-Fifth-Licensing-Round-Dec.-2017-Cover" /></a></div>
<div style="text-align: center;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">
<br />
</span></div>
<div align="center" style="line-height: 200%; margin: 0px 0px 10.66px; text-align: center;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><b><span lang="EN" style="color: black; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">My report “<a href="http://www.iraq-businessnews.com/2017/12/20/iraqs-fifth-licensing-round/" rel="nofollow" target="_blank">Iraq’s Fifth Licensing Round</a>” has
been published on December 20, 2017, by <a href="http://www.iraq-businessnews.com/" rel="nofollow" target="_blank">Iraq Business News</a></span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span></span></div>
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">
<b>December 20, 2017 </b></span></div>
<div style="line-height: 200%; margin: 0px 0px 10.66px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">ABSTRACT — Iraq’s Ministry of Oil has repeatedly said that it
would like to renegotiate the terms of its service contracts with the
international oil companies (I.O.C.s) to link the fees the companies receive for
developing the fields to the oil prices and to have them share the burden when
oil prices decrease. However, discussions between the federal government and
the I.O.C.s have been going on for the past two years with no tangible results
until now. Companies affirm that they have submitted some recommendations, but
then the process has not moved on. At this point, it seems that to have a
successful fifth licensing round, the federal government must produce in the
coming months a new model contract (or at least an amended version of the
present technical service contracts) capable of satisfying according to
different price levels both the government and the I.O.C.s. Otherwise, it’s
difficult for Iraq to reach the production target of 6 million bpd of crude oil
by 2020, especially if other neighboring countries might soon offer better
contractual terms.</span><br />
<span style="font-family: "georgia";"><br /></span>
<span style="font-family: "georgia";"><br /></span>
<span style="font-family: "georgia";"><br /></span>
<span style="font-family: "georgia";"><br /></span></div>
</div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-30427115944236624782017-11-30T21:30:00.000+02:002018-02-19T12:28:36.447+02:00Iran’s Oil and Gas Potential<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-1n83fsfsJCZYR_yUrb2MrZGAqLyT9HDsuebpol5ceksvgoxVq_kn9i22rL1iisPk2yWglfGkqRMh02e1yaistcbwD0BZkHlm8moAY8lGHK7K6Ooy7X4fgE8xubYgxTrsd_njWnx2246e/s1600/BACCI-2017-World-Oil-and-Gas-Week-Dec.-2017-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-2017-World-Oil-and-Gas-Week-Dec.-2017-Cover" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-1n83fsfsJCZYR_yUrb2MrZGAqLyT9HDsuebpol5ceksvgoxVq_kn9i22rL1iisPk2yWglfGkqRMh02e1yaistcbwD0BZkHlm8moAY8lGHK7K6Ooy7X4fgE8xubYgxTrsd_njWnx2246e/s1600/BACCI-2017-World-Oil-and-Gas-Week-Dec.-2017-Cover.jpg" title="BACCI-2017-World-Oil-and-Gas-Week-Dec.-2017-Cover" /></a></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
</div>
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span><br />
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: center;">
</div>
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: center;">
<b><span lang="EN" style="color: black; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">My article “<a href="http://oilandgascouncil.com/articles/alessando-bacci/" rel="nofollow" target="_blank">Iran’s Oil and Gas Potential</a>” has
been published on November 30, 2017 by <a href="http://www.oilandgascouncil.com/" rel="nofollow" target="_blank">Oil and Gas Council</a>, </span></b><b style="mso-bidi-font-weight: normal;"><span lang="EN" style="color: #1d2129; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">the largest and most influential network of oil and gas executives in the
world, on the occasion of World Oil and Gas Week 2017</span></b></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span lang="EN" style="color: #1d2129; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></b></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span lang="EN" style="color: #1d2129; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">November 30, 2017</span></b></div>
</span><br />
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">LONDON — Iran
has the world’s fourth largest proven crude oil reserves at 158 billion barrels
(after Venezuela, Saudi Arabia, and Canada) and the world’s first proven
natural gas reserves at 1,183 trillion cubic feet. </span></div>
<div style="text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Crude oil
reserves are spread across more than a 140 hydrocarbon fields onshore (two thirds)
and offshore (one third) — many of them containing associated gas as well. In
Iran, the average cash cost to produce a barrel of oil or gas equivalent in
2016 was less than 10 dollars. Iran is currently producing 3.8 million barrels
of crude oil per day (most production comes from the four largest oil fields),
and it exports 2.4 million barrels to 2.6 million barrels of crude oil per day.
Of Iran’s exported crude oil, 55 percent goes to Asia (excluding Turkey) and 25
percent goes to Europe. </span></div>
<div style="text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">With
reference to natural gas, South Pars is the largest natural gas field in the
world, and it makes up about 50 percent of Iran’s natural gas reserves. This
field is offshore in the middle of the Persian Gulf waters, and it’s shared
with Qatar. In Iran, natural gas production has consistently risen (about 10
percent a year) since the 1980s with the specific goal of serving almost
exclusively the domestic market. Iran is currently producing over 800 million
cubic meters of natural gas per day, of which about two thirds come from South
Pars. <span style="margin: 0px;"> </span></span></div>
<div style="text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Indeed, these
numbers are impressive, and they show with no doubt that Iran is one of the
world’s premier locations for oil and gas production — the first large
petroleum find in the Middle East occurred in 1908 in Persia, i.e., in Iran. However,
since 1979, the year of the Iranian Revolution, the political relationships
between Western countries and Iran have been difficult especially after the
imposition of economic sanctions by the United States and the European Union, respectively
at the end of 2011 and during the summer of 2012. These sanctions had both a
direct and indirect impact on the Iranian hydrocarbons industry. In fact, as a
result of the economic sanctions, Iranian crude oil production dropped from 3.7
million barrels per day in 2011 to 2.7 million barrels per day in 2013. </span></div>
<div style="text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">An
important result was achieved in January 2016 when began the implementation of the
Joint Comprehensive Plan of Action (J.C.P.O.A.), i.e., the international
agreement on Iran’s nuclear program between Iran, the P5+1, and the E.U. This
deal removed part of the nuclear-related sanctions that had previously been adopted
by the European Union, the United Nations, and the United States. The European
Union and the United Nations terminated all their sanctions while the United
States lifted only its nuclear non-proliferation secondary sanctions, which
targeted non-U.S. individuals outside the U.S. jurisdiction. In other words,
U.S. citizens and companies are still not entitled to do business in relation
to the Iranian energy sector. </span></div>
<div style="text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Since the
signature of the deal, Iran has been committed to developing its economy with
the specific goal of improving its oil and gas sector, which, after years of limited
and low-technology investments, needs funding for about 200 billion dollars. In
2016, the first year with no sanctions since 2011, crude oil production was
about 3.5 million barrels per day, which meant an increase of 350,000 barrels
per day on the pre-sanctions levels. According to the World Bank, the Iranian
economy registered in 2016 an oil-based bounce back, showing an annual growth
rate of 13.4 percent in comparison with a 1.3 percent contraction in 2015.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<div style="text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Many
international energy companies have expressed their interest in Iran’s oil and gas
sector. The National Iranian Oil Company (NIOC) has produced a list comprising
34 international oil companies that prequalified for participating in Iran’s
oil and gas projects under the terms of the Iran Petroleum Contract (I.P.C.),
the new Iranian petroleum contract. Among the selected companies, there are some
from Asia, Europe, Latin America, and Russia. Many of these companies were
already involved in Iran before the introduction of the sanctions in 2011 and
2012. With 6 companies within the list of the selected 34, Russia is the
country with most companies interested in Iran’s oil and gas sector. </span></div>
<div style="text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">There are
of course some important absentees, such as, the U.S. majors, which have been
banned from doing investments in Iran as well as from purchasing Iranian crude
oil for almost four decades, and British Petroleum. Apart from the U.S.
companies, those international oil companies that have decided not to
participate in Iran’s oil and gas sector have a different perception of the
geopolitical risk linked to the possible reintroduction of U.S. sanctions
against Iran. In fact, the Trump administration is menacing to retire the
United States from the J.C.P.O.A. unless this deal is amended with the
introduction of clauses permanently blocking Iran from building nuclear weapons
and intercontinental missiles. Congress has until mid-December 2017 to decide
on the issue. <span style="margin: 0px;"> </span></span></div>
<div style="text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Instead,
last July, France’s Total became the first major to sign a post-sanctions
development deal (an I.P.C.) with Iran. This agreement concerns Phase 11 of South
Pars. This project will have a production capacity of about 2 billion cubic
feet per day, or 400,000 barrels of oil equivalent per day (condensate
included). The interest of Russian and Chinese companies in Iranian energy
operations might permit Iran to continue develop its hydrocarbons sector and to
have export markets also in case the United Stated decided to re-enact its
sanctions.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<div style="text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The most
important tool in order to attract international oil companies to invest in
Iran will be the new Iranian Petroleum Contract (I.P.C.), which according to
the I.P.C. By-law of August 2016 will be applied to activities relating to </span></div>
<div style="text-align: justify;">
</div>
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Exploration,
development, and production</span></div>
</li>
</ul>
<div style="text-align: justify;">
</div>
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Development
concerning existing fields and already discovered areas</span></div>
</li>
</ul>
<div style="text-align: justify;">
</div>
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Improvement
of recovery rates for existing fields</span></div>
</li>
</ul>
<div style="text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Since the
1990s, Iran has been using a risk-service buyback contract for both exploration
and development; under the buyback terms, the international oil companies pay
for all the investment costs and then receive remuneration according to project
advances and a specific rate of return via allocation of the production.
International oil companies have always been quite unsatisfied with the terms
of the buyback model because of its rigidity and poor economic return (a five-
to eight-year remuneration period only).<span style="margin: 0px;">
</span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<div style="text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The main
characteristics of the I.P.C.s are</span></div>
<div style="text-align: justify;">
</div>
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Establishment
of a joint venture between the international oil companies and a local Iranian
exploration and production company</span></div>
</li>
</ul>
<div style="text-align: justify;">
</div>
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Duration
for 20 years starting with the development operations with a possible extension
of further five years</span></div>
</li>
</ul>
<div style="text-align: justify;">
</div>
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">All risks
and costs on the international oil companies alone in case that a commercially
viable field/reservoir is not discovered</span></div>
</li>
</ul>
<div style="text-align: justify;">
</div>
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Full cost
recovery thanks to a longer recovery period in case of a commercially viable
project </span></div>
</li>
</ul>
<div style="text-align: justify;">
</div>
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Remuneration,
a fee per barrel, linked to the oil price, to the specific complexity of the
project, and to a sliding scale</span></div>
</li>
</ul>
<div style="text-align: justify;">
</div>
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Remuneration
to be paid out of a maximum of 50 percent of crude oil production and 75
percent of natural gas production </span></div>
</li>
</ul>
<div style="text-align: justify;">
</div>
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Payment
of petroleum costs and remuneration fee through either production or cash
payment <span style="margin: 0px;"> </span></span></div>
</li>
</ul>
<div style="text-align: justify;">
</div>
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Incentives
offered as for higher risk projects, and enhanced oil recovery (E.O.R.) with
reference to brownfields projects</span></div>
</li>
</ul>
<div style="text-align: justify;">
</div>
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Local
content requirement set at 51 percent of the value of the contract </span></div>
</li>
</ul>
<div style="text-align: justify;">
</div>
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Dispute
between contractor and NIOC resolved by way of escalation with arbitration as
the last available step</span></div>
</li>
</ul>
<div style="text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">It’s
still unclear whether the international oil companies will be allowed to book
reserves without breaking the Constitution, which states that foreign or
private ownership of natural resources is illegal. It’s evident that the
possibility of booking reserves might increase the attractiveness of investing
in Iran to the international oil companies. <span style="margin: 0px;"> </span></span></div>
<div style="text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The
geopolitical tensions running throughout the Middle East coupled with the U.S.
possible decision to reintroduce some sanctions against Iran might indeed
create some problems to Iran at both the political and economic level. However,
Iran’s oil and gas industry has some interesting advantages, such as, the world’s
fourth largest proven crude oil reserves and first proven natural gas reserves,
very low production costs, a geographical position permitting Iran to well
serve both the Asian and the European markets, an improved petroleum contract (although
still to be comprehensively assessed) in comparison to the buyback contract, a large
internal market for both refined products and petrochemicals, and vast
undeveloped oil and gas reserves. </span></div>
<div style="text-align: justify;">
</div>
<div style="margin: 0px 0px 11px;">
<br /></div>
<div style="text-align: justify;">
<b></b><i></i><u></u><sub></sub><sup></sup><strike></strike><span style="font-family: "calibri";"><br /></span></div>
<div style="text-align: justify;">
<br /></div>
<b></b><i></i><u></u><sub></sub><sup></sup><strike></strike><br />
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<br /></div>
</div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-85907443930258169952017-11-16T12:00:00.000+02:002017-11-20T14:23:23.916+02:00The K.R.G. and Iraq: The Time of Oil Diplomacy<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxOpW5Ov-NXaREMpj-lye2RgghdzHAmQOFl1Y-qpX9xnpGeYYw1aSRQVWR3z43nfT417G4OILSJC-TLeMjG8WP1_wtS9wPkSP5aJ-n0R6RxiDI0gTFyd-1tA2yJeNpetvEqOKeffnsOY6W/s1600/BACCI-The-KRG-and-Iraq-The-Time-of-Oil-Diplomacy-Nov.-2017-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-The-KRG-and-Iraq-The-Time-of-Oil-Diplomacy-Nov.-2017-Cover" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxOpW5Ov-NXaREMpj-lye2RgghdzHAmQOFl1Y-qpX9xnpGeYYw1aSRQVWR3z43nfT417G4OILSJC-TLeMjG8WP1_wtS9wPkSP5aJ-n0R6RxiDI0gTFyd-1tA2yJeNpetvEqOKeffnsOY6W/s1600/BACCI-The-KRG-and-Iraq-The-Time-of-Oil-Diplomacy-Nov.-2017-Cover.jpg" title="BACCI-The-KRG-and-Iraq-The-Time-of-Oil-Diplomacy-Nov.-2017-Cover" /></a></div>
<br />
<br />
<div align="center" style="line-height: 200%; margin: 0px; text-align: center;">
<b><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">My article “</span></b><b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="http://ekurd.net/krg-iraq-oil-diplomacy-2017-11-16" target="_blank">The KRG and Iraq: The Time of Oil Diplomacy</a></span></b><b><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">” has been published on November 16, 2017 by <a href="http://ekurd.net/" rel="nofollow" target="_blank">Ekurd Daily</a>,
a news portal analyzing Iraqi Kurdistan. The article is exclusive to
Ekurd Daily. </span></b></div>
<div align="right" style="line-height: 200%; margin: 0px; text-align: right;">
<br /></div>
<div align="right" style="line-height: 200%; margin: 0px; text-align: right;">
<b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">November 16, 2017</span></b></div>
<div align="right" style="line-height: 200%; margin: 0px; text-align: right;">
<b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">LONDON, United Kingdom</span></b></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<br /></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">ABSTRACT<b> —
</b></span><span lang="EN" style="color: #1d2129; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The article discusses in a
neutral way the current tense political relationship between the Kurdistan
Regional Government (K.R.G.) and Iraq proper with specific attention given to
the repercussions that a strained relationship might have for the K.R.G. oil
and gas industry. All t</span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">he assertive steps implemented by the federal
government in October 2017 and in the first weeks of November 2017—in
particular, retaking control of the oil fields in and around the Kirkuk area—must
be viewed in light of the necessity of stabilizing the country on a long-term
perspective. </span><span lang="EN" style="color: #1d2129; display: none; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"> </span>might have for the K.R.G. oil and
gas industry. <span style="margin: 0px;"> </span>might have for the K.R.G.
oil and gas industry.</span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The K.R.G. has now a <i style="mso-bidi-font-style: normal;">de facto</i> control over oil and gas fields located only in the K.R.G.
territory, although the federal government currently disputes again the
legitimacy of these oil and gas operations, which are carried out according to
production sharing contracts (P.S.C.s) while the federal government favors technical service contracts (T.S.C.s). </span><br />
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span>
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="http://ekurd.net/krg-iraq-oil-diplomacy-2017-11-16" target="_blank"><b>BACCI, A., <i>The K.R.G. and Iraq: The Time of Oil Diplomacy</i>, in Ekurd Daily, Nov. 16, 2017.</b></a> </span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<i></i><br /></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<br /></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<br /></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<br /></div>
</div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-47961516868963233752017-10-26T20:25:00.001+03:002017-11-18T18:33:50.160+02:00Basra Governorate’s Petroleum Cluster (Part B)<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZ0tzIgfQG0GNl9KN802zf4vJpt10BwlbcWX9DLdmPenGvGoF2zBN27CVT-ICNNVf7chjPt2bvOIO-r5pmTFSbtl1hBNJVc_kr2QLOuLaEzX7e6ChHxeXVkLsjRvUvVvprMmcgY8kZUOUU/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-Cover" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZ0tzIgfQG0GNl9KN802zf4vJpt10BwlbcWX9DLdmPenGvGoF2zBN27CVT-ICNNVf7chjPt2bvOIO-r5pmTFSbtl1hBNJVc_kr2QLOuLaEzX7e6ChHxeXVkLsjRvUvVvprMmcgY8kZUOUU/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-Cover.jpg" title="BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-Cover" /></a><br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></b></div>
<div align="right" style="line-height: 200%; margin: 0px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">October
26, 2017</span></b></div>
<br />
<div align="right" style="line-height: 200%; margin: 0px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">LONDON, United
Kingdom </span></b></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></b></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">WHAT IS A
CLUSTER?</span></b></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">“Clusters are geographic concentrations of
interconnected companies and institutions in a particular field. Clusters
encompass an array of linked industries and other entities important to
competition. They include, for example, suppliers of specialized inputs such as
components, machinery, and services, and providers of specialized
infrastructure. Clusters also often extend downstream to channels and customers
and laterally to manufacturers of complementary products and to companies in
industries related by skills, technologies, or common inputs. Finally, many
clusters include governmental and other institutions—such as universities,
standards-setting agencies, think tanks, vocational training providers, and
trade associations—that provide specialized training, education, information
research, and technical support.” Porter, M., “Clusters and the New Economics of
Competition,” 1998.<span style="margin: 0px;"> </span></span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Clusters may emerge at the national, regional,
state (provincial), and metropolitan level. And, the more advanced an economy
is, the more possibilities there are of developing clusters also at the
metropolitan level. In addition, when considering clusters linked to
commodities, the geographic element could assume additional relevance because
the geographic location of where extraction takes place is the starting point
of the commodities value chain (oil and gas have an upstream, midstream, and
downstream phases). But, be it clear that this is not the rule because there
are examples of commodities clusters developed at a different stage of the
product’s value chain. Think of the Antwerp diamond cluster, which has
developed in a city where diamonds aren’t mined but, instead, are cut (less so
today, because part of cutting activities has moved to low-wage centers) and
commercialized (still today 85 percent of the world’s rough diamonds, 50
percent of the polished diamonds and 40 percent of industrial diamonds pass
through the diamond district of Antwerp). </span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Indeed, poor countries don’t have sophisticated
clusters. In general, poor countries compete in the world market through the
utilization of a cheap labor force and the export of unprocessed natural
resources. And when poor countries try to promote the development of economic
clusters, they face huge obstacles because they lack the general pillars
supporting the emergence of a cluster, i.e., good educational institutions, a
skilled labor force, technological expertise, access to capital markets, and
good public institutions. These elements are the basic pillars. Then, over
time, the embryonic cluster will automatically help the emergence of assets
more in line with the specific field of the cluster.</span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Developing a cluster is a step-by-step approach.
