Addax Petroleum Corporation confirmed that it has signed an agreement with the Kurdistan Regional Government (“KRG”) amending the production sharing contract it holds together with Genel Enerji in respect of the Taq Taq license area in the Kurdistan Region of Iraq (the “Taq Taq PSC”). The Taq Taq license area includes the Taq Taq field and the Kewa Chirmila prospect. The purpose of the amendments is to bring the Taq Taq PSC into conformity with the Oil and Gas Law of the Kurdistan Region – Iraq (the “Oil and Gas Law”) and Model PSC, including the royalty, cost recovery and profit share components.
Addax Petroleum’s President and Chief Executive Officer, Jean Claude Gandur, said: “We are pleased to be working closely and in a spirit of cooperation with our partners at the KRG to arrive at a result that is beneficial to all parties. The new terms of our Taq Taq PSC are now in line with the recently enacted legislation and our stakeholders will be pleased to know that our economic and operational interest is materially unchanged. The results from our appraisal campaign at Taq Taq to date have been extremely positive and we are encouraged by the exploration potential we are uncovering through seismic surveys. We look forward to continued strong relations with the KRG as we seek to implement a full field development program with the potential of first oil as early as next year.”
The review and renegotiations were conducted between the KRG, Genel Enerji and Addax Petroleum in accordance with Article 54 of the Oil and Gas Law which required review of the Taq Taq PSC by the Regional Council for the Oil and Gas Affairs of the Kurdistan Region – Iraq (the “Regional Council”), taking into consideration the prevailing conditions when the Taq Taq PSC was originally entered into.
The most significant changes to the terms of the Taq Taq PSC include i) the combination of previously separate terms for the Taq Taq and Kewa Chirmila areas, including the synchronization of the government back-in rights at up to 20 per cent, ii) a reduction in the maximum Cost Oil recoverable in a given year, which is partially offset by an effective increase through an interim period that accelerates the recovery of the initial capital investment by the Contractor, and iii) the introduction of a “R factor” in the Profit Oil calculation, which adjusts the financial returns to the Contractor and Government based on relative level of cumulative capital spending and cumulative revenue. The ultimate financial impact of the amendments to the terms of the Taq Taq PSC is dependent on operational outcomes, including reserve, production and cost levels. However, the Corporation believes that under most of the likely scenarios and considering the further exploration potential of the PSC area, the amendments do not result in a material change to the financial or operational interests of Addax Petroleum.