Oil producers in Iraqi Kurdistan are unrelenting in their goal to boost output even after the collapse in international prices to below $50 a barrel.
Genel Energy Plc (GENL), headed by former BP Plc chief Tony Hayward, is sticking with plans to increase capacity 74% to 400,000 b/d this year at its Kurdish Taq Taq and Tawke fields. Norway’s DNO ASA (DNO) owns 55% of Tawke.
“The operational side of the business remains very resilient and very strong and we maintain our production increase targets,” Genel Chief Financial Officer Julian Metherell said by phone from London. “Even at $50 a barrel we are looking at a revenue of $350 million to $400 million.”
Gulf Keystone Petroleum Ltd. (GKP), another oil producer in the semi-autonomous region, last month raised output by 60% to 40,000 b/d and sees 70,000 b/d in 2017. The company will keep increasing its output and seek to cut transportation costs by about 60%, Chief Executive Officer John Gerstenlauer said in a phone interview.
Oil prices dropped below $50 a barrel this month from $115 in June as the U.S. pumped crude at the fastest rate in more than three decades and the Organization of Petroleum Exporting Countries resisted calls to cut output. The United Arab Emirates and Qatar estimate surplus crude of 2 million b/d.
Prices may be near a bottom and should start to rise in “a few months,” said Gerstenlauer, who has worked in the industry for 38 years and seen three or four similar routs in the market.
“First the oil price finds a bottom, which I think we might be there, then the price bounces along the bottom for a few months,” he said. “Because of low energy costs, the economy starts to pick up and the price starts to increase. If we are not at the bottom right now, we’re damn close to it.”
Iraq is pumping at a record pace and will continue to boost exports this year amid a supply glut that’s pushed prices down, Oil Minister Adel Abdul Mahdi said Jan. 19. The nation, holder of the fifth-largest crude reserves, is rebuilding its energy industry after decades of wars and economic sanctions.
“Because of the new challenges, especially the price of oil, Iraq has to try its best to raise its oil production and exports,” Deputy Prime Minister Rowsch Nuri Shaways said today at the World Economic Forum in Davos, Switzerland.
An agreement in December resolved months of feuding between Iraq’s Kurdish region and the central government in Baghdad over who had the right to export crude from the semi-autonomous area.
The deal allowed for as much as 550,000 b/d to be shipped through Turkey from northern Iraq, including 250,000 a day from the Kurdish region. The central government previously threatened legal action against buyers of crude from Kurdistan.
Genel’s share of output from its two oilfields in the area rose 58% to 69,000 b/d in 2014 and it targets 90,000 to 100,000 b/d this year, it said today.
“Genel is exposed to some of the lowest cost rocks globally with a big resource base that should be the envy of many,” Thomas Adolff, an analyst at Credit Suisse Group AG, said in a note to investors. “Within the Kurdish Region of Iraq, it has the best asset base, and there is positive above-ground momentum politically and operationally.”
Operating expenditure is about $2 to $3 a barrel and “cash break-even” is $30 to $35 a barrel, Genel’s Metherell said.
Oil prices may yet fall further as members of OPEC, which includes Iraq, resolve to keep pumping crude and U.S. supply rises, according to Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London.
Prices have yet to fall as much as in 2008, when benchmark Brent crude reached $36.20 in the wake of the financial crisis. It was up 0.9% today at $48.43 by 11:45 a.m. in London.
Genel is “well positioned to continue to grow even in a period of sustained low oil prices,” CEO Hayward said today in a statement.