Genel Eyes 'Next Step' for KRG Gas

UK-listed Genel Energy has said it may now be able to progress the Miran and Bina Bawi gas development in northern Iraq, having finalised documentation of previously agreed terms of amended and restated production-sharing contracts and gas lifting agreements (GLAs) for both fields.

At end-2015, the fields were valued in Genel’s accounts at $1.427bn; but last month Genel said it expected to record a "material impairment" of the long-stalled export project.

CEO Murat Ozgul said February 13: “We are very pleased to have signed definitive agreements for our gas project and are now focused on the next step of concluding negotiations with potential partners, and moving the gas project towards final investment decision.”

The new documents incorporate the commercial terms as announced in the term sheets signed 2015 by Genel and the Kurdistan Regional Government (KRG). Export from the two onshore fields forms the cornerstone of gas exports to Turkey under the 2013 KRG-Turkey Gas Sales Agreement.

The GLAs contain conditions precedent which, among other things, include the execution of final agreements on the midstream gas processing facilities and pipeline transportation, the execution of financing documents, and the completion of reserve audits for Miran and Bina Bawi.

Under each GLA, Genel is committed to deliver gas at contracted quantities for a period of 12 years, so a two-year build-up period, then a ten-year plateau. Genel will receive a fee of $1.20/'000 ft³ for the raw gas delivered into the gas treatment facilities. The KRG is committed to buying Genel's gas via a take-or-pay arrangement where it is obliged to buy 80% of the annual contract quantity (ACQ).

For Bina Bawi, the two-year build-up is 350-700mn ft³/d, followed by a 10-year ACQ of 700mn ft³/d. For Miran it would be 250-500mn ft³/d and 500mn ft³/d respectively. A royalty of 5% would apply to oil and condensate (zero for raw gas), with profit-sharing terms for both oil and gas.

Both Genel and the KRG have the option to terminate the GLAs by February 2018. If the conditions precedent are not satisfied within 12 months, the KRG has a right to terminate the GLAs. During a three-year period following such a termination, Genel would have a right of first refusal to participate in development of the Miran and Bina Bawi gas fields with a 49% working interest on the same terms offered to any third party.

Mark Smedley