As Professor Porter of Harvard University Business School explains, in the
early stages of economic development, countries must expand their internal
trade, which is the trade among the cities and the constituent states (a.k.a.
provinces or governorates), and their trade with neighboring countries. These
two initial steps, i.e., trading domestically and with neighboring countries,
are the cornerstone on which it’s possible later on to build a real cluster. Of
course, the goods that poor countries will initially trade will be primarily
raw commodities and products produced thanks to the utilization of a cheap
labor force. </span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In developing countries, a consistent part of the
economic activity is often located around the capital city primarily because of
the presence of several factors such as infrastructure, institutions, and
suppliers. So, quite often a new cluster might develop around the capital
center of a country. At the beginning, this phenomenon might speed up the
process because of the presence of the above-mentioned factors. But, on a
long-term horizon, and a cluster will always develop over a long-term horizon,
the closeness to the capital city might cause many problems such as an intrusive
role by the central government, which brings about many dysfunctional outcomes,
and higher production costs (think of congestion, bottlenecks, red tape, etc.).
</span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9AUsdvtOo-M8IVARwRyUo_4WvGZEwiPwA-GdWiJHu7aVtV6WbFA6dLmCak5DGYPRNJasa0muh-3Ojr9tUnXFFsaL9XQEL9Dm75A0_GP64q7TBsUOBa9FMnWVIwDiHDvLQlZ2GLjgv3_FB/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-1.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-1" border="0" data-original-height="444" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9AUsdvtOo-M8IVARwRyUo_4WvGZEwiPwA-GdWiJHu7aVtV6WbFA6dLmCak5DGYPRNJasa0muh-3Ojr9tUnXFFsaL9XQEL9Dm75A0_GP64q7TBsUOBa9FMnWVIwDiHDvLQlZ2GLjgv3_FB/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-1.jpg" title="BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-1" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div align="center" style="margin: 0px 0px 11px; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 107%; margin: 0px;">Norwegian Oil and Gas Cluster Map — Source: </span></i></b><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 107%; margin: 0px;">O. Leskinen, P. Klouman Bekken,
H. Razafinjatovo, and M. García “Norway Oil and Gas Cluster,” May 2012</span></i></b><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 107%; margin: 0px;"> </span></i></b></div>
</td></tr>
</tbody></table>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<br /></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">IS THERE
ALREADY A PETROLEUM CLUSTER IN BASRA GOVERNORATE? </span></b></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Is it possible to define the petroleum-sector
operations in Basra Governorate a petroleum cluster? The best answer is that in
Basra Governorate there is a very embryonic form of what, if properly
developed, could become a real oil and gas cluster. But, for several reasons,
Iraq’s petroleum industry has never been capable of overpassing this embryonic
stage—actually the most advanced developments have always been in Basra
Governorate thanks to its giant oil fields (Zubair was discovered in 1949,
Rumaila in 1953, West Qurna in 1973, and Majnoon in 1975) and the presence of
the only Iraqi coastline from which oil is exported.<span style="margin: 0px;"> </span></span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Between 1929 to 1961, Iraq’s oil industry was
under the virtual monopoly of the Iraq Petroleum Company (I.P.C., previously
known from 1912 as Turkish Petroleum Company, T.C.P.), which had complete
control on oil exploration and production. In 1928, it was decided the final
shareholder composition of what the following year would be renamed the I.P.C.
The shareholders were the Anglo-Persian Oil Company (today’s BP) with a 23.75
percent share, Shell with a 23.75 percent, Compagnie française des pétroles
(today’s Total) with a 23.75 percent share, the Near East Development
Corporation (representing the interest of five U.S. companies—among them there
were Standard Oil Company of New York (today’s Mobil), Standard Oil Company of
New Jersey (today’s Exxon) and Gulf Oil (today part of Chevron) with a 23.75
percent share, and Mr. Calouste Gulbenkian, an Armenian businessman, with a
nonvoting 5 percent share. Indeed, this company extracted oil in Iraq, but the
only goal was to deliver profit to the shareholders coupled with scarce
interest in helping the development of a local industrial sector. This was part
of the reasons concerning the very tense relationships between the Iraqi
government and the I.P.C. between 1961 and 1972, the year of the nationalization
of the I.P.C. operations.</span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">But, also after the nationalization, despite some
initial hope, there has never been the possibility of transforming Basra
Governorate into a full-fledged petroleum cluster. In fact, </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">in the last four decades, the Basra region has been
a battleground during the Iran-Iraq War and during the two Gulf Wars.
International sanctions such as the United Nations (U.N.) embargo after the
invasion of Kuwait didn’t help the economic prosperity of the governorate.
Moreover, after the 2003 invasion, the governorate one more time became a
center exposed to violence with </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">militia conflicts and resistance
acts against the Multinational Force and the new Iraqi government. At that
time, both simple criminality and sectarian violence increased. Only after
2008, was it possible to recreate a sort of peaceful environment in the
governorate. </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">All these wars have damaged the
economic infrastructure and have left, scattered throughout the region, a host
of mines and unexploded ordnance, which, as a result, necessarily slow the
economic development of the region.</span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">THE LOGIC
BEHIND THE IDEA OF WHY IRAQIS SHOULD DEVELOP A REAL PETROLEUM CLUSTER IN BASRA
GOVERNORATE </span></b></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Basra Governorate is and will continue to be in
the coming years the pillar around which will revolve Iraq’s petroleum
industry. Presently, the two main problems partially slowing the process of
developing Basra Governorate’s petroleum cluster are Iraq’s present technical
service contracts (T.S.C.s) and the on-the-ground security risks throughout
Iraq.</span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The T.S.C.s, which are established by the federal
government in Baghdad, create for the federal government some economic
difficulties under low oil prices. In fact, their structure obliges the federal
government to repay more or less the same fee to the international oil
companies (I.O.C.s) no matter what the oil prices are. And, of course, when oil
prices are low, the federal government sees an important reduction in its oil
revenue. Iraq has recently declared that it wants to review the structure of
the T.S.C.s in order to align them in a better way with the interests of both
the government and the I.O.C.s.</span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">With reference to on-the-ground security risks
throughout Iraq, it’s important to underline that Basra Governorate, despite
having been the theater of some terrorist attacks, has been saved from direct
and recurrent ISIS attacks, which, instead, have occurred for instance in </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Dhi Qar Governorate, another
Iraqi southern governorate</span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">. If anything, because the armed forces left
Basra Governorate in order to fight elsewhere ISIS, there has been an increase
in non-terrorist criminal acts in the governorate.</span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">But, Basra Governorate’s three main advantages
are:</span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
I<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">ts huge oil reserves; estimated oil in just
Rumaila, Majnoon, West Qurna 1, West Qurna 2, and Zubair amounts to 55.7
billion barrels,</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
I<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">ts very low final cost of producing a barrel of
oil, which stands at $10.57, one of the lowest in the world, and</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
I<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">ts vicinity to most of its petroleum final
buyers, which are located in Asia (India, China, and South Korea).<span style="margin: 0px;"> </span></span></div>
</li>
</ul>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Let’s now examine these three
advantages one by one. </span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">1 — HUGE OIL RESERVES — Iraq
has huge oil reserves and ranks fifth in relation to proven oil reserves at the
world level. At the beginning of 2017, Iraq’s Ministry of Oil declared that the
country’s proven reserves had increased to 153 billion barrels from a previous
estimate of 143 billion barrels. The increased estimate is the result of
appraisals and exploration carried out at seven oil fields in central and
southern Iraq. At least 60 percent of Iraq’s proven oil reserves are located in
Basra Governorate thanks to its five giant oil fields. The whole Iraq has more
than 70 oil fields, but only 30 percent of these are developed or partially
developed. </span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In this regard, last July, </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">the
Ministry of Oil in implementation of its plans announced the launch of a new
project to explore for, develop, and produce a number of borderline onshore and
offshore exploration blocks and oilfields in south and middle Iraq. In
practice, of the nine blocks included in this project, five are in Basra
Governorate. They are: the three blocks Khudher Al-Mai, Jebel Sanam (Jabal
Sanam) and Al Fao on the Kuwaiti border, the Sindibad block (including the
Sindibad oilfield, which is jointly owned by Iraq and Iran, and which could
have 3 billion barrels of recoverable oil) along the Iraqi-Iranian borderline,
and the Arabian Gulf block in the Arabian Gulf.</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">2 — LOW FINAL PRODUCTION COST — I</span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">t’s correct to affirm that there are different qualities
of crude oil according primarily to the A.P.I. degrees and the sulfur content
(A.P.I. degrees and sulfur content are the main factors establishing the price of
a specific barrel in relation to a selected benchmark), but, in the end, oil is
a commodity, and as such it’s fungible, which means that the market will treat
the produced commodity batches as equivalent or almost equivalent disregarding
the location from where the commodity was sourced. In addition, with
commodities, producers are price takers, which means that the market price will
be the cost required to cover the production cost of the highest-cost producer
necessary to satisfy the last barrel of oil required by world demand. In
practice, under a price-taker logic, the best place to extract crude oil will
always be the oil-producing countries with the lowest final production costs,
i.e., Kuwait, Saudi Arabia, Iraq, and Iran. Also, Russia would have, at least
until now, a quite competitive pure production cost, but, then, when taxes kick
in, the final production cost almost doubles.</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfGTkLOxE3LsvxGWuuj9L7HZNGTMvLsGyU_IgE5CS9QH6n7AzE7hIBCK3ZaB7Nh7xJHA2FWR5FeArtoEIQZb047vNghwscJ8ZCCrLZ2eb8VYOSTmxncaw_mNwfFN4hMLBL_K0sWBNyelnj/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-2" border="0" data-original-height="495" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfGTkLOxE3LsvxGWuuj9L7HZNGTMvLsGyU_IgE5CS9QH6n7AzE7hIBCK3ZaB7Nh7xJHA2FWR5FeArtoEIQZb047vNghwscJ8ZCCrLZ2eb8VYOSTmxncaw_mNwfFN4hMLBL_K0sWBNyelnj/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-2.jpg" title="BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-2" /></a></div>
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">3 — PROXIMITY TO FINAL BUYERS
— With reference to trade, distance still matters. Some years ago, Professor
Pankaj Ghemawat of Stern Business School developed “The CAGE Distance
Framework,” a tool that pictures distance between two trading countries
according to four basic dimensions: cultural, administrative, geographic, and
economic. These dimensions form the acronym CAGE, and each type of distance
influences the different businesses in different ways. When dealing with
commodities, some features of the four dimensions are toned down. For instance,
one thing is to sell to a country an item that could infringe or touch
negatively on the social norms of the purchasing country, another thing is to
sell a commodity, like crude oil, which is universally accepted throughout the
world.</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In general, the farther a
country is from another country, the harder it will be to do business with that
country. Other elements are for instance “the physical size of the country,
average within-country distances to borders, access to waterways and the ocean,
and topography.” It’s self-evident that geographic distance has a relevant
impact when considering communications and the cost of transportation. So,
geographic distance could be an important obstacle to trading heavy or bulky
products, or products requiring a high degree of coordination between the involved
trading partners. Indeed, crude oil has a very much higher value-to-weight
(bulk ratio) than for example cement, but still crude oil operations require a
lot of coordination and a specific infrastructure.</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In relation to Iraq’s oil
exports, a look at the map well clarifies how Iraq, and this is true of all the
Persian Gulf oil producers, may well serve the Asian and the European markets.
As the pie chart below shows, in 2015, Asia, collecting a 56 percent share, was
the main regional destination for Iraq’s crude oil. In specific, India and
China both received a 19 percent share, while South Korea received a 12 percent
share. The second-most-important market for Iraq’s crude oil was Europe, which
received a 26 percent share. In Europe, the two most important buyers were
Greece and Italy, both receiving a 5 percent share.</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi1rYDBfa0OIjlwNn5ENI5ujFyvtCfbk7_tiSPcs8XhOZX8BdRulur2PoON0cTuxAGD4NHMvS0Tyx38OUI4at6-_z3Pb0P6Hkc05HdPDIfgiMsY6PASoEllfywvSKU9X6NztZIF-hQRDMVA/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-3.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-3" border="0" data-original-height="438" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi1rYDBfa0OIjlwNn5ENI5ujFyvtCfbk7_tiSPcs8XhOZX8BdRulur2PoON0cTuxAGD4NHMvS0Tyx38OUI4at6-_z3Pb0P6Hkc05HdPDIfgiMsY6PASoEllfywvSKU9X6NztZIF-hQRDMVA/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-3.jpg" title="BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-3" /></a></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In other words, the three
mentioned advantages guarantee that Basra Governorate will be of one of the
world’s main centers of oil production also in the coming years. And, in light
of geopolitical considerations, Basra Governorate will retain this position no
matter what Iraq’s future institutional framework will look like. The only real
problem, which is common to all the Persian Gulf countries, is a blockade of
the Strait of Hormuz. In reality, the possibility of this problem, although
remote, has always been present since at least the Iranian Revolution in 1979,
but it never refrained national oil companies (N.O.C.s) and international oil
companies (I.O.C.s) from working in the Persian Gulf. So, investors should be
reassured that investing in Basra Governorate is a viable option. </span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Once it’s understood that
Basra Governorate has abundant and cheap oil reserves close to its relevant
markets in Asia (and in Europe as well), it is quite normal that the next step
should be to develop what today is a sort of embryonic petroleum cluster into a
more defined petroleum cluster, which could serve in a better way the interests
of Iraq’s petroleum sector for the coming years.<span style="margin: 0px;"> </span></span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"> </span></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">BASRA
GOVERNORATE’S EMBRYONIC PETROLEUM CLUSTER</span></b><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<u><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">OIL &
GAS REGULATORY FRAMEWORK</span></u><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> — One first point to
understand when talking about the development of a petroleum cluster in Basra
Governorate is that we are examining a regional cluster whose main business
activity is petroleum production, which is instead granted and regulated at the
federal level. In fact, the legal framework regulating petroleum activities in
Iraq is based on some very general provisions in the Iraqi Constitution of 2005
(in specific, on Article 109). </span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMK_NAX-FP2gZbY-9oJXqunp0cCxuBX2XTlWRzo4gbODEknrsPTESwarJdcMyltVDD9BfXCvj90VLLwSz26p6GgQn9aNYk8fupCvmSpFh73xVerRtxo9ZWZ2SOpe5GeMOwScevUSK4XgVr/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-4.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-4" border="0" data-original-height="467" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMK_NAX-FP2gZbY-9oJXqunp0cCxuBX2XTlWRzo4gbODEknrsPTESwarJdcMyltVDD9BfXCvj90VLLwSz26p6GgQn9aNYk8fupCvmSpFh73xVerRtxo9ZWZ2SOpe5GeMOwScevUSK4XgVr/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-4.jpg" title="BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-4" /></a></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Since the nationalization of
the hydrocarbon sector in 1972, the central government has been in control of
the hydrocarbon sector. Sadly, the regulatory framework of the hydrocarbon sector
in Iraq is quite uncertain as a consequence of several different laws and
regulations resulting from the changes over the years in the political system
of the country. On top of this, in Iraq there is no federal oil and gas law
yet. This law, which is required by Art. 120 of the Constitution, has been
under review since 2007. Political infighting has impeded the possibility of
passing this law. In sum, in addition to the Constitution, petroleum activities
are regulated directly or indirectly by some other laws with the result of
regulatory uncertainty. Among the most important laws there are:</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<ul style="text-align: left;">
<li><div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Ministry of Oil Law No. 101 of
1976 (amended)</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Law No. 27 of 2009 on the
Protection and Improvement of the Environment</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Investment Law No. 13 of 2006</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Oil Products Import and Sale
Law No. 9 of 2006 </span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Provincial Law No. 21 of 2008</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">International Oil Companies
Income Tax Law No. 19 of 2010 </span></div>
</li>
</ul>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The Oil Ministry has the
control and oversight over oil and gas exploration and production in Iraq.
Since 2009, the ministry has held four licensing rounds, which have resulted in
the signature of a number of T.S.C.s with several I.O.C.s. The signed T.S.C.s
have formed unincorporated joint ventures each including I.O.C.s and one of the
Iraqi state-run petroleum companies. Presently, there is no royalty, although
the idea is that a 12.5 percent royalty will be introduced by the Federal Oil
and Gas Law, once this is approved. Corporate income tax (C.I.T.) is capped at
35 percent. </span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Petroleum companies operating
in Iraq are subject to Law No. 11 of 2010 for the protection of local products
(limits to the import of goods if these are manufactured in Iraq as well) and,
according to Law No. 13 of 2006 (Investment Law) have to give priority in
recruiting and employment to Iraqi workers. Moreover, companies operating in
Iraq need to open a branch in the country. With reference to transportation of
crude oil and associated products, the Oil Pipelines Company, which is a state
entity under the Ministry of Oil, owns and maintains the pipelines, marine
vessels, and tanker trucks used for these operations. All internal and external
sales are conducted by </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Iraq’s State Organization for Marketing of Oil </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">(SOMO).</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The governorates don’t have
authority over the oil revenue and depend on the federal government’s revenue
transfers. It’s the State Budget Law that determines the amount of revenue
shared. Specifically, funds are transferred on the basis of the Regional
Development Program transfers, the petrodollar allocation, and for the
Kurdistan Regional Government (K.R.G.) some specific transfers. The first ones
are linked to the governorates’ population. The second ones consist in a
monetary compensation for every barrel of oil produced, for every barrel of oil
refined, and for each 150 cubic meters of natural gas produced by every
governorate—the K.R.G. is excluded from the petrodollar allocation as well as
Diyala Governorate and Karbala Governorate, which don’t produce oil. </span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<u><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">DETERMINANTS
OF BASRA GOVERNORATE’S DIAMOND ADVANTAGE</span></u><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> — As Professor Porter pointed out in his paper “The
Competitive Advantage of Nations” (1990), </span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">“National prosperity is
created, not inherited. It does not grow out of a country’s natural endowments,
its labor pool, its interest rates, or its currency’s value, as classical economics
insists. A nation competitiveness depends on the capacity of its industry to
innovate and upgrade.” </span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">It’s evident that industries strongly dependent on the
extraction and export of natural resources have a reduced necessity to innovate
and upgrade than have for example the communications or the pharmaceutical
industry. But, it’s also true that an improved competitiveness always advances
positively the economic results of industrial sectors based on natural
resources as well. Norway is a good case in point. Today, it has developed a
competitive oil and gas cluster, and its companies have internationalized and
compete at the world level. Statoil, Norway’s multinational oil and gas company
has now operations in 36 countries.</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">An analysis of the Diamond of National Competitiveness,
in our case, an analysis of the Diamond of Basra Governorate Advantage, with
its four attributes—1) Factor Conditions, 2) Demand Conditions, 3) Related and
Supporting Industries, and 4) Firm Strategy, Structure and Rivalry—well
explains where the competitive advantage is for Basra Governorate.</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQYr_xhVbSQUfoaTPqlVg3gf67aeqvJ9WTZomjjuRnu9ksN0ybR7jdna3UZKvnFkZr9H4f0B0Lt9yGd-hnFD1wfg_yFTo1tTZ6dE-_JTCm1haR2dlrwfga6uXvXcv2-fcULnWNDlqiKMwM/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-5.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-5" border="0" data-original-height="467" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQYr_xhVbSQUfoaTPqlVg3gf67aeqvJ9WTZomjjuRnu9ksN0ybR7jdna3UZKvnFkZr9H4f0B0Lt9yGd-hnFD1wfg_yFTo1tTZ6dE-_JTCm1haR2dlrwfga6uXvXcv2-fcULnWNDlqiKMwM/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-5.jpg" title="BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-5" /></a></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">With reference to FACTOR CONDITIONS, it’s possible to
notice how here lies the real competitive advantage of Basra
Governorate—although when there is an important supply of raw materials,
governments and companies could rest on these and do business as usual. Iraq
ranks fifth in relation to proven crude oil reserves with 153 billion barrels,
of which around 60 percent are in Basra Governorate. Similarly, Iraq ranks 11<sup>th</sup>
in relation to proven natural gas reserves with </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">3,7 trillion cubic meters
of natural gas, of which around 70 percent are in Basra Governorate. These
crude oil reserves are also very cheap to extract. The presence of a natural
access to the sea is then of paramount importance for the export of products
from Basra Governorate. The ports of the governorate (in specific, the two oil
terminals) are perfectly positioned to serve Asia’s petroleum buyers. </span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Basra Governorate’s climate
conditions are harsh because the governorate has a hot desert climate. In the
summer, Basra Governorate is one of the hottest areas on the planet with
temperature regularly exceeding 50 degrees Celsius. In addition, the frequency
of dust storms has increased drastically in the last decade. Dust storms have a
very harsh impact on both human’s health and economic activities. Dust storms,
if severe, might disrupt the operations of crude oil loading at the Basra oil
terminals.<span style="margin: 0px;"> </span></span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"><br /></span></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The conditions of the general
infrastructure are not good. Houses, roads, and </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">hospitals
need all consistent improvement because of the violent acts and the poor
maintenance of the last forty years. Access to clean water, electricity, roads,
and sewages remains limited. For instance, the city of Basra has a complex
network of canals and streams, which historically were used to transport goods
and people throughout the city, but pollution and a reduction in the water
level have rendered navigation impossible.<span style="margin: 0px;">
</span></span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<br /></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">According to the World Bank’s Ease of Doing
Business, a report tracking changes in regulations affecting 11 areas in the
life cycle of a business, Iraq (and this is true for Basra Governorate) is
ranked 165 out of 190 countries. In specific, Iraq needs to speed up the
procedure to start a business, to get credit, to trade across borders, and to
resolve insolvency. Skilled labor is scarce because of the deterioration of
Iraq’s public education institutions (schools and universities) sapped over the
last thirty years of the proper financing amid tough sanctions, the 2003
invasion, and the sectarian fights. Instead, before 1991, Iraq had one of the
best educational systems in the Middle East.</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzn_lK1Jen_957QYKhrKU60l2WankO_5jjzaUD7ygb-090Igkvk4sn2HEmukRgVF4rs7RK5nnwNHXJZnL7lSw2wxsRKRSPHb_0uIZd5zWSBN7i3ZnTAD7LpOJfthsMiWz2vDgmOKm9u4VS/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-6.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-6" border="0" data-original-height="449" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzn_lK1Jen_957QYKhrKU60l2WankO_5jjzaUD7ygb-090Igkvk4sn2HEmukRgVF4rs7RK5nnwNHXJZnL7lSw2wxsRKRSPHb_0uIZd5zWSBN7i3ZnTAD7LpOJfthsMiWz2vDgmOKm9u4VS/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-6.jpg" title="BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-6" /></a></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">With reference to DEMAND CONDITIONS, crude oil
extraction is primarily carried out to export it to foreign destinations, but
at the same time, Basra Governorate’s associated natural gas—two thirds of this
gas is still flared—will assume always a more preponderant role in generating
electricity in Iraq. There is an already important demand for natural gas as
feedstock to some power plants, which technically should run on natural gas,
but, because natural gas is not available yet, they run on fuel oil. Current
power generation in Iraq, now at 13 gigawatts, makes up only a quarter of the
demand (around 42 gigawatts)—the oil and gas industry is the largest consumer
of electricity.</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">So, there is an important potential demand for
natural gas, which until now hasn’t been satisfied because of many
infrastructural and policy gaps. In practice, the low natural gas price and the
bad (or in some cases non-existing) infrastructure to transport it make
investments in the gas sector not very interesting to the private sector considering
the low profits. It would be necessary to increase the price of gas and/or to
privatize the distribution of electricity because in this way it would be
possible to incentivize natural gas investments, but this decision has been
postponed until now for fear of popular protests against these unpopular moves.
