Atrush starts up, Taq Taq output falls again

11 July 2017, Week 27, Issue 622

The long-delayed start of production from the Atrush oilfield in the Kurdistan Region of northern Iraq finally transpired in early July. The asset immediately moved into third place among the area’s producers by dint of the continued decline of the Taq Taq field, where output was on the same day revealed to have fallen again in June to barely a third of last year’s average.

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Atrush’s commissioning comes at an opportune time for the operator, Abu Dhabi government-owned Abu Dhabi National Energy Co. (TAQA), which reported steep losses last year on the back of a huge impairment.

TAQA and minority partner ShaMaran Petroleum of Canada – the former operator, which discovered oil at Atrush in 2011 – announced on July 3 that production at the field had commenced and would be ramped up to full first-phase capacity of 30,000 bpd by the end of the year.

The asset was declared commercial in 2012 – the same year that TAQA farmed in. However, the target date for first oil was repeatedly put back as the partners engaged in protracted negotiations with the Kurdistan Regional Government (KRG) over amendments to the original production-sharing contract (PSC). These, in turn, delayed award of the engineering, procurement and construction (EPC) contract for the feeder pipeline tying in the upstream facilities with the main Kirkuk-Ceyhan export pipeline.

Both issues were settled in November, when an agreement was reached on the terms on which the government would take a 25% stake in the licence, and the local KAR Group was selected for the EPC work.

TAQA now owns a 39.9% working interest, while ShaMaran holds a 20.1% stake through wholly owned subsidiary General Exploration Partners and US-based Marathon Oil retains 15%.

The 270-square km field lies in the northwest of the KRG-controlled area close to the 40,000 bpd Shaikan field. Atrush contains 2P reserves estimated in an updated competent person’s report (CPR) in early 2016 at 85.1 million barrels. Future stages of development are envisaged potentially expanding production to around 100,000 bpd.

Under the terms of the November deal, the foreign partners in the PSC are due to begin recouping development costs under an accelerated schedule from the date of first oil, in addition to their share of sales revenues.

The start-up is thus particularly timely for TAQA, which was forced to register a US$5.2 billion loss last year on the back of a US$5.1 billion impairment charge on its North Sea and North America-focused oil and gas portfolio. Atrush is the company’s first production within the region.

Furthermore, the delay has rendered the firm eligible for its first reimbursement from Erbil at a time when the government has established a track record of some 18 months of regular payments to the territory’s foreign producers.

Anglo-Turkish Genel Energy, Taq Taq’s operator, received US$207 million from the KRG in 2016 – 40% more than in the previous year despite a sharp drop in the field’s production – while Norway’s DNO, operator of the largest Tawke field, earned US$210 million and Gulf Keystone Petroleum, Shaikan’s operator, accrued US$142.5 million.

An updated CPR on Taq Taq published in March this year slashed reserves for the second time in just over a year at the once-prized field to 59.1 million barrels, from 172.8 million barrels at the end of 2015. Such was the extent and speed of the decline in output that Genel opted to resort to month-by-month reporting rather than setting production guidance looking further ahead.

Average output of 40,000 bpd last year slumped to 24,980 bpd during the first quarter and fell further in June to 15,940 bpd, Genel revealed on July 3. In 2015, production had averaged 116,100 bpd.

A crumb of comfort could be found in the fact that the assertion last month by outgoing chairman and co-founder Tony Hayward that the rate of decline had slowed appeared to have been confirmed – with last month’s production only around 1,000 bpd less than in May.

The company has stated plans to continue drilling at Taq Taq to explore the flanks while focusing efforts on concluding a deal with the KRG to develop two large gas fields, Bina Bawi and Miran, which contain estimated combined reserves of 11.4 tcf (323 bcm).

Meanwhile, the reshuffle of senior personnel in the wake of the flagship asset’s disastrous performance – and of the corollary slide in the share price – continued in late June, as Esa Ikaheimonen was appointed as the new chief financial officer. He had previously worked for Royal Dutch Shell for two decades, in roles that included a stint in charge of Middle East upstream finance.

CEO Murat Ozgul retained his position despite a large vote against his re-selection at the company’s AGM earlier in the month, while the resigning Hayward was formally replaced during the yearly conclave by Stephen Whyte, a former senior vice president at the UK’s BG Group, now part of Shell.

Edited by

Ian Simm

Editor

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