Overview

 

The Kurdistan Gas Project was established in 2007 when Dana Gas and Crescent Petroleum entered into an agreement with the Kurdistan Regional Government (KRG) for exclusive rights to appraise, develop, produce, market, and sell hydrocarbons from the Khor Mor and Chemchemal fields in the Kurdistan Region of Iraq (KRI). The government benefited from having a stable supply of gas for power generation in the region. Production from the gas processing plant in Khor Mor and the 180 km pipeline supplies gas to power stations in Chemchemal, Bazian and Erbil now generating over 2000 MW of electricity. Production from these newly built facilities began in October 2008 within 15 months from project initiation, an industry record. In 2009, Pearl Petroleum was formed as a consortium with Dana Gas and Crescent Petroleum as shareholders (initially 50%, now 35% each), since when OMV, MOL, and RWE have joined, purchasing a 10% share each.​

The Kurdistan Gas Project was the first time that an international oil and gas company had begun producing gas in the KRI. To date, all of the gas produced by the Company has been used for in-country power generation, providing affordable electricity in the KRI. In addition the Khor Mor Plant also produces Natural Gas Liquids (NGL, or gas condensate) and Liquified Petroleum Gas (LPG), which are sold to the Kurdistan Regional Government (KRG) and local traders respectively. Originally the Khor Mor Plant produced around 300 MMscf/d but as a result of the debottlenecking project concluded in October 2018 the daily rate has increased to around 400 MMscf/d together with 15,000 bpd condensate and over 1,000 MT/d of LPG.

 

By early 2012, Pearl Petroleum had invested around $1 billion in the region, rising to $1.6 billion by early 2019. This investment has allowed Pearl to produce 260 million barrels of oil equivalent (boe), resulting in over $20 billion of fuel cost savings and other economic benefits for the KRI. Further investment is underway to expand production from the initial 300 MMscf/d up to 900 MMscf/d by 2023, together with associated liquids.

 

Full-time operational staff now numbers over 600 with over 80% staff being local nationals. Local staff are being trained in order to increase this figure further. The Company has also contributed directly to local communities, supplying local power, education and healthcare facilities, as well as sponsoring support programmes for internally displaced people in Iraq.

 

Settlement

 

In August 2017 Pearl Petroleum reached an amicable settlement of a contractual dispute between the Kurdish Regional Government and Pearl, the key benefits of the deal being:

  • The total settlement in favour of Pearl was $2.2 billion, of which Pearl was paid $1 billion in cash and the balance, $1.2 billion, was transferred to petroleum costs, to be recovered through production.

     
  • Of the $1 billion paid in cash, $600 million was disbursed immediately to the shareholders (Dana Gas share was $210 million) and a further $400 million was placed into a reserve account to fund future investment (Dana Gas share was $140 million). When future investment is financed by third-parties, this reserved amount can be returned to shareholders.

 

Some of the other additional benefits from the settlement were as follows:

  • Firstly, Pearl was awarded an extension to the Khor Mor block boundaries to encompass the entirety of the field as currently mapped.
  • Secondly, the KRG has awarded the Consortium investment opportunities in Blocks 19 and 20 located adjacent to Khor Mor and added these to the Heads of Agreement areas, against commitments by the Consortium to make appraisal investments on these blocks, and to develop if commercial oil and gas resources are found.
  • Thirdly, the length of the licenses was extended by 12 years and they now expire in 2049, which importantly gives Pearl sufficient time to fully exploit these assets.
  • Lastly there was an advantageous change in the profit sharing arrangement to bring it in line with that received by other international oil companies operating in the region.
     

    Most importantly, however, the settlement has lifted the barrier to investing and growing our operations in the region and allows Pearl to move ahead with developing the Khor Mor and Chemchemal Fields. This activity is already underway.

     
    Despite the challenges that Pearl has faced since the dispute with the KRG began in 2009, a strong positive relationship is once again being enjoyed with the KRG. Throughout periods of non-payment and growing receivables, the arbitration, the geopolitical and security threats from ISIS; the Consortium continued to operate at maximum plant capacity and produce gas for power generation for the benefit of the people of the region. This commitment was a key factor in achieving the settlement agreement and the Company looks forward to working alongside the Ministries and other partners in the years ahead to complete this exciting project to fully develop these world class assets.

Development Activities

 

Since the conclusion of the settlement agreement in 2017, Pearl has executed a project to debottleneck the existing Khor Mor gas processing plant, has developed a detailed Field Development Plan (FDP) for the Khor Mor Field which envisages expanding production by building two additional gas processing trains, and has put in place an appraisal and development program for the Chemchemal Field which is leading to the completion of a Field Development Plan. The work program comprises the following:

  • Fast-track debottlenecking of the existing facilities by 90-100 MMscf/d completed Q4, 2018;
  • Drilling 2 appraisal wells in Chemchemal and up to 4 development and appraisal wells in Khor Mor, begun Q4 2018;
  • Work-overs on the six producing wells in Khor Mor, begun Q1 2019;
  • Building of two 250 MMscf/d trains sequentially to expand gas production from Khor Mor by a further 500 MMscf/d, begun Q4 2018;
  • Gas Sales Agreements (GSA) with the MNR have been completed for the gas from the debottlenecking project in January 2018, and for the first of the two further 250 MMscf/d expansion trains in March 2019.

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Growth

 

The Company will unlock multi-billion dollars' worth of value through executing the Khor Mor and Chemchemal Field development activities. The initial phase of this production increase was the fast-track debottlenecking project of the existing Khor Mor gas plant. The expansion of the gas processing plant consisted of a series of plant additions and modifications to debottleneck throughput, raising output capacity by 30% from 305 MMscf/d to 400 MMscf/d, as well as a further 2,000 barrels per day of condensate, exceeding the initially set target of a 20-25% increase in production.

 

Current gross production is 106,000 boepd, making us the largest regional private sector upstream gas operation in Iraq today.

 

Plans now are underway to increase Pearl Petroleum's production by further 125% by 2023 through the installation of the two 250 MMscf/d gas processing trains, which are expected to be completed in two phases in 2022 and 2023. This will increase the capacity to process gas and condensate from the Khor Mor Field by 500 MMscf/d and 20 kbbld respectively.

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Gas Sale Agreements

 

Early in 2018, Pearl Petroleum signed a 10-year Gas Sales Agreement (GSA) with the KRG to supply and sell the additional quantities of gas from the debottlenecking project. First gas came onstream in October and we achieved first sales before year-end.

In 2019, Pearl Petroleum signed a second GSA, which sees the KRG committing to purchasing an additional 250 MMscf/d. The gas supply will come from the $800 million expansion underway at the Khor Mor plant.

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Reserves

 

An independent external reserves audit report by Gaffney Cline Associates (GCA) completed in April 2019 estimated that Dana Gas's share of the Khor Mor and Chemchemal Proved plus Probable (2P) was 4.4 Tcf gas and 136 MMbbls condensate, 13.3 million metric tonnes LPG and 18 MMbls of oil, the equivalent of 1,087 MMboe. This is a 10% increase on April 2016 report when GCA first certified the fields. 

 

If the two fields were to be fully developed, Peral Petroleum would be able to potentially produce 5 to 6 bscf/d gas.