</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The government, via its state-owned South Gas
Company, purchases gas from the companies at prices higher than the prices at
which it then resells the gas to the final consumers. On a long-term basis this
is unsustainable. According to Shell, in 2013, this wasted demand for natural
gas would have generated 4.5 gigawatts capable of covering the needs of 3
million homes. Importing Iranian natural gas into Iraq, which flares its own
natural gas, is indeed quite strange.</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">At the same time there is a request for refined
petroleum products (the downstream part of the oil and gas value chain).
According to the U.S. Energy Information Administration (E.I.A.), most of
Iraq’s petroleum consumption comes from the country’s internal oil refineries,
but at the same time the country must import around 100,000 b/d of petroleum
products. It would also be economically appealing to Iraq to enlarge its
petrochemical industry, which is an industry related to the oil and gas
cluster, both for the domestic consumption and for exporting petrochemical
products to Asia.</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">With reference to CONTEXT FOR FIRM RIVALRY AND
STRATEGY, it’s important to make a distinction concerning projects under public
direction in Iraq. On the one side, there are the projects in the petroleum
(oil and gas) sector (upstream, midstream, and downstream) under the direction
of the federal government through the Ministry of Oil, and the projects in the
electricity and petrochemical sectors, which are industries related or
supporting to the petroleum sector, under the direction of the Ministry of Electricity and the
Ministry of Industry and Minerals. On the other side, there are projects under
the direction of the Basra Provincial Council with attention given to agriculture
and certain sectors of the economy that are out of the federal jurisdiction.</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">As for the petroleum projects, the interested
companies normally proceed through licensing rounds. And it is at the tender
level that rivalry among the companies interested in developing a project is
carried out. In the petroleum sector, where the government has organized four
licensing rounds from 2008 until now, the consortium winning a licensing round
is constituted always by I.O.C.s (but there may be also only one I.O.C. in a
consortium, as it is now the case in relation to West Qurna 2 with Lukoil) and
an Iraqi state-run petroleum company. So, once, a license is assigned, it’s not
any longer a matter of rivalry, but it’s more a process of respecting deadlines
and implementing the correct payments among the involved parties.</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Projects pertaining to the petroleum sector (oil
and gas)—but this is true also for the related or supporting industries such as
the electricity and the petrochemical sector—all involve relevant capital
investments. This means that most of the companies involved in these projects
are large and financially sound companies with a wide portfolio of investments.
Moreover, because especially in the oil and gas sector, projects are carried
out by consortiums, it takes a long time between the ideational phase of a
project and its implementation. Summing up, on the one side, there are good
financial guarantees, but on the other side, there are long-lead times and
rigidity in the implementation among the involved parties.</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">With reference to RELATED AND SUPPORTING
INDUSTRIES, there are at least two big industrial sectors linked to the
petroleum sector in Iraq. They are the electricity and the petrochemical
sectors; their projects are carried out via tenders. In general terms, these
two sectors are the necessary corollaries to a large petroleum sector as the
one present in Basra Governorate because they permit a country to monetize in a
better way on the extraction of oil and gas. The problem in Basra Governorate
is that there is the need that these two related/supporting sectors are fully
developed as soon as possible, but for the time being they are still in their
infancy. Basra Governorate, in behalf of the whole Iraq, needs more gas-fired
power plants and more petrochemical factories.</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<br />
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In addition, there are very few local suppliers,
especially in relation to maintenance and of course all the issues involving
machinery components. This is a real issue because often the contracts in the
petroleum sector as well as in the two above-mentioned related sectors have
strict local content requirements, such as provisions given to Iraqi workers
for employment and to locally produced goods and services. Part of the problem
of the lack of local suppliers is related to the difficulties that Iraqis have
in securing loans from the local banks in order to finance the creation of
Iraqi small and medium enterprises (S.M.E.s). Banks need collateral guarantees,
but if the applicant doesn’t have them, it will be impossible for the applicant
to secure a loan. Instead, larger projects can benefit from bilateral and
multilateral assistance in forms of loans and grants from development financial
institutions (for instance the International Finance Corporation and the
Multilateral Investment Guarantee Agency—both institutions are members of the
World Bank Group) and the national export credit agencies.</span></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSW4yPxh27g24RYnn8YSPVGjbaSSFN_PDQYRqTWJ6nl9UtK6-YN6vFH50DATddd4g84HTt1cKL7lCuNswkfAokQg74gp1bxk6Zo7rh0XYM5Ocj2UG3SVWO6rIqZdVYBDx8Hs7tc5p3qaPp/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-7.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-7" border="0" data-original-height="467" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSW4yPxh27g24RYnn8YSPVGjbaSSFN_PDQYRqTWJ6nl9UtK6-YN6vFH50DATddd4g84HTt1cKL7lCuNswkfAokQg74gp1bxk6Zo7rh0XYM5Ocj2UG3SVWO6rIqZdVYBDx8Hs7tc5p3qaPp/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-7.jpg" title="BACCI-Basra-Governorate-Petroleum-Cluster-PartB-Oct.-2017-7" /></a></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<br /></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<br /></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<br /></div>
<div style="background: white; line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"> </span></span></div>
</div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-52681453895119110692017-10-23T18:25:00.000+03:002017-10-25T14:01:47.985+03:00Basra Governorate’s Petroleum Cluster (Part A) <div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgY0S-rXOIdLIobFB8QSKmdr9NElZ2A6OWOrzPRMoA43qvd4dxMB9okwKEkmd-b4k3biQYRbismk1HFRnobPx0kdLsTS2_jUzhDQKGKQFxGEq2CZ2xI_NA1kAqSObCTaSh4aZ-LSYzlTQV2/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-Cover" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgY0S-rXOIdLIobFB8QSKmdr9NElZ2A6OWOrzPRMoA43qvd4dxMB9okwKEkmd-b4k3biQYRbismk1HFRnobPx0kdLsTS2_jUzhDQKGKQFxGEq2CZ2xI_NA1kAqSObCTaSh4aZ-LSYzlTQV2/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-Cover.jpg" title="BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-Cover" /></a></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: right;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span><br />
<div style="text-align: center;">
</div>
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">
<div align="center" style="line-height: 200%; margin: 0px 0px 11px; text-align: center;">
<b><span lang="EN" style="color: black; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The article “<a href="http://www.cwcbasraoilgas.com/basra-governorates-petroleum-cluster-part-a/" rel="nofollow" target="_blank">Basra Governorate’s Petroleum Cluster (Part A)</a>” has been initially published by the <a href="http://www.thecwcgroup.com/" rel="nofollow" target="_blank">C.W.C. Group</a>, an energy
and infrastructure conference, exhibition and training company</span></b></div>
<div style="text-align: center;">
</div>
<div style="text-align: center;">
<br /></div>
</span><b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">October 23, 2017</span></b></div>
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">LONDON, United Kingdom</span></b></div>
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">INTRODUCTION</span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The events of the last years have been quite
complicated for Iraq because of divisions at the political level, reduced
revenues from the sale of crude oil (low oil prices), and the costs of waging a
war against the Islamic State of Iraq and Syria (ISIS), which had conquered
large swaths of central and western Iraqi territory. Now, thanks to improved
results in the war against ISIS, it’s time for Iraq to focus again on
developing the country’s struggling economy. In this regard, some months ago,
Foreign Minister Ibrahim Al Jaafari declared that Iraq needed a sort of new
Marshall Plan, hinting at the American initiative to aid Western Europe after
World War II. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">At the end of October 2017, the C.W.C. Group, a <span style="margin: 0px;">world-leading<b> </b>events</span> <span style="margin: 0px;">and training producer</span> for the <span style="margin: 0px;">oil, gas and infrastructure</span> industries,
will host in Beirut, Lebanon, the Basra Oil Gas and Infrastructure Conference. </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The conference will be a gathering
point for government officials, projects stakeholders, buyers and sellers
working in the southern part of Iraq across several industries in three primary
business segments: oil and gas, power, and petrochemicals (first segment),
infrastructure and construction (second segment), and transport and logistics
(third segment).</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The timing, the economic
topics, and the geographic target of this conference are quite correct. In
fact, if, on the one hand, as mentioned above, now, after some positive advances
in the war against ISIS, Iraq is obliged to improve and reinforce its economy,
on the other hand, it’s almost impossible to develop Iraq’s economy without
developing Basra Governorate’s economy.<span style="margin: 0px;">
</span>Basra Governorate, whose capital is the city of Basra (Iraq’s third
largest urban center), represents the economic powerhouse of the whole Iraqi
state. Last April, Iraq’s Parliament voted unanimously to consider Basra
Governorate as Iraq’s economic capital. A few data will clarify this concept. </span></div>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiU9fEuOKqS_UzdYaC3xH-pd0I3QitDj6J_Qfvgrsj8UYD1soZC-IlDU01t8nHKv9FPC6Wtat2n7lWwou_iQC64LxYZ2jh_orM6aR44YoheNhwTQzco9GyZGv2wU4fYF5P1QzB71wEN-EKh/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-1.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-1" border="0" data-original-height="731" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiU9fEuOKqS_UzdYaC3xH-pd0I3QitDj6J_Qfvgrsj8UYD1soZC-IlDU01t8nHKv9FPC6Wtat2n7lWwou_iQC64LxYZ2jh_orM6aR44YoheNhwTQzco9GyZGv2wU4fYF5P1QzB71wEN-EKh/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-1.jpg" title="BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-1" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div align="center" style="margin: 0px 0px 11px; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 107%; margin: 0px;">Map of Basra Governorate — Source: Google Maps</span></i></b></div>
</td></tr>
</tbody></table>
<br />
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">OVERVIEW OF BASRA GOVERNORATE’S ECONOMIC CONDITIONS</span></b><br />
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Today, Iraq’s economy
is the world’s most dependent on oil. Approximately 58 percent of the country’s
G.D.P. and 99 percent of its exports are hydrocarbons; oil provides more than
90 percent of government revenues and 80 percent of foreign exchange earnings.</span></div>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhbE-YsWIqJAXuYOaN0E42caYZ7UR5ynCSK6H-e8cRP9uXKttbNYZ-FTGvNtDesXqdlMEArUvAWzSnnnbhS2jvVbYTjmtmkTVdxNdB_XmCVEz9McWtUdVITOpNeqppNwvWEtO2cJGG0uerS/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-2.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-2" border="0" data-original-height="561" data-original-width="800" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhbE-YsWIqJAXuYOaN0E42caYZ7UR5ynCSK6H-e8cRP9uXKttbNYZ-FTGvNtDesXqdlMEArUvAWzSnnnbhS2jvVbYTjmtmkTVdxNdB_XmCVEz9McWtUdVITOpNeqppNwvWEtO2cJGG0uerS/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-2.jpg" title="BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-2" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div align="center" style="line-height: 150%; margin: 0px 0px 11px; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 150%; margin: 0px;">What Did Iraq Export in 2014? —
Source: The Atlas of Complexity, Harvard University</span></i></b></div>
</td></tr>
</tbody></table>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In fact, of Iraq’s more
than 4.4 million barrels of oil per day (b/d), 85 percent of the barrels are
produced under the terms of technical service contracts (T.S.C.s.) by the giant
oil fields of southern Iraq. Majnoon, Rumaila, West Qurna (1 & 2), and
Zubair are located in Basra Governorate; Halfaya is located in Maysan
Governorate. Below there is some additional information regarding Basra
Governorate’s giant oil fields.</span></div>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLGkrvicyDsccHIuiZUGHzshTxwy80IbhRzJe6REAhgv7o-1R98VqUQkvZzGvvDgEdCVw5dLYrSXF_-f-L1ZoN_dBguDV6UxMFpBRvKRGO0KOOo55vmlcaV608uelJtfIv0cOcQ97Gp14u/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-3.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-3" border="0" data-original-height="1441" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLGkrvicyDsccHIuiZUGHzshTxwy80IbhRzJe6REAhgv7o-1R98VqUQkvZzGvvDgEdCVw5dLYrSXF_-f-L1ZoN_dBguDV6UxMFpBRvKRGO0KOOo55vmlcaV608uelJtfIv0cOcQ97Gp14u/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-3.jpg" title="BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-3" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div align="center" style="line-height: 150%; margin: 0px 0px 11px; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 150%; margin: 0px;">Basra Governorate’s Giant Oil
Fields — Source: A. Bacci’s Elaboration of a Map by The Oil and Gas Year (TOGY)</span></i></b></div>
</td></tr>
</tbody></table>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<u><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Majnoon</span></u><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> — Shell (45%), Petronas (30%), and
Iraq's state-run Missan Oil Company (25%). Production: 235,000 b/d. Estimated
oil in place: 12,6 billion barrels. A.P.I. gravity: 19 to 33 degrees. </span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<u><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Rumaila</span></u><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> — BP (47.6%), China National
Petroleum Corporation (C.N.P.C., 46.4%), and Iraq’s State Organization for
Marketing of Oil (SOMO, 6%). Production: 1.45 million b/d. Estimated oil in
place: 17 billion barrels. A.P.I. gravity North Rumaila: 26.3 to 48 degrees.
A.P.I. gravity South Rumaila: 12 to 45.9 degrees. </span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<u><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">West Qurna 1</span></u><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> — Exxon Mobil (33%), PetroChina
(25%), Shell (20%), Iraq's state-run Oil Exploration Company (12%) and Pertamina
(10%). Production: 470,000 b/d. Estimated oil in place: 8.7 billion barrels.
A.P.I. gravity: 22.5 to 46 degrees.</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<u><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">West Qurna 2</span></u><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> — Lukoil (75%) and Iraq's
state-run Basra Oil Company (B.O.C., 25%). Production: 413,000 b/d. Estimated
oil in place: 12.9 billion barrels. A.P.I. gravity: 22.5 to 46 degrees.</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<u><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Zubair</span></u><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> — Eni (32.81%), Iraq's state-run
Missan Oil Company (25%), Iraq's state-run Basra Oil Company (B.O.C., 23.44%),
Korea Gas Corporation (18.75%). Production: 400,000 b/d. Estimated oil in
place: 4.5 billion barrels. A.P.I. gravity: 27.5 to 40 degrees.</span></div>
</li>
</ul>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Unquestionably, the
bulk of Iraq’s proven oil reserves is in the south of the country and, in
specific, 60 percent of all Iraq’s proven oil reserves should be located in
Basra Governorate), while more than 3 million barrels a day of oil are exported
from Basra Governorate. Two types of crude oil are exported: Basra Light Oil,
which has an A.P.I. gravity of 29.7 degrees and sulfur content at 2.85 percent and
Basra Heavy Oil, which has an A.P.I. gravity of 23.7 degrees and sulfur content
at 4.12 percent. </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The
Basra Oil Company (B.O.C., previously known as South Oil Company, S.O.C.) has
its headquarters in Basra. It’s the national Iraqi company in charge of the oil
development in southern Iraq.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">As Wood
Mackenzie, a U.K. consulting firm, reported, Iraq’s T.S.C.s relating to the
southern governorates since 2009 have added 2.3 million b/d (70 percent of the
added barrels are growth, while the remaining 30 percent of the barrels are
offsetting baseline decline). Indeed, this increase is an important achievement,
but Iraq is currently still quite far from its plateau production target
(P.P.T.) of 8 million b/d of crude oil production, which has to be achieved
primarily through the expansion of the oil fields located in southern Iraq.</span></div>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhThH-syU7ynpmKeGpNSblDiFK09eXus5DKRNgeA3IdSdl9y0IXFGSDs7Y0Mg7BwqZWN_pnpyIfaVoSa0Is5xrXj21-8PvflKJ9qw604ZvogIoetwztXnakpFu22PTxt-bktPyJQhLnjdmh/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-4.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-4" border="0" data-original-height="467" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhThH-syU7ynpmKeGpNSblDiFK09eXus5DKRNgeA3IdSdl9y0IXFGSDs7Y0Mg7BwqZWN_pnpyIfaVoSa0Is5xrXj21-8PvflKJ9qw604ZvogIoetwztXnakpFu22PTxt-bktPyJQhLnjdmh/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-4.jpg" title="BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-4" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div align="center" style="line-height: 150%; margin: 0px 0px 11px; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 150%; margin: 0px;">The Oil Production of the Oil
Fields Located in Basra Governorate — Source: A. Bacci’s Elaboration of a Chart
by Wood Mackenzie</span></i></b><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 150%; margin: 0px;"></span></div>
</td></tr>
</tbody></table>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">One of the
reasons for the delay in increasing oil production in southern Iraq is the very
slow development of the Common Seawater Supply Project (C.S.S.P.) in Basra
Governorate. In practice, to obtain a production increase as high as the one envisaged
by the P.P.T., the southern oil fields require substantial increases in natural
gas and/or water injection to maintain the reservoir pressure. B.O.C. is
undertaking the C.S.S.P., a project that initially should have been able to provide
the southern oil fields with around 12 million b/d of desalinated water to
reinject into the oil fields. The plan is to treat seawater from the Persian
Gulf and to transport it via pipeline to the oil fields. The project is estimated
to cost $4 to $6 billion. But this project is not progressing according to the
planned timetable. Currently a scaled-down version (2.5 million b/d of water) of
the project is in the works.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">With
reference to natural gas, at the end of 2015, Iraq had total proven natural gas
reserves of 3,7 trillion cubic meters of natural gas. Approximately 70 percent
of the country’s proven natural gas reserves are associated gas located in
southern Iraq. In 2015, Iraq produced 6.1 million tons of oil equivalent of
natural gas—this value is expected to more than double by 2021. The gas
produced is primarily used for power generation, but around two thirds is still
flared. Basra Gas Company (B.G.C.), which is a joint venture between Iraq’s South
Gas Company (51 percent), Shell (44 percent), and Mitsubishi (5 percent) was
established in 2013 with the specific goal of collecting and treating the until-then-flared
gas from Rumaila, West Qurna 1, and Zubair—the cost of this agreement, which
will last for 25 years, is $17 billion. This project is the largest
flare-reduction program in the world. The processed associated gas is
transformed into dry gas for power generation, liquified petroleum gas (L.P.G.,
i.e., propane and butane) for domestic use, and condensates for road fuels. The
company is authorized to export the gas (in the form of liquified natural gas,
L.N.G.) once the local demand is satisfied. Basra Governorate will need to build
more gas-fired power plants in order to absorb all the produced associated gas.
</span></div>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEguHrOHdVvhS6xZYxrqba6shjg23KskcDk6eGcYSOFVSorcPs8E5fbiC_k12EKyLN0zBhoh30u3X3NO-iVh4GIFiAj8lBtg5zl39FR-Bb_YAtwFMFP4NFS4Bzl45FRWFuwF9OJn2anl-fAu/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-5.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-5" border="0" data-original-height="334" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEguHrOHdVvhS6xZYxrqba6shjg23KskcDk6eGcYSOFVSorcPs8E5fbiC_k12EKyLN0zBhoh30u3X3NO-iVh4GIFiAj8lBtg5zl39FR-Bb_YAtwFMFP4NFS4Bzl45FRWFuwF9OJn2anl-fAu/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-5.jpg" title="BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-5" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div align="center" style="line-height: 150%; margin: 0px 0px 11px; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 150%; margin: 0px;">Source: Basra Gas Company</span></i></b><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 150%; margin: 0px;"></span></div>
</td></tr>
</tbody></table>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Basra’s
refinery has a nameplate capacity of 210,000 b/d out of something more than 1.1
million b/d in the whole Iraq (including Iraqi Kurdistan). But, according to
the U.S. Energy Information Administration (E.I.A.), it is more realistic to
assume an effective capacity of 135,000 b/d. There are now plans concerning the
construction of a second refinery in Basra with a refining capacity of 300,000
b/d. Several companies have expressed interest in this project. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Iraq, as
many other MENA countries, needs to satisfy a relevant increase in the demand
for electrical power. Last summer, with temperatures touching 52 Celsius
degrees in Basra Governorate, as people used their air-conditioners, demand for
electricity soared so consistently that blackouts were quite ordinary. Recently,
Japan International Cooperation Agency (JICA) has signed a loan agreement with
the Republic of Iraq in Baghdad to provide a Japanese official development
assistance (ODA) loan to help Iraq retrofit the Al Hartha Thermal Power Plant
(feedstock: gas and oil) in Basra Governorate, which had been built in the
1970s by a Japanese company and had been equipped with four 200 MW units, two
of which have not been working since the Fist Gulf War. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">So, today,
in Basra Governorate electricity is generated by the following power plants:</span></div>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The Al
Hartha Thermal Power Plant (feedstock gas and oil, two 200 MW turbines) </span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The
Najibiyah Thermal Power Plant (feedstock gas and fuel oil, two 100 MW turbines)</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The Al Harta
Gas Power Plant (six 20.4 MW turbines)</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The Khor Al
Zubair Gas Power Plant (four 63 MW turbines and two 125 MW turbines)</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The
Najibiyah Gas Power Plant (four 125 MW turbines)</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The Shuaiba-2
Gas Power Plant (two 75 MW turbines)</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The Rumaila
Gas Power Plant (five 292 MW turbines)</span></div>
</li>
</ul>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">And since
the beginning of 2016, natural gas from </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">the
Majnoon oil field is contributing some fuel to Iraq’s power grid, producing in
this way around 300 MW. In addition, Iran will soon supply 5 million cubic
meters of natural gas per day via a pipeline to Basra Governorate. The pipeline
runs from the city of </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Ahvaz, the provincial
capital of Khuzestan, to Khorramshahr and then to the border between Iran and Iraq.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Indeed, the above data concerning the power plants
show that there is some infrastructure to generate electricity, but this
infrastructure has to be improved and expanded consistently. An additional problem
is that there is not enough natural gas to deliver to the present gas power
plants. And this is the reason for the future natural gas imports from Iran
into Basra Governorate with the specific goal of feeding gas to the </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Rumaila Gas Power Plant, the
Najibiyah Gas Power Plant, and the Shatt Al Basra Power Plant. The latter is still
a project relating to the construction of a gas power plant with 10 turbines
capable of producing 1,250 MW.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Additional
activity in Basra Governorate is centered around the petrochemical industry.
The State Company of Fertilizers (S.C.F.) has capabilities concerning the
production of sulfuric acid, ammonia, urea, and ammonia sulfate. The State
Company for Petrochemical Industries (S.C.P.I.) is in the business of
manufacturing high quality </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">high density polyethylene,
low density polyethylene, polyvinyl chloride (P.V.C.), polyethylene master
batch (colored and black), polyvinyl chloride compounding, agricultural film,
and other chemical products. Finally, </span><span lang="EN-GB" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Basra Governorate is located in a fertile agricultural
region, which produces rice, maize, barley, pearl millet, wheat, and dates and
which raises livestock. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Basra Governorate is
Iraq’s only access to the sea. The port of Basra is Iraq’s main port, but it
doesn’t have deep-water access, which has instead the port of Um Qasr (22
platforms) lying south of the city of Basra on </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">the Khawr az-Zubayr Waterway. </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The presence of the ports has
transformed the governorate in an important center for trade, transportation,
and storage. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Al Basrah Oil Terminal (ABOT) and Khawr al ‘Amīyah Oil Terminal (Kaaot)
are located 31 miles southeast of the </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Al-Faw Peninsula in the Persian Gulf. The two loading terminals
and three single-point moorings (S.P.M.s) plus a spare buoy, provide the
principal point of export for Iraq’s crude oil, but they are operating well
below capacity as a consequence of three wars and scarce maintenance. In
January 2017, the Ministry of Oil announced that it intended to double the
crude loading capacity of Kaaot, which is the smaller terminal of the two, to
1.2 million b/d in order to permit the loading of Suezmax vessels. Instead, ABOT
alone, without considering the S.P.M.s can transfer up to 3 million b/d. </span></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh2kXsn3kFcidR94cePofnS-VR1zbD-95hG_hxICa0E1qRa3_q4noLDYhXaUrh7xXD7cj4jOoKRVBAU-IEpPrbJr6a_G3QceWpqrWIraDx8ZqyYxKbStqxXLrlrBDLpBKlif6SgpNac7qFl/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-6.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-6" border="0" data-original-height="461" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh2kXsn3kFcidR94cePofnS-VR1zbD-95hG_hxICa0E1qRa3_q4noLDYhXaUrh7xXD7cj4jOoKRVBAU-IEpPrbJr6a_G3QceWpqrWIraDx8ZqyYxKbStqxXLrlrBDLpBKlif6SgpNac7qFl/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-6.jpg" title="BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-6" /></a></div>
<br />
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The city of
Basra also hosts the University of Basra, which is a large public university
comprising all the most important types of faculties and some research centers
linked to Basra’s economic activities, and </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Basra International Airport, which is Iraq’s second
largest international airport and serves primarily Middle Eastern destinations
and some Asian destinations.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The conditions of the general
infrastructure in the governorate are poor. These conditions are common across all
sectors. In specific, the oil sector infrastructure is still aging as witnessed
by the I.O.C.s that returned to Iraq after the first licensing round in 2008-09.
Only recently did Iraq obtain some improvements such as expanding onshore
pumping and storage infrastructure in the south to increase crude production,
expanding offshore loading with capacity doubling to 4.5 million b/d of crude thanks
to single-point moorings, building new tie-in pipelines and pipelines to the
loading terminals of the </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Al-Faw Peninsula for the fields West Qurna 2 and Majnoon
(Basra Governorate), Halfaya (Maysan Governorate), Missan (Maysan Governorate),
Gharraf (Dhi Qar Governorate), and Badra (Wasit Governorate)</span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Poor infrastructure is a
big limit to the economic development of the governorate. In the past, the
Basra region had been an important battleground during the Iran-Iraq war and during
the two Gulf Wars. All these wars have damaged the economic infrastructure and
have left, scattered throughout the region, a host of mines and unexploded
ordnance, which, as a result, necessarily slow the economic development of the
region. In addition to the three mentioned wars, after the 2003 invasion, the
governorate one more time became a center exposed to violence with </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">militia conflicts and resistance acts against the
Multinational Force and the new Iraqi government. At that time, both simple criminality
and sectarian violence increased. Only after 2008, was it possible to recreate
a sort of peaceful environment in the governorate.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The governorate of
Basra, but this is a recurrent condition throughout Iraq, is hyper-urbanized
with 80 percent of its population (4,7 million of people live in Basra
Governorate) living in the few urban centers present in the governorate. In
2017, the metropolitan area of the city of Basra has an estimated population of
2.8 million. Hyperurbanization means a large and growing housing deficit in all
the major Iraqi centers, Basra included. This deficit has been compounded by
population growth, the pace of urbanization, and the inflows of internally
displaced people.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">According to both the
International Monetary Fund (I.M.F.) and the World Bank, in 2016 Iraq’s per
capita G.D.P. was around $4,620 per year. The United Nations estimates that at
least 10 million Iraqis need humanitarian aid. Iraq’s 18 governorates are
divided in districts and sub-districts. And contrarily to expectations, the
sub-districts with the highest poverty rate are in the southern governorates
despite the presence under the ground of the hydrocarbon reserves.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Iraqi
Minister of Planning Salman al-Jumaili last spring declared that, apart from
areas directly touched by the war against ISIS, the last survey in Iraq in
early 2015 showed that the level of poverty was 31 percent in the southern
provinces, 17 percent in the center, 12 percent in Baghdad, 17 percent in
Diyala and Kirkuk, and 13 percent in the Kurdish regions. In practice, the </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">percentage of people living under
the poverty line of $2.5 per day in the governorate is higher than the national
average.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">THE LOGIC BEHIND THE ECONOMIC DEVELOPMENT OF BASRA
GOVERNORATE</span></b></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">So, if Basra
Governorate doesn’t continue to develop, there will be serious problems throughout
the whole Iraq—and the country’s survivability could be at stake. In brief,
this southern governorate is the only one that can consistently provide Iraq
with the economic resources necessary to the federal government in order to then
reconstruct part of the country with the specific goal of assisting the
recreation of a fabric of Iraqi small and medium enterprises (S.M.E.s). For
instance, before ISIS’s capture, the city of Mosul boasted an interesting S.M.E.
fabric capable of producing medicines and medical equipment, sugar, yogurt,
clothes and cotton textiles, pre-cast concrete elements, furniture, and leather
products. </span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Indeed, as confirmed by the best textbooks of
economics, Iraq should try to diversify its economy. On paper, this goal is
always the best outcome because a diversified economy permits a country to have
an improved resiliency in the face of difficulties in one specific economic
sector. Diversifying a portfolio of investments reduces the implied risk. This
concept is true in relations to private investors, companies, and countries as
well. And to confirm this point, it’s good to underline that presently, on the
basis of Iraq’s current economic structure, low oil prices immediately mean
that the federal government will experience a consistent reduction in its
revenues, which later on will translate into fiscal budget troubles.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">But, is it easy to diversify the economy of a
country? The answer is no. Petroleum literature well shows how diversifying an
economy primarily relying on the export of commodities is never an easy task.
And, if a positive result is obtained, it normally takes several years. Norway,
a country in 6<sup>th</sup> position in June 2016 in the World Bank’s Ease of
Doing Business, a business ranking relating to several parameters, shows a
still quite </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">unbalanced
export sector. And in the Middle East, Saudi Arabia, OPEC’s most important
member with around 10 million b/d of crude oil production, has been trying to
diversify its economy since the 1970s through 10 development plans, but it has
obtained unsatisfying results.</span></div>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjl0aaYVYW5x_J_XGmomhhU4vCKM1y1b50LulNk6KnXQBjYe1jv7BRu3eztm8OPCnLOx6S7-Qe6-Pd6qkDisCDe01gtlnNg_uWlm5EXDSfxiqSye8TcCoMew2BTQEVLjsbIRIymGW9726r9/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-7.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-7" border="0" data-original-height="575" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjl0aaYVYW5x_J_XGmomhhU4vCKM1y1b50LulNk6KnXQBjYe1jv7BRu3eztm8OPCnLOx6S7-Qe6-Pd6qkDisCDe01gtlnNg_uWlm5EXDSfxiqSye8TcCoMew2BTQEVLjsbIRIymGW9726r9/s1600/BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-7.jpg" title="BACCI-Basra-Governorate-Petroleum-Cluster-PartA-Oct.-2017-7" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div align="center" style="line-height: 150%; margin: 0px 0px 11px; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 150%; margin: 0px;">What Did the Saudi Arabia Export in
2014? — Source: The Atlas of Complexity, Harvard University</span></i></b></div>
</td></tr>
</tbody></table>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Iraq’s
National Investment Commission (N.I.C.)—the body responsible for all the
national policies for investment and the promoter, facilitator, monitor, and
policy advisor for investments in Iraq—correctly underlines that Iraq needs a
more diversified economy via the increase in the number of Iraqi S.M.E.s. The
idea is that more S.M.E.s will enlarge the job market, which in turn will
provide the federal government with an enlarged and more stable tax base. And
if Iraq wants to increase the number of its S.M.E.s, it has to attract more
foreign direct investment (F.D.I.). The problem is, and this is especially true
(and quite normal) in a country that is at least partially exiting a conflict, the
presence of a high level of corruption.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">International
oil companies (I.O.C.s) and foreign national oil companies (N.O.C.s) can deal
with corruption problems because the former often have deep pockets while the
latter have big pockets often coupled with a political agenda. In other words, in
their operations, companies with large shoulders can better factor in all the additional
costs linked to corruption. But, to an Iraqi investor, the costs and the risks
involved in supporting a small or a medium enterprise are too high if they are
not at least partially covered by the back-up of F.D.I. On top of this, Iraqi banks
don’t easily lend financing resources to local businesses because the local
guarantees are insufficient.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Summing up,
while the goal of diversifying Iraq’s economy should stay as a long-term goal on
the radar of Iraq’s institutions, right now it’s of paramount importance the
promotion of the economic development of Basra Governorate. This development of
Basra Governorate will then be instrumental in the long-term diversification of
Iraq’s economy. This two-step process is necessary especially now that Iraq </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">requires a continuous flow of
revenues to redistribute to its young population. In fact, almost 40 percent of
the Iraqi population is aged between 0 to 14 years. In summary, if the country
won’t be able to provide the young Iraqi citizens who will enter the job market
with real jobs, it should at least try to provide them with some economic
assistance, which under the current circumstances could only come from the oil
revenue.</span></div>
<br />
<div style="line-height: 200%; margin: 16px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">And, it's then
important to understand that, as it has been studied by the World Bank, youth
exclusion is probably the main factor favoring youth radicalization and
recruitment by militias and violent groups. Most Iraqi youths joined ISIS
because they had no realistic life opportunities other than that in order to
improve their social standing—most youths earn a week salary of less than $22,
while a very basic rent costs around $180 per month.</span><br />
<br />
<br />
<br />
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"> </span></span><span lang="EN" style="font-family: "georgia" , serif; font-size: 12pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"> </span></span><span lang="EN" style="font-family: "georgia" , serif; font-size: 12pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"> </span><span style="margin: 0px;"></span><span style="margin: 0px;"></span><span style="margin: 0px;"></span><span style="margin: 0px;"></span><span style="margin: 0px;"> </span></span></div>
</div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-21904408311071064442017-09-18T15:19:00.000+03:002018-01-23T01:12:00.030+02:00Are Oil Markets Finally Rebalancing?<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-NBzoA-UcbgVFmJZk2ovH9Lrp3I0Zx4DtDqLXDw_w0HzRMPazQlhVhJQQCveDtWXvC6xPmEPVuz-UKb2uoUUIk3wwAam0WcjgR1P1kJUYgQqr_D_gfdeRZUynvXhccxwd-CR6rU0fi2BR/s1600/BACCI-Are-Oil-Markets-Finally-Rebalancing-Sept.-2017.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Are-Oil-Markets-Finally-Rebalancing-Sept.-2017" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-NBzoA-UcbgVFmJZk2ovH9Lrp3I0Zx4DtDqLXDw_w0HzRMPazQlhVhJQQCveDtWXvC6xPmEPVuz-UKb2uoUUIk3wwAam0WcjgR1P1kJUYgQqr_D_gfdeRZUynvXhccxwd-CR6rU0fi2BR/s1600/BACCI-Are-Oil-Markets-Finally-Rebalancing-Sept.-2017.jpg" title="BACCI-Are-Oil-Markets-Finally-Rebalancing-Sept.-2017" /></a></div>
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></span>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">I wrote the article “</span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Are Oil Markets Finally Rebalancing?” as an email in
response to Ms. Kamila Aliyeva’s interesting questions concerning the present state of the
oil markets. Ms. Aliyeva, a business journalist, then introduced my emailed comments
into her article “<a href="https://www.azernews.az/oil_and_gas/119138.html" rel="nofollow" target="_blank">Expert: Gradual Decline in Oil Inventories Should Result in More Balanced Markets in 2018</a>,” which was published by
<a href="https://www.azernews.az/" rel="nofollow" target="_blank">Azernews</a>, an English-language Azerbaijani newspaper, first, on September 18, on its online edition and then, on September 22, in its paper edition.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia";"><br /></span>
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZClkQS5EMrZ3mEG4xRi1v-Xh2-lksB0OPb4jJ1Tr38ZjHFb-tem8wSrl_Jfa7JMWUjFSuuZ-O58kAWkDQT9ndl_IjSrd2jj_RFQofphPPAk2jNnG1sOTEuxGN4QgunHGpqAED-GLoFpz2/s1600/BACCI-Are-Oil-Markets-Finally-Rebalancing-Sept.-2017-1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Are-Oil-Markets-Finally-Rebalancing-Sept.-2017-1" border="0" data-original-height="1313" data-original-width="800" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZClkQS5EMrZ3mEG4xRi1v-Xh2-lksB0OPb4jJ1Tr38ZjHFb-tem8wSrl_Jfa7JMWUjFSuuZ-O58kAWkDQT9ndl_IjSrd2jj_RFQofphPPAk2jNnG1sOTEuxGN4QgunHGpqAED-GLoFpz2/s1600/BACCI-Are-Oil-Markets-Finally-Rebalancing-Sept.-2017-1.jpg" title="BACCI-Are-Oil-Markets-Finally-Rebalancing-Sept.-2017-1" /></a></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></b></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">September 18, 2017</span></b></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">LONDON — On September 5, Russia and Saudi
Arabia discussed in St. Petersburg, Russia, about the possibility of </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">extending for a second time the oil
output-cut deal between OPEC and non-OPEC producers negotiated in November
2016. This meeting on the Russian soil </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">was one of the preparatory meetings that oil producers
must conduct if they want to try to implement a unified strategy aiming at
freezing oil production levels. In addition, considering Russia’s position as
the world’s largest producer with almost 11 million bpd, thinking of an oil
strategy confined to OPEC members alone would not be a recipe to success. </span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">It is certain that at the end of next
November, when there will OPEC’s 173<sup>rd</sup> ordinary meeting and another
meeting including OPEC and non-OPEC members, the main topic will be what
petroleum policy these countries want to implement after the expiration in
March 2018 of the extension of the 1.8 million bpd output cut. This first
extension was agreed on last May in Vienna by OPEC and 10 non-member countries—among
them there was Russia. The real problem is that defining a working strategy
suitable for all the involved oil-producing countries is always very difficult.
</span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The common denominator among all these
countries is their fiscal budget’s strong dependence on their oil revenues. But
apart from this, these countries have different histories, which translate into
different economic and political agendas. On top of this, the difficult
cooperation among OPEC members is linked to the intense political struggle
between Saudi Arabia and Iran for regional influence. Under the present deal,
Iran obtained an exemption to slightly raise its output, which had been reduced
by years of Western sanctions. In August, Iran pumped 3.82 million bpd of crude
oil. </span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Until a few weeks ago, with still
oversupplied oil markets, it seemed that a production freeze would be not very
useful because OPEC production rose to 32.8 million bpd in July (highest value
in 2017)—Nigeria, an OPEC </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">member
under exemption from output curbs, pumped more crude oil. </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In practice, the only valid solution was
a consistent production cut, which indeed was politically very difficult to
agree on.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Now, according to the latest data from
the International Energy Agency (I.E.A.), oil demand is increasing faster than
previously thought. In practice, the I.E.A. states that oil demand will grow by
1.6 million bpd (or 1.7 percent) in 2017. This means that oil markets are in
the process of rebalancing because finally inventories are decreasing. And, although
in a feeble manner, markets are reentering a backwardation phase. In addition,
in August OPEC production was 79,000 bpd less than July’s production.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Now, the next two months and a half,
which lead to OPEC’s November 30 meeting, will be crucial to understand what petroleum
policy the oil-producing countries will apply after March 2018. In specific, if
the present, and still in its infancy, rebalancing of the oil markets
continues, it could really save oil producers from being forced to implement a
production cut larger than the present one, which is worth 1.8 million bpd. </span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Considering the current possible sustained
transition toward a backwardation phase, predicting where the oil prices will
be in 2018 is very difficult. Commodity price movements depend on inventories
(cyclical component linked to short-term supply and demand shocks) and marginal
costs (structural component linked to the long-term impact of technology,
geology, and politics). </span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">When we look at 2018, we need primarily
to consider the cyclical component, i.e., inventories. In this regard, the
contango phase of the oil markets, which has been a constant phase since the
second half of 2014 because of the crude oil oversupply, has begun to lose
ground because there has been an increase in the demand for prompt-loading oil
barrels and in the expectations that the oil markets will rebalance over the
next year. All this means a drawdown in crude oil stocks, i.e., an inventory
reduction.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In specific, Brent’s futures curve has continued
to flatten for several months and its back end is now in backwardation.
Instead, despite consecutive weeks of inventory draws, W.T.I. remains in a
light contango—but, indeed, there has been a relevant decrease in the contango
level. The financialization of the price of crude oil is still not entirely clear,
but it has an effect because calendar spreads are able to understand better the
balance between supply and demand. In addition to this, if we give more
importance to futures fundamentals than to physical fundamentals, it’s evident
that these expectations will be then reflected in the spot price of a specific
benchmark.</span></div>
<br />
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">It’s evident that, under the current
production levels, the gradual decline in global crude oil inventories should
be able to produce more balanced oil markets in 2018, which could help maintain
the current price levels, if not to produce a slight price increase as well.
But, much depends on what oil producers will decide next November. If they prolong
their crude-oil production-cut agreement, this scenario could materialize. Instead,
if they look at their long-term interest (expand their market share at the
expense of the U.S. shale producers) and return to maximum production, oil markets
would probably go to square one, which in this case means an oversupply of
crude oil.</span><br />
<span style="font-family: "georgia";"><br /></span>
<span style="font-family: "georgia";"><br /></span>
<span style="font-family: "georgia";"><br /></span>
<span style="font-family: "georgia";"><br /></span></div>
</div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-8251914837477422812017-09-06T12:00:00.000+03:002017-09-16T13:18:57.233+03:00Developing Energy Infrastructure in Basra Governorate <div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgaSBYUSYBqbhWtI6NaToYOY1vLerby2LrkPoJAZRY71Jm_Xea4fb2gyA7hd9ZumexFfJBl-Xj_IdnxN7nZV_G6iV0ZMfbCd72o6CEJeHihuGcbzXGyB__aH3a2_ctVWL2LRpBxkpZ5IkUA/s1600/BACCI-Developing-Energy-Infrastructure-in-Basra-Governorate-Sept.-2017.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Developing-Energy-Infrastructure-in-Basra-Governorate-Sept.-2017" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgaSBYUSYBqbhWtI6NaToYOY1vLerby2LrkPoJAZRY71Jm_Xea4fb2gyA7hd9ZumexFfJBl-Xj_IdnxN7nZV_G6iV0ZMfbCd72o6CEJeHihuGcbzXGyB__aH3a2_ctVWL2LRpBxkpZ5IkUA/s1600/BACCI-Developing-Energy-Infrastructure-in-Basra-Governorate-Sept.-2017.jpg" title="BACCI-Developing-Energy-Infrastructure-in-Basra-Governorate-Sept.-2017" /></a><br />
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">
</span>
<br />
<div align="center" style="line-height: 200%; text-align: center;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><b><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The article “<a href="http://www.cwcbasraoilgas.com/developing-energy-infrastructure-in-basra-governorate-by-alessandro-bacci/" rel="nofollow" target="_blank">Developing Energy Infrastructure in Basra Governorate</a>”
has been initially published by the <a href="http://www.thecwcgroup.com/" rel="nofollow" target="_blank">C.W.C. Group</a>, an energy and infrastructure conference,
exhibition and training company</span></b><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span></span></div>
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">
</span>
<br />
<div class="separator" style="clear: both; text-align: right;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><b>September 6, 2017</b></span></span></div>
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">
</span>
<br />
<div class="separator" style="clear: both; text-align: justify;">
</div>
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">
</span>
<div style="line-height: 200%; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">LONDON – September 2017 — Iraq is primarily a
state-run economy dominated by the petroleum sector, which, since the 1950s,
has been the main pillar of the country’s economic development. Today, Iraq’s
economy is the world’s most dependent on oil. Approximately 58 percent of the
country’s GDP and 99 percent of its exports are hydrocarbons; oil provides more
than 90 percent of government revenues and 80 percent of foreign exchange
earnings.</span></span></div>
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: justify;">
</div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">However, Iraq’s reliance on oil doesn’t provide
a broad base for economic development. Diversifying Iraq’s economy would be a
rational step because it would give Iraq a stronger resilience in the face of
low oil prices; however, diversifying the economy of a country like Iraq is a
very complicated and long-term task.</span></div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: justify;">
</div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">On a short to medium term, considering the
recent political turmoil and the fight against the ISIS insurgency in parts of
western Iraq, it would be better for the country, to stick to producing and
exporting oil. Moreover, the next spring Iraq will hold parliamentary and
provincial elections, so it’s difficult to imagine how the federal government
could implement these massive economic changes over the months leading to the
elections. </span></div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: justify;">
</div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Iraq requires a continuous flow of revenues to
redistribute to its young population—almost 40 percent of the Iraqi population
is aged between 0 to 14 years. In summary, if the country won’t be able to
provide the young Iraqi citizens who will enter the job market with real jobs,
it should at least try to provide them with some economic assistance, which
under the current circumstances could only come from the oil revenue.</span></div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: justify;">
</div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In light of the above, if there is an area that
has to be protected in order to continue developing, it would be the Basra
Governorate. In fact, of Iraq’s more than 4.4 million barrels of oil per day
(b/d), 85 percent of the barrels are produced by the giant oil fields of southern
Iraq. Majnoon, Rumaila, West Qurna, and Zubair are located in Basra
Governorate; Halfaya is located in Maysan Governorate. Unquestionably, the bulk
of Iraq’s proven oil reserves is in the south of the country, while more than 3
million barrels a day are exported from Basra.</span></div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: justify;">
</div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The oil sector requires infrastructure to
enable the extraction and the export of oil, and this infrastructure must be
developed at all the levels of the petroleum chain to avoid production
bottlenecks as the IOCs present in southern Iraq experienced after the
country’s first licensing round in 2008-09.</span></div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: justify;">
</div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">After some years, the infrastructural gap has
been partially reduced, but still a lot of work has to be done in Basra
Governorate if Iraq wants to increase its oil production, refining capacity,
and export capacity. In this regard, the CWC Group, a leading events and
training provider for the oil, gas, and infrastructure industries, will host in
Beirut, Lebanon, on October 30-31, the Basra Oil, Gas, & Infrastructure
Conference. </span></div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: justify;">
</div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">This conference, which is held under the
patronage of Basra Governorate, Basra Council, and Basra Oil Company (BOC) and
which is now in its fourth edition, is one of the most important business
platforms concerning Iraq. The conference will be a gathering point for
government officials, projects stakeholders, buyers and sellers working in the
southern part of Iraq across several industries in three primary business
segments: oil and gas, power, and petrochemicals, infrastructure and
construction, transport and logistics.</span></div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: justify;">
</div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In other words, to have a successful business
development in Basra Governorate, which then will have a positive impact on
Maysan Governorate and Dhi Qar Governorate, it is important to work at the same
time on the development of the three above-mentioned business segments. In this
regard, Iraq has to attract private sector funding. </span></div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div class="separator" style="clear: both; text-align: justify;">
</div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Private investment would allow Iraq to
establish business relationships with foreign countries. The federal government
is currently promoting partnerships between foreign companies and lenders. Last
March, the United Kingdom and Iraq signed a historic memorandum of
understanding authorizing UK Export Finance, UK’s export credit agency, to work
closely with the Iraqi authorities to identify suitable infrastructure development
projects that will utilize UKEF’s export finance support for the UK companies.
Thanks to this initiative the United Kingdom has agreed to provide up to $12
billion of support to Iraq over the next ten years. </span></div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> </span></div>
<div class="separator" style="clear: both; text-align: justify;">
</div>
<div style="line-height: 200%; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Building infrastructure in Iraq could serve to
improve the lives of millions of Iraqi citizens, to expand private sector
activities, and to create new jobs for the Iraqi population—instead, as a
matter of fact, when petroleum production is up-and-running in any country in
the world, it generates revenue, but it doesn’t create many permanent
jobs. </span><br />
<br /></div>
</span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Basra Governorate is the federal government’s
revenue generator, so it must be given top priority in Iraq to secure the
private investment required to close the infrastructural gap. In addition, Iraq
has to improve the environment of doing business, as recently underlined by the
World Bank through its Doing Business indicators.</span></span><br />
<div>
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></span></div>
<div>
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></span></div>
<div>
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></span></div>
<div>
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></span></div>
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span><br />
<div style="line-height: 200%; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">
</span></div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-32288901482573122562017-06-28T21:41:00.000+03:002017-06-29T16:59:25.967+03:00Lebanon Launches Its Offshore Oil and Gas Sector<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvxiTeP4DbZ6PAyPc3niFpbxmn61fGkK_bDS-Hig0BuUmK6R96KS9-hoxy89MrcL6nnX-zQ_hT_txjt6VxcZwCJsSy88h5noRt9eFGWn5A_IrjdraCD6Mvb_1p23kI-BRTTv4mnAkf19pz/s1600/BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-Cover" border="0" data-original-height="370" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvxiTeP4DbZ6PAyPc3niFpbxmn61fGkK_bDS-Hig0BuUmK6R96KS9-hoxy89MrcL6nnX-zQ_hT_txjt6VxcZwCJsSy88h5noRt9eFGWn5A_IrjdraCD6Mvb_1p23kI-BRTTv4mnAkf19pz/s1600/BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-Cover.jpg" title="BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-Cover" /></a></div>
<br />
<br />
<br />
<div style="line-height: 200%; margin: 0px; text-align: center;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><b>The article <span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 107%; margin: 0px;">“</span><a href="http://oilpro.com/post/31780/lebanon-launches-its-offshore-oil-and-gas-sector" target="_blank">Lebanon Launches Its Offshore Oil and Gas Sector</a></b><b>”</b><b> has been initially published by <a href="http://oilpro.com/" rel="nofollow" target="_blank">Oilpro</a>, a professional network for the oil and gas professionals</b></span></div>
<div style="line-height: 200%; margin: 0px; text-align: right;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><b><br /></b></span></div>
<div style="line-height: 200%; margin: 0px; text-align: right;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><b>June 28, 2017</b></span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">LONDON — I want to start
this analysis concerning Lebanon by saying that I wish Lebanon, a beautiful
country where I lived for three full years between 2012 and 2015, all the best possible
luck in regard to its petroleum (oil and gas) sector development. In fact,
after years of postponements, Lebanon is finally kickstarting its offshore oil
and gas (O&G) industry. On January 4, 2017, the government approved two
decrees, which were necessary to go ahead with the licensing procedure. Decree
No. 42 defines the geographical parameters of the blocks in which Lebanon’s
economic exclusive zone (E.E.Z., 22,700 sq. kilometers) is divided; Decree No. 43
sets out the tender protocol (T.P.) and the model exploration and production
agreement (E.P.A.) to be entered with the bidding companies. A few weeks later,
on January 26, 2017, Minister of Energy and Water Cesar Abi Khalil declared
that blocks 1, 4, 8, 9, and 10, out of 10 overall blocks, would be open for
bidding during the first offshore licensing round.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Then a pre-qualification
round, a second pre-qualification round to be more precise, was held between
February 2, 20117 and March 31, 2017; according to this second
pre-qualification round, 8 new companies qualified: 1 operator (India’s O.N.G.C.
Videsh Limited) and 7 non-operators. Previously, in 2013, 46 companies had
qualified via the first pre-qualification round—in specific, 12 of them
qualified as operators (among them U.S. Chevron and Exxon Mobil, U.K. Shell, and
France’s Total). But then, at that time, the tender process stopped abruptly.
In fact, the government had never passed the decrees necessary to have a
licensing round until January 2017. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In sum, because not all
the 46 companies that pre-qualified in 2013 will be part of the licensing
round, there are now 51 companies that have pre-qualified and should be willing
to take part in the tender submitting bids in relation to the open blocks on
September 15, 2017. After that day, the Lebanese Petroleum Administration (L.P.A.)
will assess the received applications and send a report to the cabinet, which
will decide by November 15 which companies will win the tender. </span></div>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgqvLIJahfqz4xDqZVeElx_paGjFsUYkn9oNOCeN4idkE6QkxnrvCJdop-Ac3HMhpfLiigjW1Y7vBTLVbN1gshOhWq39iSYE9WtgEJABxwM4d5Jah8FFXi9WDkDyZOG8TG4DY27Gj7AZoqB/s1600/BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-1.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-1" border="0" data-original-height="504" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgqvLIJahfqz4xDqZVeElx_paGjFsUYkn9oNOCeN4idkE6QkxnrvCJdop-Ac3HMhpfLiigjW1Y7vBTLVbN1gshOhWq39iSYE9WtgEJABxwM4d5Jah8FFXi9WDkDyZOG8TG4DY27Gj7AZoqB/s1600/BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-1.jpg" title="BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-1" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div style="line-height: 200%; margin: 0px; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><i><span lang="EN" style="color: #353434; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Attracting Exploration Investment by
Ensuring Progressive Fiscal Regime — Source: Wissam Zahabi</span></i></b></div>
</td></tr>
</tbody></table>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Initial estimates tell
that buried under the Lebanese seabed there could be 30 trillion cubic feet
(around 850 billion cubic meters) of natural gas and 660 million barrels of
oil. Of course, until the companies that will sign a production sharing
contract (P.S.C.) with the Lebanese government start their exploration phase,
it’s impossible to confirm whether these initial estimates are correct. In
preparation for the launching of the first licensing round, some years ago, the
Ministry of Energy and Water had assigned geophysical service companies to
perform seismic activities. These surveys covered the entirety of Lebanon’s
offshore territory. In particular, 100 percent of the offshore was covered by
2D seismic data and 70 percent of the offshore was covered by 3D seismic data.
Thanks to this activity, data related to 10,000 kilometers of 2D surveys and
all the available 3D data, once interpreted, showed well defined structural and
stratigraphic traps regarded as prospective, especially for natural gas.<span style="margin: 0px;"> </span></span></div>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPFLcVeEj1uWdCyatL0nGSB2yUMlkK0KTY5KxQAMRJbJnconrL8IsKpeRlz8yvRMYHOFxXtqP7aSfgWAiEzAgC_AKv_viVkgKGSf9AefGkOMFv02VSf5OtEKHFiLlxkR7_2J3EAltS4Vak/s1600/BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-2.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-2" border="0" data-original-height="382" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPFLcVeEj1uWdCyatL0nGSB2yUMlkK0KTY5KxQAMRJbJnconrL8IsKpeRlz8yvRMYHOFxXtqP7aSfgWAiEzAgC_AKv_viVkgKGSf9AefGkOMFv02VSf5OtEKHFiLlxkR7_2J3EAltS4Vak/s1600/BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-2.jpg" title="BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-2" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span lang="EN" style="color: #353434; font-family: "georgia" , serif; font-size: 14pt; line-height: 107%; margin: 0px;"><b><i>Geophysical Surveys —
Source: Lebanese Petroleum Administration</i></b></span></td></tr>
</tbody></table>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In other words, until
companies start drilling, there is no certainty of Lebanese O&G reserves,
but 2D and 3D mapping and the recent natural gas discoveries in the E.E.Z.s of
Cyprus, Egypt, and Israel give the Lebanese government hope that also Lebanon’s
E.E.Z. could be rich in O&G—in 2010, the United States Geological Survey
estimated that there could be up to an additional 122 trillion cubic feet of
undiscovered natural gas in the Levant Basin, with also 1.7 billion barrels of
recoverable oil. This means that for an international oil company (I.O.C.),
when evaluating whether to invest in Lebanon, the risk doesn’t lie too much in
geological problems but in geopolitical problems. In fact, because we’re
talking of offshore operations, if on the one hand it’s true that finding and
development (F&D) costs won’t be low, on the other hand they should not be too
different from other offshore operations across the globe. For sure, if the
price of a barrel of oil went down to $20 a barrel—a possibility that cannot be
completely ruled out—there would be great difficulties in achieving breakeven. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">So, the real problem for
an investor is the geopolitical risk, which in Lebanon may be split into two main
components: Lebanon’s very complex and dysfunctional internal politics and
Lebanon’s difficult relationships with its neighbors. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">With reference to the
first component, it’s difficult to look to Lebanese politics with trust and
hope. In fact, Lebanon’s politics is based on religious divisions (a confessionalism
including 18 recognized religious sects). In practice, the highest offices are
reserved to representatives from certain religious communities. For example,
the president of the republic must be a Christian Maronite, the prime minister
a Sunni, and the speaker of the Parliament a Shia. Similarly, seats in the
Parliament are confessionally distributed but elected by universal suffrage.
Each religious community has an allotted number of seats in Parliament,
although all candidates in a particular constituency must receive a plurality
of the total vote, which includes followers of all confessions. Indeed, it’s a
complicated system, but, it’s the system that was introduced with the National
Pact of 1943 (slightly changed in 1990 after the end of the Lebanese Civil War).
The logic of this system is that it should be able to reduce the possibility of
armed violence between the different components of Lebanon’s society, but at
the same time its result is a big drag on the speed and meritocracy of
Lebanon’s politics. Also, the members of the L.P.A. have been selected
according to sectarian lines. <span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Doing politics in Lebanon
is quite difficult. Among the main political problems that Lebanon has recently
experienced in the last years five years—and I just go by memory—there are the
following issues </span></div>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Absence of the president
of the republic for more than two years (29 months)</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="margin: 0px;"><span lang="EN-CA" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Absence of a continuous
supply of electricity </span></span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Acts of violence across
the country, Beirut included</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="margin: 0px;"><span lang="EN-CA" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">A high level of corruption
at all levels of Lebanon’s society</span></span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="margin: 0px;"><span lang="EN-CA" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">A high public debt at </span></span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">146 percent of the country's G.D.P.
in 2016</span><span style="margin: 0px;"><span lang="EN-CA" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span></span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Garbage crisis and related
environmental issues</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">More than 1 million of
Syrian refugees, but the number could be close to 2 million </span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="background: white; line-height: 200%; margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<span style="margin: 0px;"><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Parliamentary elections, to be
held in 2013, </span></span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">postponed
until at least mid-2018</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="margin: 0px;"><span lang="EN-CA" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Poverty with around 28
percent of the population living under the poverty line</span></span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="margin: 0px;"><span lang="EN-CA" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Savage privatization of
public land across the country</span></span></div>
</li>
</ul>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">With reference to the
second component, Lebanon and its southern neighbor, Israel, are still
technically at war. Moreover, to add an additional layer of complexity, there
is an 854-square-kilometer wedge of sea between the two countries claimed by
both Beirut and Tel Aviv. In the last years, the U.S. has tried to figure out a
solution, or at least to avoid that this dispute could escalate into something
more dangerous. In this regard, the U.S. has discouraged Israel and Lebanon
from conducting O&G operations in the disputed wedge of water. </span></div>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgr8ZL8xZcnRBZnapuhD7V4YFKUr-awMb0GVgbeAUX2hZMDdrr78Ifw8YGrc8OASEcXJRTYo71_Q-sJdduJgDM1HmvnZtiIcbuFTBwoySgMCfyfJavXJ1JxA0r0XWps8ozKTYmo1crAymAg/s1600/BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-3.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-3" border="0" data-original-height="554" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgr8ZL8xZcnRBZnapuhD7V4YFKUr-awMb0GVgbeAUX2hZMDdrr78Ifw8YGrc8OASEcXJRTYo71_Q-sJdduJgDM1HmvnZtiIcbuFTBwoySgMCfyfJavXJ1JxA0r0XWps8ozKTYmo1crAymAg/s1600/BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-3.jpg" title="BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-3" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span lang="EN" style="color: #353434; font-family: "georgia" , serif; font-size: 14pt; line-height: 107%; margin: 0px;"><b><i>The Disputed Wedge of
Water — Source: Menas Associates</i></b></span></td></tr>
</tbody></table>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In Israel, Noble Energy, a
U.S. energy company quite active in Israel, and Israel’s Delek Group held the
license for block Alon D, which stretches into the disputed area. This license
expired in March 2016. Several reports have explained that the Israeli
government has prevented drilling in the license area Alon D. Another
controversy with Israel was linked to the discovery of the Tanin and Karish gas
fields by Noble Energy in 2012 and 2013. These fields are located in
Israeli-licensed areas Alon A and Alon C. And Alon C is only 4 kilometers away
from Lebanon’s block 8 and 9 kilometers from block 9. Tension between Israel
and Lebanon when Noble started drilling in the Karish field, which according to
Noble Energy is 10.6 kilometers from Lebanon’s block 9, while according to
Lebanon is just 4 kilometers away from the block. As a consequence, Lebanon’s
government immediately voiced its concern regarding Karish field operations
because these could affect the Lebanese gas reserves, e</span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">ither by drilling in a
contiguous gas resource, or through horizontal drilling—</span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Nabih Berri, the speaker of the Lebanese Parliament strongly
voiced its concerns regarding the disputed offshore territory. </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Today, after a series
of business transactions, the license to the Karish and Tanin fields is held by
the Greek company Energean Oil & Gas. </span></div>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFvW0V_T-NoctwmxWZshU1tcddVaSLHzkAIbEc9vj2qtWV-Ws3V4VBsWyzgXJPjbJ5pFDpYsHxL4erSadCyo6fDcUrxh7deRNPVyAL7NA5KZw1Ej9XlgY9DIfOxNZc3NvWvOwTUARDeora/s1600/BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-4.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-4" border="0" data-original-height="519" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFvW0V_T-NoctwmxWZshU1tcddVaSLHzkAIbEc9vj2qtWV-Ws3V4VBsWyzgXJPjbJ5pFDpYsHxL4erSadCyo6fDcUrxh7deRNPVyAL7NA5KZw1Ej9XlgY9DIfOxNZc3NvWvOwTUARDeora/s1600/BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-4.jpg" title="BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-4" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span lang="EN" style="color: #353434; font-family: "georgia" , serif; font-size: 14pt; line-height: 107%; margin: 0px;"><b><i>Israel's Offshore Fields
— Source: Offshore Energy Today</i></b></span></td></tr>
</tbody></table>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">But now, Lebanon’s first
offshore licensing round might create trouble. In fact, 3 blocks (block 8, 9,
and 10) out of 5 of the blocks to be licensed cover the length of the offshore
border between Israel and Lebanon, i.e., they include the disputed wedge. Why
that? In March, at Eastern Mediterranean Gas Conference (E.M.G.C.) 2017 in
Cyprus, Mr. Wissam Chbat, chairman and head of geology and geophysics of L.P.A.
explained that</span></div>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Block 1 has
high-to-moderate hydrocarbon potential, with gas, possible condensate, and oil
expected to be discovered</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Block 4 has moderate
potential for gas, oil, and possible condensate</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Block 8 has high potential
for gas and some condensate</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Block 9 has very high
potential for gas, condensate, and oil</span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Block 10 has very high
potential for oil, condensate, and some gas<span style="margin: 0px;">
</span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
</li>
</ul>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvHgeQrM22qgME-c4kX28qVBE9BYrCFjwh1ceyhwVHPjQMitWBWUTEkfLZKKxBvrpeXM89gg8sZUj2gGE6_mUByopR9JqkVOq01kY_eFAYET_jZzhb8L0QOgZk3TKXocgY0b17tC8ZjILd/s1600/BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-5.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-5" border="0" data-original-height="582" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvHgeQrM22qgME-c4kX28qVBE9BYrCFjwh1ceyhwVHPjQMitWBWUTEkfLZKKxBvrpeXM89gg8sZUj2gGE6_mUByopR9JqkVOq01kY_eFAYET_jZzhb8L0QOgZk3TKXocgY0b17tC8ZjILd/s1600/BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-5.jpg" title="BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-5" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div style="line-height: 200%; margin: 0px; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><i><span lang="EN" style="color: #353434; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Open Blocks for the First Licensing Round —
Source: Lebanese Petroleum Administration</span></i></b></div>
</td></tr>
</tbody></table>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The government justification
for the green light to proceed with block 8,9, and 10 is that they have a high
potential. And in order to lure I.O.C.s’ interest in Lebanon’s offshore, it’s
better to offer immediately the most promising areas, especially in the present
environment of low oil prices. The idea is that it’s always better to start
with the right foot. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In addition, as mentioned
above, with reference to the three southern blocks, in the past, several times
Lebanese politicians raised the issue that Israel, which is quite ahead of
Lebanon in its offshore operations, via infrastructure located in its own
E.E.Z. could extract natural gas located in Lebanon’s E.E.Z. These fears could be
considered another justification to immediately put under a license those three
blocks. Moreover, it’s worth mentioning that Lebanon and Syria didn’t complete
the demarcation of their land and maritime borders either—Lebanon’s E.E.Z.’s
northern border and Syria’s E.E.Z.’s southern border. And now demarcating
maritime borders with Syria will probably be impossible until the end of the
conflict in Syria.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">One initial consideration
is that Lebanon should have already begun the development of its petroleum
sector. Indeed, if the licensing phase had been completed in 2013, it would
have been better for the coffers of Lebanon’s Treasury. In 2013, Brent crude
prices averaged more than $100 a barrel. It’s true that petroleum operations,
if successful, could span at least three decades, which means that an I.O.C.
will always experience over the course of a specific project high oil prices as
well as low oil prices, but it’s also true that when a government organizes a
commodity licensing round, it’s much better if the price of the concerned
commodity is quite high. The only real advantage that Lebanon could have right now
is the low costs of oil services. Timing is not so good for Lebanon as it was
four years ago. Instead, in the eastern Mediterranean region both Cyprus, Egypt
and Israel are quite ahead with their projects. </span></div>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDDpwxEXpiW7_B_623Vm187HrVpUoGWupYXXHUkjFLZMnUX03F9WUtVUSTV13DMu8qj-REs5h4hf-szGKW0FVcKNiDtxWPtyvQ4rt74xZ1d7_prtNbd6TG1vubQMUKzm1C_LshWxus2x3Z/s1600/BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-6.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-6" border="0" data-original-height="870" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDDpwxEXpiW7_B_623Vm187HrVpUoGWupYXXHUkjFLZMnUX03F9WUtVUSTV13DMu8qj-REs5h4hf-szGKW0FVcKNiDtxWPtyvQ4rt74xZ1d7_prtNbd6TG1vubQMUKzm1C_LshWxus2x3Z/s1600/BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-6.jpg" title="BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-6" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div style="line-height: 200%; margin: 0px; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><i><span lang="EN" style="color: #353434; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Geographical Location of the Main Recent
Gas Discoveries in Offshore Eastern Mediterranean — Source: European Parliament,
Energy: A Shaping Factor for Regional Stability in the Eastern Mediterranean?,
June 2017</span></i></b></div>
</td></tr>
</tbody></table>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In 2009, Noble
Energy announced the discovery of the Tamar field (280 billion cubic meters of
natural gas) in the Israeli E.E.Z. Then, still Noble Energy announced in 2010
the discovery of the Leviathan field (620 billion cubic meters) in the Israeli
E.E.Z. and in 2011 of the Aphrodite field (140 billion cubic meters) in the
Cypriot E.E.Z. Last but not least, in 2015, Italy’s E.N.I. announced the
discovery of the giant Zohr field (850 billion cubic meters) in the Egyptian
E.E.Z. These three countries are much ahead in their projects than Lebanon is. In fact, </span></div>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In Israel, natural gas is already extracted. The Tamar field was quickly developed and early 2013 it became operational supplying Israel with 7.5 Bcm per year; the Leviathan field’s Phase 1A will produce 12 Bcm per year starting in 2019. </span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In Cyprus, thanks to three licensing rounds (in 2007, 2012, and 2016) block 12 (Noble Energy, Delek, and Shell), 2 (E.N.I. and Korea’s Kogas), 3 (E.N.I. and Kogas), 9 (E.N.I. and Kogas), 11 (Total and E.N.I.), 6 (Total and E.N.I.), 8 (E.N.I.), and 10 (Exxon Mobil/Qatar Petroleum) have been awarded. </span></div>
</li>
</ul>
<br />
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In Egypt, E.N.I. will start producing from Zohr in the 4<sup>th</sup> quarter of 2017—E.N.I. is the operator while British Petroleum has a 10-percent stake and Russia’s Rosneft a 30-percent stake. It’s possible that Zohr will be the first of a series of discoveries in the area. BP is proceeding with its development of West Nile Delta project, which could produce 12 Bcm, per year starting in 2017.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><i style="mso-bidi-font-style: normal;"><span style="margin: 0px;"> </span></i></span></div>
</li>
</ul>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">All this said, despite a
not-so-perfect timing and despite internal and external problems, Lebanon has probably
to try to develop its offshore resources. When I.O.C.s and a country sign a
petroleum contract, let’s say a P.S.C., they could arrive at the signature
starting from distinct positions, but when they sign, they have, hopefully,
found an agreement satisfying both parties. There is a caveat: under the
current low oil prices, I.O.C.s may find several different investment
opportunities; if a company doesn’t see an investment opportunity as
sufficiently profitable, it can easily switch to drilling in other localities. Instead,
a country doesn’t have the same privilege. Oil and gas deposits are fixed in a
specific place. In brief, a country has to do with what it has. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Indeed, a country has to
maximize its profits, but it has also to do a reality check. And, in the case
of Lebanon, this reality check may be done with an eye to the amount of dollars
that every year Lebanon must use to satisfy its energy requirements. In 2013, a
year with high oil prices, Lebanon imported oil and derivatives for an amount
of $5.11 billion, i.e., 11.4 percent of its G.D.P. Moving to 2016, a year of
low oil prices, there was an 8.20 percent yearly rise in value of oil imports
to $3.72 billion, which is equal to 98.21 percent of mineral products’ import
value. These numbers would probably be a sufficient reason for Lebanon to try
to develop its hydrocarbons sector. In fact, in addition to spending less
money, by developing its own offshore natural gas deposits, Lebanon could start
using natural gas rather than oil to produce electricity with many
environmental benefits, give its citizens and industrial sector a continuous
supply of electricity, permit its industrial sector to gain competitiveness in
pricing and exports, and increase its energy security. On top of these improvements,
Lebanese politicians, who are always overoptimistic, already envisage the
possibility of creating new industries like petrochemicals—this idea is very
premature.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Until now, citizens and large-scale
manufacturers have relied on their own electricity generators to ensure
uninterrupted electricity supply—in some parts of the country there is no
electricity for 18 hours a day, while at the same time current expenditures for
Electricité du Liban, the public body controlling 90 percent of the activities
of production, transportation and distribution of electricity in the country, are
still the third most important point in the budget after debt service and
public wages. Losses from intermittent energy supply and the utilization of
private generators have translated into a considerable loss of competitiveness
of Lebanese products on global markets. According to the Association of
Lebanese Industrialists, the average energy factor cost is 5.7 percent of the
companies’ selling price, but this cost is as high as 35 percent of the selling
cost for energy intensive industries like manufacturing. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">By developing its offshore
natural resources, Lebanon could increase its overall energy security in order
not to repeat the problem Lebanon is currently facing with its two natural gas
power plants. In fact, presently Lebanon has already two combined cycle gas
turbines (C.C.G.T.s), Zahrani (460 MW) and Deir Ammar (460 MW), in operation
but they are not working properly because they use fuel oil and not natural
gas, which, in light of external political and economic circumstances, is not
currently exported to Lebanon.<span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Corruption is a huge
problem. Transparency International, a global civil society organization, in
its corruption perceptions index ranked Lebanon 136 out of 176 countries in
2016. And the idea of getting rid of corruption is probably just wishful
thinking. Think of Angola, which is a good case in point. From 2002 to 2015,
this country’s exports totaled almost $600 billion, nearly all of it from oil.
According to the Catholic University of Angola’s Center for Studies and
Scientific Research, oil revenue brought the government coffers $315 billion.
At the same time $28 billion from government budgets remained unaccounted for
and up to 35 percent of the money spent on road construction vanished. And in
relation to Lebanon, it’s important to underline that immediately after the first
pre-qualification phase, already in 2013, serious transparency problems had emerged
concerning two of the three qualified Lebanese companies. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">One positive, but limited,
note for the possible investors is that Lebanon has announced its intention to
join the Extractive Industries Transparency Initiative (E.I.T.I), which is a
voluntary initiative through which the government of Lebanon will commit to
publishing reports on how the government manages the oil, gas, and mining
resources. In practice, the participation in the E.I.T.I. will promote
transparency in the hydrocarbons sector. It would be quite important that
Parliament approved a draft law, which was prepared in the last two years, regarding
transparency in the O&G sector before November.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEivRHR8Pag9ZCA58rZEYUXist2l1aVDS4xQQ322_qGnR7rALfJHfZfHYALFhui5d6vZeZQHTc1lsSs_rbeOec3IW7Z1USHENHgOIEezwOVaHEAGH883aDHXBx41DqdYDZQrDj3Pbn9OZCfL/s1600/BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-7.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-7" border="0" data-original-height="619" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEivRHR8Pag9ZCA58rZEYUXist2l1aVDS4xQQ322_qGnR7rALfJHfZfHYALFhui5d6vZeZQHTc1lsSs_rbeOec3IW7Z1USHENHgOIEezwOVaHEAGH883aDHXBx41DqdYDZQrDj3Pbn9OZCfL/s1600/BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-7.jpg" title="BACCI-Lebanon-Launches-Its-Offshore-Oil-and-Gas-Sector-June-2017-7" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span lang="EN" style="color: #353434; font-family: "georgia" , serif; font-size: 14pt; line-height: 107%; margin: 0px;"><b><i>The E.I.T.I. Standard —
Source: E.I.T.I.</i></b></span></td></tr>
</tbody></table>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">There is a final question:
What companies could really be interested in investing in Lebanon? It’s
difficult to have an answer. U.S. Exxon Mobil, Chevron, and Anadarko, Brazil’s
Petrobras, Italy’s E.N.I., Denmark’s Maersk Spain’s Repsol, U.K. Shell,
Norway’s Statoil, France’s Total, Japan’s Inpex, Malaysia’s Petronas, and
O.N.G.C Videsh Limited all pre-qualified as operators—12 in 2013 and 1 in 2017.
Indeed, these companies are among the best I.O.C.s at world level. But it’s
quite probable that the interest they had in 2013 is not present any longer in
light of all the considerations developed above. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Recently, a few days ago, Foreign
Minister Gibran Bassil while meeting with his Chinese counterpart, Wang Yi, </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">encouraged China to invest in
Lebanon’s oil and gas sector. Normally, this type of exhortation would be
perfectly in line with the meeting. But when you are the foreign minister of a
country that is currently carrying out its first licensing round to which no
Chinese company will participate, such a behavior raises the doubt that the
pre-qualified companies haven’t until now shown excessive interest in the
licensing round and that Lebanon has to develop a plan B. Of course, this could
easily be just a simple conjecture because companies will submit their tenders
only on Sept. 15, 2017.<span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In particular, in view of
the considerations developed in this analysis, it could be difficult for an I.O.C.
to develop a good business case and decide to invest in one of the three blocks
comprising the disputed wedge of water. Moreover, Lebanon does not have the
naval capabilities to protect militarily its future O&G installations,
while Israel has powerful naval means. </span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">But there is something
more. The sectarian divisions of Lebanese society, which are mirrored in the
country’s political institutions, until now have consistently and only slowed
the development of an O&G sector in Lebanon. What if instead the energy
sector with its consistent revenue stream became a new lever capable of
kindling another time Lebanon’s society internal conflicts? <span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<br />
<div style="line-height: 200%; margin: 0px; text-align: center;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span></div>
<div style="text-align: center;">
</div>
<div style="line-height: 200%; margin: 0px; text-align: center;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><b>For More Information Please See</b></span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><b><br /></b></span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><b><a href="http://www.alessandrobacci.com/2015/07/lebanons-offshore-natural-gas-the-importance-of-two-decrees.html" target="_blank">BACCI, A., <i>Lebanon's Offshore Natural Gas: The Importance of Two Decrees</i>, July 2015</a></b> </span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div style="line-height: 200%; margin: 0px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<b></b><i></i><u></u><sub></sub><sup></sup><strike></strike></div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-140955823923187432017-05-30T22:30:00.000+03:002017-06-28T20:33:24.469+03:00The U.S. Vision of Iraq's Oil Production<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgx8kz8C2bg-Ps8jWFW_CZXPgoPPYciS-2AscoEm9ebRIYGktVKdXyIWRyNdsCv1cX1cA8IQmTpiXVU0AqRgg74bk-QEkDBtspkfNV2yNwqujU38UyHPyAEKNgl6FFmnjTBxJTAsWBSW1-r/s1600/BACCI-US-Vision-Iraq-Oil-Production-May-2017-Cover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-US-Vision-Iraq-Oil-Production-May-2017-Cover" border="0" data-original-height="450" data-original-width="870" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgx8kz8C2bg-Ps8jWFW_CZXPgoPPYciS-2AscoEm9ebRIYGktVKdXyIWRyNdsCv1cX1cA8IQmTpiXVU0AqRgg74bk-QEkDBtspkfNV2yNwqujU38UyHPyAEKNgl6FFmnjTBxJTAsWBSW1-r/s1600/BACCI-US-Vision-Iraq-Oil-Production-May-2017-Cover.jpg" title="BACCI-US-Vision-Iraq-Oil-Production-May-2017-Cover" /></a></div>
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: center;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><b>The article </b><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 107%; margin: 0px;"><b>“<a href="http://oilpro.com/post/31412/us-iraq-and-oil-production" target="_blank">The U.S. Vision of Iraq's Oil Production</a></b><b>” </b></span><b>has been initially published by <a href="http://oilpro.com/" rel="nofollow" target="_blank">Oilpro</a>, a professional network for the oil and gas professionals</b></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: right;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">May 30,
2017</span></b></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">LONDON —
Last week, I attended Iraq Petroleum 2017, a conference organized every year by
The C.W.C. Group, which is the <strong><span style="font-family: "georgia" , serif; font-weight: normal; margin: 0px;">world-leading events</span></strong><b style="mso-bidi-font-weight: normal;"> </b><strong><span style="font-family: "georgia" , serif; font-weight: normal; margin: 0px;">and training producer</span></strong><b style="mso-bidi-font-weight: normal;"> </b>for the<b style="mso-bidi-font-weight: normal;"> </b><strong><span style="font-family: "georgia" , serif; font-weight: normal; margin: 0px;">oil, gas and infrastructure</span></strong> industries — still with
reference to Iraq/K.R.G., The C.W.C. Group is currently organizing in Beirut,
Lebanon, </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Basra Oil, Gas & Infrastructure
Conference (planned for Oct. 2017) and in London, U.K., Kurdistan-Iraq Oil
& Gas (planned for Dec. 2017).</span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">This
year’s edition of Iraq Petroleum (the eleventh edition) gathered over 200
senior industry professionals and government representatives with the main goal
of discussing new strategies for Iraq’s energy sector. In specific, this
edition focused on </span><span lang="EN" style="display: none; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">the focus was on Iraq's oil and gas </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="https://www.facebook.com/hashtag/infrastructure?source=feed_text&story_id=1034922023307988"><span lang="EN" style="color: windowtext; display: none; margin: 0px; text-decoration: none;">#infrastructure</span></a></span><span lang="EN" style="display: none; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> development projects and on
the global trends in </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="https://www.facebook.com/hashtag/crude?source=feed_text&story_id=1034922023307988"><span lang="EN" style="color: windowtext; display: none; margin: 0px; text-decoration: none;">#crude</span></a></span><span lang="EN" style="display: none; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> oil </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="https://www.facebook.com/hashtag/trading?source=feed_text&story_id=1034922023307988"><span lang="EN" style="color: windowtext; display: none; margin: 0px; text-decoration: none;">#trading</span></a></span><span lang="EN" style="display: none; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> in light of Iraq's increased </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="https://www.facebook.com/hashtag/exports?source=feed_text&story_id=1034922023307988"><span lang="EN" style="color: windowtext; display: none; margin: 0px; text-decoration: none;">#exports</span></a></span><span lang="EN" style="display: none; font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">.</span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Iraq's oil and gas </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="https://www.facebook.com/hashtag/infrastructure?source=feed_text&story_id=1034922023307988"><span lang="EN" style="color: windowtext; margin: 0px; text-decoration: none;">infrastructure</span></a></span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> development projects and on the global trends in </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="https://www.facebook.com/hashtag/crude?source=feed_text&story_id=1034922023307988"><span lang="EN" style="color: windowtext; margin: 0px; text-decoration: none;">crude</span></a></span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> oil </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="https://www.facebook.com/hashtag/trading?source=feed_text&story_id=1034922023307988"><span lang="EN" style="color: windowtext; margin: 0px; text-decoration: none;">trading</span></a></span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> in
light of Iraq’s increased crude oil exports. </span></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg22cDrFvXCoxwnCxSCF5cehVdyCtbLfr9i_nUgNPKUhSSo_FCrdoVQQs6gfsV0-vn9qDUzpSzJfrzh7QueHD_lTdCJ58rYykWW_QwWbNG3VIZdHfAYI4_Ds3j_ePHX-seZQ2xbk25Pyg_p/s1600/BACCI-US-Vision-Iraq-Oil-Production-May-2017-1.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-US-Vision-Iraq-Oil-Production-May-2017-1" border="0" data-original-height="554" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg22cDrFvXCoxwnCxSCF5cehVdyCtbLfr9i_nUgNPKUhSSo_FCrdoVQQs6gfsV0-vn9qDUzpSzJfrzh7QueHD_lTdCJ58rYykWW_QwWbNG3VIZdHfAYI4_Ds3j_ePHX-seZQ2xbk25Pyg_p/s1600/BACCI-US-Vision-Iraq-Oil-Production-May-2017-1.jpg" title="BACCI-US-Vision-Iraq-Oil-Production-May-2017-1" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div style="line-height: 200%; margin: 0px 0px 11px; text-align: center;">
<a href="https://www.blogger.com/null" name="_Hlk483926752"></a><b style="mso-bidi-font-weight: normal;"><i><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The Conference — Source: The
C.W.C. Group Press Service</span></i></b></div>
</td></tr>
</tbody></table>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Very interesting, and in a certain way quite direct and
frank, was the speech of Mr. Alan Eyre, director of the Office of Middle East
and Asia of the Bureau of Energy Affairs with the State Department. Mr. Eyre
clearly defined what the U.S. vision of the new energy landscape is. He was
part of the panel called “Iraq a Major Oil & Gas Power: Strategies for the
New Energy Landscape.”<span style="margin: 0px;"> </span></span></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQMBM_01K9r7OT8Ubs5CK34Uj6u0XMN6DGTRHVEe6T4jbJHli6l6OBzQ7OQTxGxiO1bmTyrwBaUIm5mBGSaYqxEWgGoKVllosrbfcWyIayXRaVZbDZvkwI1XoUhH6X1zapXgvjfmVyzuSv/s1600/BACCI-US-Vision-Iraq-Oil-Production-May-2017-2.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-US-Vision-Iraq-Oil-Production-May-2017-2" border="0" data-original-height="554" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQMBM_01K9r7OT8Ubs5CK34Uj6u0XMN6DGTRHVEe6T4jbJHli6l6OBzQ7OQTxGxiO1bmTyrwBaUIm5mBGSaYqxEWgGoKVllosrbfcWyIayXRaVZbDZvkwI1XoUhH6X1zapXgvjfmVyzuSv/s1600/BACCI-US-Vision-Iraq-Oil-Production-May-2017-2.jpg" title="BACCI-US-Vision-Iraq-Oil-Production-May-2017-2" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div style="background: white; margin: 0px 0px 11px;">
<a href="https://www.blogger.com/null" name="_Hlk483926752"></a><b style="mso-bidi-font-weight: normal;"><i><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; margin: 0px;">The Panel "Iraq a Major Oil & Gas Power:
Strategies for the New Energy Landscape" — Source: The C.W.C. Group Press
Service</span></i></b></div>
</td></tr>
</tbody></table>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The State Department’s position — and consequently the
position of the U.S. government — supports the U.S. shale oil and gas producers
to push ahead as much as they can with their shale operations on the American
soil, no matter what an increased U.S. shale oil production might mean to the
oil price internationally. Technological advances in the past few years have
made U.S. shale oil production now profitable at $40 to $50 per barrel. </span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In other words, the U.S. government calls for an oil
price based on a pure free market approach. If U.S. shale oil producers make a
profit, they stay in the market, if they don’t, they have to exit the market.
It’s a simple but very clear approach. This vision does not make room any
longer for cartel restrictions, such as those that OPEC has always tried to
implement over the course of its existence. </span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In specific, with reference to the last two years and a
half, since the end of November 2014 OPEC has been playing a commercial battle
with the U.S. shale producers with the final goal of pushing them out of the
market. In fact, despite plunging oil prices, in November 2014, OPEC members
decided not to cut output. At that time, cutting output was a move required to support
oil prices, but strategically OPEC members preferred to maintain (if not to
enlarge, this, at least, was their initial idea) their market share. As a
consequence of their decision, oil prices bottomed out in January 2016 when Brent
was less than $30 per barrel. Then, in November 2016, with the Brent price partially
higher at around $45 a barrel, </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">OPEC ministers secured a cut in OPEC’s oil
production from 33.8 million barrels a day (b/d) to 32.5 million b/d for the
first six months of 2017 to prop up prices. Then, just a few days ago, at its
May 2017 meeting, OPEC decided to extend its production cut by nine months. At
the time of this writing, Brent is around $52 a barrel. Currently </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">inventories haven’t stopped rising and supply
continues to outstrip demand — this explains why the price of oil is not really
rising. In addition, shale production is increasing at the same rate as it was
before 2014. To counter its lost political power, OPEC might try to expand its
base and access to producers. </span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The U.S.
vision of the new energy landscape is well in line with the new U.S.
administration’s concept of “America First” (implemented at the energy level as
well) and with the present inherent value of fossil fuels. With reference to
the first point, the White House has clearly affirmed that it wants to maximize
the use of American resources, freeing the U.S. from dependence on foreign oil.
Here, putting politics aside, this economic target makes sense: If U.S. shale
oil producers are able to generate profits, they will be on the market and this
will be beneficial to the U.S. economy overall. The second point, the present
inherent value of fossil fuels, needs to be consistently enlarged.</span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Time
after time, Arab countries have always released statements where it was written
that the correct price of oil was a certain amount of dollars per barrel (for
instance $70, $90 and so on). And they have always closed their statements
affirming that the stated price per barrel could guarantee a sort of win-win
agreement between producing/exporting countries and importing/consuming
countries. </span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The
reality is that we don’t know what the correct price of a barrel of oil should
be, especially on a medium- to long-term basis. According to a free market
logic, the price of an item, oil as well, should be based on the balance
between supply and demand. In other words, the price of oil is a moving thing.
Of course, when talking about oil there are also political and security considerations
that enter the picture. But, in times of oil abundance in the U.S., these
political and security considerations can be played down. See at this regard, </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">President Donald Trump's proposal to sell half of the
U.S. strategic oil reserve. This proposal well highlights a reduction in the
U.S. reliance on imports — and a weaning off OPEC crude — exactly when the
domestic U.S. production soars.</span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Another layer of complexity for those who invest in oil,
but this is also true for natural gas and minerals, is the long lead time of
the projects, i.e., the time between the initial stage of a project and first
commercially viable production. In other words, from the final investment
decision (F.I.D.), but, in reality, an investor has already used important
economic resources at this stage, to the moment when the first barrel of oil
will be commercially produced, there could easily be 7 years, 10 years, if not
longer times. And this means that the profitability envisaged at the F.I.D.
time could no longer be present when you have the first barrel of oil. This is
a real problem for commodities — instead, a manufacturer who produces for
example t-shirts has very a short lead time between the ideational phase and
the production phase thanks to reduced entry barriers.<span style="margin: 0px;"> </span></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">But let’s put aside political considerations, security
considerations, and long lead times, and let’s focus our attention on the
concept of the price oil deriving from the balance of supply and demand.
Persian Gulf’s oil producers artificially would like a high oil price, which on
the basis of the number of oil producers across the world and the pace of the
world economy in 2017 is not achievable right now. If in the coming months
there were a war in a major oil-producing country, a complete reduction of the
inventory levels of crude oil, or difficulties maintaining the present level of
oil production because of the reduced oil investments of the last two years,
things could be very different and the oil price could spike again also
consistently. Indeed, the decline in upstream investment in 2015 and 2016 ($450
billion and less than $400 billion respectively from around $650 billion in
2014) could materialize in a severe shortage in the medium-term.</span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Business theory tells us that with a successful
differentiation strategy, a company is able to offer products or services
perceived to be distinctively more valuable to customers than are competitive
offerings, while maintaining more or less the same cost structure used by
competitors. But with commodities this is not possible. With commodities, and
crude oil is a commodity, a producer (especially if it works only upstream)
cannot differentiate its product in order to present it as more attractive to
buyers. It’s true that crude oils are different according to different A.P.I.
grades and sulfur content, but it’s also true that the final products deriving
from crude oil are exactly the same (for instance at the pump station when you
fill your tank it doesn’t matter what gasoline brand you use) and that we can
consider the A.P.I. grades and sulfur differences as just initial cost
differences and not as a real final differentiation of the product. For more
information about the concept of competition please see the extensive research done
on the topic by Professor Michael Porter of Harvard University.</span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">So, logic wants that with commodities in a competitive market
low-cost producers are the winners. With reference to crude oil this means that
if there is a place in the world where crude oil should ideally be produced,
it’s exactly in the Middle East and in particular, in Iran, Iraq, and Saudi
Arabia as a consequence of their finding and development (F&D) costs, which
are probably less than $10. </span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In a perfect world, these three countries should be the
hard-core oil producers at world level. In addition, although they would not be
able to satisfy all the world’s oil demand (they would not be monopolists), they
would still gain a lot from being price takers. In fact, all their low-cost oil
production would be sold at the price asked to cover the production cost of the
highest-cost producer necessary to satisfy the last barrel of oil required by world
demand. <span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Arab countries want high oil prices because their
economies are almost exclusively based on the export of oil and gas. But, under
the current circumstances, for Arab countries, obtaining, let’s say, $100 per
barrel of oil in order to balance their fiscal budget is impossible. In this
regard, at the conference resounded quite loudly the idea of diversifying
Iraq’s economy. Personally, I think the expression “diversifying the economy”
in relation to Persian Gulf’s producers is not correct. I believe it would be
more correct to say “partially reducing the dependence on O&G exports.” </span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In fact, for a commodity producer, and especially for one
located in the Middle East, reaching economic diversification and maintaining
it, is never an easy task. In confirmation of this point think of Norway, which
has always been considered the poster-boy of how an O&G producer should develop
its petroleum sector. As oil prices started to fall in 2013, it became apparent
that the Norwegian economy had become incredibly unbalanced. "The oil and
gas industry became too strong in our economy, especially during the last four
or five years” said Prime Minister Erna Solberg in an interview with the BBC
News website in 2016. And then she added that the </span><span lang="EN-GB" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Norwegian economy had
to diversify. Norway has the same problem as the Arab countries. In fact, </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Norway’s Johan Sverdrup field
(</span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">expected resources of<span style="margin: 0px;"> </span>1.9 to 3.0 billion barrels of oil equivalents),
a huge field that will start production in 2019, </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="http://www.oedigital.com/engineering/item/14635-johan-sverdrup-phase-one-at"><span lang="EN" style="color: windowtext; margin: 0px;">now could probably reach breakeven at $20 to $30 per barrel</span></a></span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">, but the government </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="https://www.bloomberg.com/news/articles/2014-12-12/-70-oil-is-norway-break-even-point-central-bank-chief-says-3-"><span lang="EN" style="color: windowtext; margin: 0px;">requires $70 per barrel oil</span></a></span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> to balance its fiscal budget.
Also Norway is a one-path economy, </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="https://ssb.no/en/utenriksokonomi/statistikker/muh/aar-forelopige/2016-01-15?fane=tabell&sort=nummer&tabell=252245"><span lang="EN" style="color: windowtext; margin: 0px;">mostly dependent on oil</span></a></span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"> and gas exports (around 60 percent of exports). </span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The two pictures below show Norway's unbalanced export
sector and the U.S. much more balanced export sector.</span></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhP-0GY8FmOwmh4ZWFGF1SBRxoJkrNVXC4bLUEpRyjFrCTcjCQ1wQEchEhkF18ALSovT7hlmBop_dBgaKvJknQbW3Q8yJn00Mt8vawsYK9y-7xXNyxVHrQ41iHHfrZCKkvinuglj_9YYso/s1600/BACCI-US-Vision-Iraq-Oil-Production-May-2017-3.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-US-Vision-Iraq-Oil-Production-May-2017-3" border="0" data-original-height="575" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhP-0GY8FmOwmh4ZWFGF1SBRxoJkrNVXC4bLUEpRyjFrCTcjCQ1wQEchEhkF18ALSovT7hlmBop_dBgaKvJknQbW3Q8yJn00Mt8vawsYK9y-7xXNyxVHrQ41iHHfrZCKkvinuglj_9YYso/s1600/BACCI-US-Vision-Iraq-Oil-Production-May-2017-3.jpg" title="BACCI-US-Vision-Iraq-Oil-Production-May-2017-3" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div style="background: white; margin: 0px 0px 11px;">
<a href="https://www.blogger.com/null" name="_Hlk483926752"></a><b style="mso-bidi-font-weight: normal;"><i><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; margin: 0px;">What Did Norway Export in 2014? — Source: The Atlas of
Complexity, Harvard University</span></i></b></div>
</td></tr>
</tbody></table>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgtVoTjromvmLllw3JGExWOa4nMsAxTt5Su_hSpFkGrKPGsaETsObwN8xGfyO2WrZ9WW3Ebp0mKDQJjuq0YHfUyx7KtGysOBp7ZZgCgVTqb0sTjYNim8_fzfMir_4yM2y-uIt7r-_gY2_PM/s1600/BACCI-US-Vision-Iraq-Oil-Production-May-2017-4.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-US-Vision-Iraq-Oil-Production-May-2017-4" border="0" data-original-height="575" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgtVoTjromvmLllw3JGExWOa4nMsAxTt5Su_hSpFkGrKPGsaETsObwN8xGfyO2WrZ9WW3Ebp0mKDQJjuq0YHfUyx7KtGysOBp7ZZgCgVTqb0sTjYNim8_fzfMir_4yM2y-uIt7r-_gY2_PM/s1600/BACCI-US-Vision-Iraq-Oil-Production-May-2017-4.jpg" title="BACCI-US-Vision-Iraq-Oil-Production-May-2017-4" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div style="background: white; margin: 0px 0px 11px;">
<a href="https://www.blogger.com/null" name="_Hlk483926752"></a><b style="mso-bidi-font-weight: normal;"><i><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; margin: 0px;">What Did the U.S. Export in 2014? — Source: The Atlas of
Complexity, Harvard University</span></i></b></div>
</td></tr>
</tbody></table>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In practice, at the conference the State Department’s suggestion
to Iraq was to produce more oil, i.e., to develop a real economy of scale in
the petroleum sector. The idea was to try to make up for the decreased
government revenues of the last years with more millions of oil exported on a
daily basis. But the implementation is not easy. Indeed, infrastructural
problems are among the most important hurdles. In fact, in the last years Iraq has
already lowered its ambitious oil production targets. When the technical
service contracts (T.S.C.s.) were signed, the federal government and the IOCs
had set an initial production target of more than 12 million b/d by 2017 from a
dozen oil fields. Later, after renegotiating the signed contracts, the federal
government and the companies planned to reach 9.0 million b/d by 2020. It’s now
probable that Iraq will lower the target down to 6.0 if oil prices stay low. In
fact, in addition to infrastructural problems, Iraq has been forced to revise
its expansion plans because </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">under the current T.S.C.s low oil prices have
a particularly damaging effect on the government’s income.</span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The State Department’s suggestion to Iraq echoed David
Ricardo’s theory of comparative advantages. For the most part, countries all
try to do what they are relatively best at and trade for everything else. </span><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">A country
has an absolute advantage in relation to those products in which it has a
productivity edge over the other countries. This means that it takes this
country fewer resources to produce a certain product. A country has a
comparative advantage when a good can be produced at a lower cost in terms of
other goods. Countries that specialize based on comparative advantage gain from
trade. A country has an absolute advantage in producing a good over another
country if it uses fewer resources to produce that specific good. Absolute
advantage can be the result of a country’s natural endowment — and this is the
case of Iraq with oil. </span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The concept of comparative advantages doesn’t want to
deny the idea of the importance of economic diversification in order to reduce
economic risks (this principle is absolutely valid for personal investment
portfolios, for companies’ operations, and for countries’ G.D.P. composition).
But when considering Middle Eastern oil producers, if on the one hand economic
diversification is important, on the other hand it has to be taken <i style="mso-bidi-font-style: normal;">cum grano salis</i>. The reason is that for
these countries diversifying their economy will be extremely difficult. So, oil
and gas will continue to be for these countries the main pillar of their
economies. And, if this weren’t the case, these countries would fall into chaos
more than they are now. Consequently, a more realistic approach is needed
otherwise we risk falling into pure wishful thinking. One thing is what we want
to do, another thing is what we are able to do.</span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In addition, the State Department’s invitation to Iraq
seems to underline one point: Oil producers have to export oil now that it has
a value. Maybe it doesn’t have the per-barrel value that Arab countries would
desire, but it has a value. In twenty or thirty years many things could change.
It’s true that according to many forecasts there will be an increase in energy (and
petroleum) consumption globally, but forecasts on a long-term basis are never
easy and could contain a higher probability of fallacy.</span></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmkbzT4XGjwcilYhHLxmUjSLLbu_VGsl5Wx0TRQMVm0NA6l3z9Y1K0poEYJPVwJRkFOBYGq1oXHP7uMwH4r1zUZo4I0jtmkwOtUHlz3kMe07zH2WW44-OxgIYPaHcqNFNQTvuGYkzqfpSR/s1600/BACCI-US-Vision-Iraq-Oil-Production-May-2017-5.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="BACCI-US-Vision-Iraq-Oil-Production-May-2017-5" border="0" data-original-height="554" data-original-width="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmkbzT4XGjwcilYhHLxmUjSLLbu_VGsl5Wx0TRQMVm0NA6l3z9Y1K0poEYJPVwJRkFOBYGq1oXHP7uMwH4r1zUZo4I0jtmkwOtUHlz3kMe07zH2WW44-OxgIYPaHcqNFNQTvuGYkzqfpSR/s1600/BACCI-US-Vision-Iraq-Oil-Production-May-2017-5.jpg" title="BACCI-US-Vision-Iraq-Oil-Production-May-2017-5" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div style="background: white; margin: 0px 0px 11px;">
<a href="https://www.blogger.com/null" name="_Hlk483926752"></a><b style="mso-bidi-font-weight: normal;"><i><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; margin: 0px;">Marcus Antonini, Shell Iraq's Vice President &
Country Chairman (right), and Alessandro Bacci (left) — Source: The C.W.C.
Group Press Service</span></i></b></div>
</td></tr>
</tbody></table>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><br /></span></div>
</div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-83265930455565051872017-04-07T17:44:00.000+03:002018-02-22T03:47:10.253+02:00A Neutral Stance Doesn’t Help Energy Companies in Iraq <div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCPRvbqtpw9a0CDZ6cBoZbg1kVqxy2IDHRUFp1Fsn5NfgnhwUyzzfB5TWRTt9lXVzu1ffpEfWuMcDwfmIEilnGRiQ65PXz8teD6mrA3tqTQ7Y8DbR3xU9zpL5nmbvDj6TG_L76mmhrqv6B/s1600/BACCI-A-Neutral-Stance-Does-Not-Help-Energy-Companies-in-Iraq-Cover-April-2017.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-A-Neutral-Stance-Does-Not-Help-Energy-Companies-in-Iraq-Cover-April-2017" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCPRvbqtpw9a0CDZ6cBoZbg1kVqxy2IDHRUFp1Fsn5NfgnhwUyzzfB5TWRTt9lXVzu1ffpEfWuMcDwfmIEilnGRiQ65PXz8teD6mrA3tqTQ7Y8DbR3xU9zpL5nmbvDj6TG_L76mmhrqv6B/s1600/BACCI-A-Neutral-Stance-Does-Not-Help-Energy-Companies-in-Iraq-Cover-April-2017.jpg" title="BACCI-A-Neutral-Stance-Does-Not-Help-Energy-Companies-in-Iraq-Cover-April-2017" /></a></div>
<br />
<br />
<div align="center" style="line-height: 200%; margin: 0px 0px 11px; text-align: center;">
<span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><b>The article </b><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 107%; margin: 0px;"><b>“</b></span><a href="http://oilpro.com/post/30819/neutral-stance-doesnt-help-energy-companies-iraq" target="_blank"><b>A Neutral Stance Doesn't Help Energy Companies in Iraq</b></a><b>” has been initially published by </b><a href="http://oilpro.com/" rel="nofollow" target="_blank"><b>Oilpro</b></a><b>, a professional network for the oil and gas
professionals</b></span></div>
<div style="text-align: center;">
<br /></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: right;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><b>April 7, 2017</b></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">
FLORENCE, Italy — One aspect of corporate foreign policy that is not any longer so basic a tenet as it was during the latter part of the 20th century is the necessity of being or at least appearing neutral. Neutrality may be defined as
the state of not supporting or helping (physically and ideologically) either
side in a conflict or disagreement. Exactly because for a multinational
company, corporate foreign policy, which subsumes in its definition corporate
diplomacy and geopolitical due diligence, is becoming central to winning
internationally, a basic neutral approach is too limited to guarantee in every
instance positive results.<span style="margin: 0px;"> </span></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Starting
in the mid-1980s, international companies have presented themselves as a sort
of apolitical players, which, among their core goals, have an interest in the
advancement of the societal environment of the countries where they invest. Indeed,
this attitude is a complete sea change from the corporate foreign policy of the
1950s and 1960s when companies often carried out a neocolonialist strategy,
which strongly influenced the internal politics of many weak states. </span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">A good
example of the neocolonialist behavior was the complicity of United Fruit
Company, an American corporation that traded in tropical fruit, with the U.S.
government in the 1954 coup in Guatemala. A coup that ousted the democratically
elected leader of Guatemala, President Jacobo Arbenz, and resulted in more than
three decades of military strongmen at the helm of the country.<span style="margin: 0px;"> </span></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Since the
mid-1980s international companies have shunned any political involvement, while
at the same time they have tried to implement a good corporate social
responsibility (C.S.R.), to protect and improve their brand perception and
reputational risk management, to cultivate stakeholder management, and to adopt
better public relations with N.G.O.s.</span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">With
hindsight, these promotional tools have never given the international companies
a real edge with reference to high-impact geopolitical events such as coups,
regional and civil wars, internal power struggles, changes in the political
status of key local partners, and changes in the public sentiment toward the
company. In other words, only through their neutral approach and the tools
developed after the mid-1980s, the international companies cannot really protect
themselves and thrive in the much more unstable world that emerged at the end
of the Cold War. </span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">A clear illustration
of the problems deriving from maintaining a neutral approach concerns the
energy investments in Iraq proper and Iraqi Kurdistan. The latter is also known
as the Kurdistan Regional Government (the K.R.G.) and is a semi-autonomous
region within Iraq. Without entering into too much detail, it’s important to
understand that after World War I, for all the 20<sup>th</sup> century, the
relations between the Kurdish population based in what is today’s K.R.G. and
those who exerted their rule over that area had been very tense and experienced
several episodes of violent conflicts.<span style="margin: 0px;"> </span></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The
relations between Erbil and Baghdad worsened again at the end of 2007 when the
K.R.G. started signing production sharing contracts (P.S.C.) with small- and
medium-sized companies without prior authorization from the federal government
— in addition, the latter has never signed P.S.C.s but only technical service
contracts (T.S.C.s). Baghdad has always said that it alone has the right to
negotiate and sign energy deals for the whole Iraqi territory, the K.R.G.
included. Instead, Erbil insists that Iraq's Constitution<i> </i>allows it to
agree to contracts, and as a result to ship oil independently of the central
government.<span style="margin: 0px;"> </span></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In
October 2011, tensions rose to a higher level when the U.S. supermajor Exxon Mobil,
a company that was already the operator of West Qurna 1, a giant oilfield in
southern Iraq, signed an oil deal related to the development of six exploration
blocks in the K.R.G. — in December 2016 Exxon Mobil pulled out of three of
these six blocks, but this move was not due to Baghdad’s pressure. </span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Exxon Mobil
was the first supermajor to sign oil deals with Iraqi Kurdistan, and the
federal government was literally scared that Exxon Mobil could act as a sort of
trailblazer opening Iraqi Kurdistan to Big Oil investments. In fact, for
Baghdad, one thing was to confront a K.R.G. receiving its economic legitimacy
from small- and medium-size oil companies, one completely different thing was
to confront a K.R.G. receiving its economic legitimacy from the supermajors. </span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">The
federal government wanted to appear resolute against Exxon Mobil — as it had
done until then with the small- and medium-sized companies that had invested in
the K.R.G until then. So, Baghdad immediately menaced to push Exxon Mobil out
of Iraq proper stripping the company of its West Qurna 1 contract — the U.S.
company had a 60 percent share in that oil field — if it hadn’t relinquished
its Kurdish investments. Today, after almost 6 years, Exxon Mobil is still an
investor in both the K.R.G. (with three blocks) and in Iraq proper (in West
Qurna 1, where it’s still the operator, although with a 25 percent share).<span style="margin: 0px;"> </span></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In Iraq
(Iraq proper and the K.R.G.), there is a sort of dichotomy regarding the energy
investment strategies on the part of the international oil companies (I.O.C.s).
In practice, some companies have decided to invest only in the K.R.G. (among
them, U.S. Chevron, Korea National Oil Company, China’s Addax Petroleum/Sinopec,
and Norway’s D.N.O. ), while others have decided to invest only in Iraq proper
(among them, British Petroleum, Anglo-Dutch Shell, Japan Petroleum Exploration
Company, Russia’s Lukoil and Rosneft, and China’s Cnooc and C.N.P.C). The only
energy companies that escape this dichotomy and consequently have investments
in both Iraq proper and the K.R.G. are Exxon Mobil, Russia’s Gazprom, and
France’s Total.<span style="margin: 0px;"> </span></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">A neutral
approach may be useful when in a country there are completely unstable
political conditions (for instance, military clashes/open war), and when it
seems probable that in the short term there could be a clear and definitive political
solution. But, when the quarrelling parties are not physically fighting between
themselves, and when it appears highly improbable that there will be a final
arrangement any time soon, a neutral approach may represent for a company only a
lost economic opportunity. In the case of the K.R.G. and Iraq proper,
neutrality is probably not useful. </span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Both the
K.R.G. and Iraq proper have oil and gas reserves located in areas that can be
easily protected from the Islamic State — Kirkuk oil fields may be more exposed,
but let’s focus our attention only on the fields within the K.R.G. and on those
in southern Iraq. Moreover, it seems evident that the tensions between Erbil
and Baghdad won’t be gone soon — these tensions date back several decades. In
fact, if the emergence of the Islamic State and its destruction of the Iraqi
side of the Kirkuk-Ceyhan pipeline has forced the K.R.G. to build its system of
export pipelines, which could be seen as a first step toward a K.R.G. economic independence,
it also true that low oil prices, a complicated geopolitical environment, and
oil reserves not as large as initially thought — a better assessment is needed
— could induce the K.R.G. to continue with its tense cohabitation with Iraq
proper. <span style="margin: 0px;"> </span></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In the
end, can international companies wait for a real improvement in the relations
between the K.R.G. and Iraq proper before doing business in the area? In other
words, can they wait for a political improvement that might occur one year,
three years, five years, or ten years from now? The answer is no, because as
usual uncertainty is business’s worst enemy. In Iraq, neutrality is a way to lose
economic opportunities. Instead, if companies want to succeed, they have to
decide where they want to invest and then they have to act consequently.</span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">India’s Reliance
Industries sold its two blocks in the K.R.G. to Chevron because it wanted to
pursue other economic ventures in Iraq proper from which it could have been
barred if it had continued with its K.R.G. investments. Exxon Mobil, Total, and
Gazprom had a different leverage over the federal government when they invested
in the K.R.G — respectively in October 2011, July 2012, and August 2012. In
fact, at that time, they had already signed service contracts related to the
development of three of Iraq’s largest fields</span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">ExxonMobil
for West Qurna 1 (Iraq's first licensing round in 2009)</span></div>
</li>
</ul>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Total for
Halfaya (Iraq's second licensing round in 2009)</span></div>
</li>
</ul>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<ul style="text-align: left;">
<li><div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Gazprom
for Badra (</span><span lang="EN-GB" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Iraq's second licensing
round in 2009)</span></div>
</li>
</ul>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In other
words, for Baghdad it was very difficult, because economically unappealing, to strip
these three companies of the contracts signed in the previous two or three years
— contracts of paramount importance for relaunching and expanding the Iraqi oil
sector. <span style="margin: 0px;"> </span><span style="margin: 0px;"> </span></span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">But, it’s
Shell’s approach that confirms how a corporate foreign policy based on a
neutral approach could have been a very risky option in Iraq. In fact, if, on
the one side, Shell was part to the initial negotiations that Exxon Mobil
developed with the K.R.G. in 2011, on the other side, it was already deeply
involved in Iraq proper with relevant investments. </span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In fact,
Shell was Exxon Mobil’s junior partner (15 percent share) in the West Qurna 1
field (8.7 billion of recoverable barrels of oil) and the operator (45 percent
share) in the Majnoon field in southern Iraq (13 billion of recoverable barrels
of oil). But, at that time, Shell was also in the final stages of the talks
that would end in November 2011 with the signature of a $17.2 billion’s worth
deal with the federal government for collecting and processing all the natural
gas from three of Iraq's giant southern oilfields, i.e., Rumaila, West Qurna 1,
and Zubair. </span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In the
end, Shell’s real interest in Iraq weights the balance in favor of investing in
Iraq proper only. If Shell had signed a deal with the K.R.G., the federal
government </span><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">might have scuttled the gas
deal, which was the weak link for Shell — for the same reasons explained above
in relation to Exxon Mobil and its investment in West Qurna 1, it would have
been quite difficult to strip Shell of the Majnoon contract. Moreover, what is
sure is that for Shell a neutral approach would have meant not investing in
Iraq proper nor in the K.R.G. with all the economic lost opportunities that
this action would have encompassed. </span></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<br /></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<i style="mso-bidi-font-style: normal;"><span lang="EN" style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">This article
covers the topic of the video “</span></i><i style="mso-bidi-font-style: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="http://www.alessandrobacci.com/2017/04/neutral-stance-doesnt-help-energy-companies-in-iraq-video.html" target="_blank">A Neutral Stance Doesn’t Help Energy Companies in Iraq</a>,” which was released on April 4,
2017, on <a href="http://www.alessandrobacci.com/" target="_blank">Alessandro Bacci’s Middle East</a>.<span style="margin: 0px;">
</span></span></i></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<br /></div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;">
<i style="mso-bidi-font-style: normal;"><br /></i></div>
</div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0tag:blogger.com,1999:blog-2299142207500269462.post-35985293486588365412017-04-04T17:52:00.000+03:002017-04-04T17:52:06.548+03:00A Neutral Stance Doesn’t Help Energy Companies in Iraq<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="separator" dir="ltr" style="clear: both; text-align: center;" trbidi="on">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3nAbW8g_Uzj4oKlDByAjJhUXq21cbCaCRoHrsQkx6wNZkA3_bam7EM7yHjyIa-XmR-dSAtD8Gd7sMtRgIlWqAzXzv1LRNfqfs-5mGbZ7BTSGwmxWHPkQLKRk88PG8Y7t_bYkJDX95J9g5/s1600/BACCI-A-Neutral-Stance-Does-Not-Help-Energy-Companies-in-Iraq-April-2017.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="BACCI-A-Neutral-Stance-Does-Not-Help-Energy-Companies-in-Iraq-April-2017" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3nAbW8g_Uzj4oKlDByAjJhUXq21cbCaCRoHrsQkx6wNZkA3_bam7EM7yHjyIa-XmR-dSAtD8Gd7sMtRgIlWqAzXzv1LRNfqfs-5mGbZ7BTSGwmxWHPkQLKRk88PG8Y7t_bYkJDX95J9g5/s1600/BACCI-A-Neutral-Stance-Does-Not-Help-Energy-Companies-in-Iraq-April-2017.jpg" title="BACCI-A-Neutral-Stance-Does-Not-Help-Energy-Companies-in-Iraq-April-2017" /></a></div>
<div dir="ltr" style="text-align: left;" trbidi="on">
<br /></div>
<div dir="ltr" style="text-align: left;" trbidi="on">
<br /></div>
<div align="right" dir="ltr" style="line-height: 200%; margin: 0px 0px 11px; text-align: right;" trbidi="on">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">April 4, 2017</span></b></div>
<div dir="ltr" style="text-align: right;" trbidi="on">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">FLORENCE, Italy</span></b></div>
<div dir="ltr" style="text-align: left;" trbidi="on">
<br /></div>
<div dir="ltr" style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;" trbidi="on">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Dear friends,</span></div>
<div dir="ltr" style="text-align: left;" trbidi="on">
<br /></div>
<div dir="ltr" style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;" trbidi="on">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">I would like to share with you my video “A Neutral Stance
Doesn’t Help Energy Companies in Iraq.”</span></div>
<div dir="ltr" style="text-align: left;" trbidi="on">
<br /></div>
<div dir="ltr" style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;" trbidi="on">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">One aspect of corporate foreign policy that is not any longer so
basic a tenet as it was during the latter part of the 20<sup>th</sup> century is
the necessity of being or at least appearing neutral. </span></div>
<div dir="ltr" style="text-align: left;" trbidi="on">
<br /></div>
<div dir="ltr" style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;" trbidi="on">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">In fact, in the post-Cold War world, a neutral approach does
not provide international companies with a real edge with reference to high-impact
geopolitical events.</span></div>
<div dir="ltr" style="text-align: left;" trbidi="on">
<br /></div>
<div dir="ltr" style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;" trbidi="on">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">A clear illustration of the problems deriving from maintaining
a neutral approach is apparent in the energy investments (oil and gas) in Iraq
proper and Iraqi Kurdistan (a.k.a. the Kurdistan Regional Government — K.R.G.).
</span></div>
<div dir="ltr" style="text-align: left;" trbidi="on">
<br /></div>
<div dir="ltr" style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;" trbidi="on">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Thank you</span></div>
<div dir="ltr" style="text-align: left;" trbidi="on">
<br /></div>
<div dir="ltr" style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;" trbidi="on">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Kind regards,</span></div>
<div dir="ltr" style="text-align: left;" trbidi="on">
<br /></div>
<div dir="ltr" style="line-height: 200%; margin: 0px 0px 11px; text-align: justify;" trbidi="on">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;">Alessandro</span></div>
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"></span><br />
<div dir="ltr" style="line-height: 200%; margin: 0px 0px 11px; text-align: center;" trbidi="on">
<iframe allowfullscreen="" frameborder="0" height="520" src="https://www.youtube.com/embed/sgOjWJkdpNY" width="770"></iframe></div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
</div>
<div style="line-height: 200%; margin: 0px 0px 11px; text-align: center;">
<span style="font-family: "georgia" , serif; font-size: 14pt; line-height: 200%; margin: 0px;"><a href="https://www.youtube.com/watch?v=sgOjWJkdpNY" target="_blank">Click here if you don’t see the video</a></span><br />
<span style="font-family: Georgia;"><br /></span>
<span style="font-family: Georgia;"><br /></span>
<span style="font-family: Georgia;"><br /></span>
<span style="font-family: Georgia;"><br /></span></div>
<div align="center">
</div>
</div>
Alessandro Baccihttp://www.blogger.com/profile/04659480618740781579noreply@blogger.com0