Atrush Block: World-Class Oil Project

ShaMaran is a Canadian oil and gas company listed on the TSX Venture Exchange and the NASDAQ First North Growth Market (Sweden) under the symbol “SNM.” The Company has a 27.6% ownership interest in Atrush Block, a high‐quality oil field in Kurdistan that has a large production base with significant growth potential. As a Lundin Group Company, ShaMaran can leverage the expertise and strength of a group that has been building resource companies around the world for more than 40 years.

2020 was a challenging year, due to the global coronavirus pandemic (“COVID‐19”) and the collapse of crude oil prices. Despite the turmoil Atrush has continued to meet production targets while reducing lifting costs and has also been able to sustain replaced produced volumes in the Atrush block despite the significantly reduced 2020 development program.  The Company also during the year successfully completed measures that resolved the liquidity shortfall and strengthened the Company’s financial position enabling it to meet its bond interest obligations.

2020 Operational Highlights

  • 2020 oil production increase of 39% (2020 vs 2019);
  • Cumulative production of 40 million barrels achieved on January 4, 2021 despite a significantly reduced 2020 development program due to the global pandemic and the first quarter 2020 collapse of crude oil prices;
  • Average production of approximately 40,800 barrels of oil per day (“bopd”) for the fourth quarter of 2020; lower than the year’s average due deferral of capital development wells, and operational interventions aggregated in this quarter;
  • Full year 2020 average production of approximately 45,100 bopd in line with 2020 guidance;
  • Full year 2020 lifting costs per barrel of $5.08 in line with 2020 guidance and a 31% decrease vs. 2019 lifting costs;
  • Full year 2020 capital expenditure of $34 million ($9.4 million net to ShaMaran) in line with the capex program as revised in April 2020 in response to the global pandemic and collapse of oil prices;
  • Progression of Atrush subsurface de‐risking continued in 2020 with latest revisions of static and dynamic modelling resulting in joint venture alignment to progress an Atrush “integrated oil column” development approach;
  • Atrush Property gross 2P reserves2 increased to 109.9 MMbbls as at December 31, 2020 from 108.5 in 2019 being a 108% reserves replacement and Company’s gross 2P reserves from 29.9 MMbbls to 30.3 MMbbls;

The Atrush Block is located in the Kurdistan Region of Iraq, approximately 85 kilometres northwest of Erbil, the capital of Kurdistan. The Atrush Block is 269 square kilometres in area and has oil proven in Jurassic fractured carbonates in the Chiya Khere structure. Total discovered oil in place in the Atrush Block is a low estimate of 1.6 billion barrels, a best estimate of 2.0 billion barrels and a high estimate of 2.6 billion barrels.  Atrush is continuously being appraised and further phases of development, including further drilling and possible facilities expansion, will be defined based on production data, appraisal information and economics.

2021 Guidance

With improving oil prices in 2021 we anticipate a continuation of strong operating cash flow that will be supported with prudent capital deployment in the coming year.

  • Atrush field gross average daily production is expected to range from 39,000 barrels of oil per day (“bopd”) to 44,000 bopd. Resumption of deferred drilling and completion spending in 2021 is expected to generate quarter-on-quarter production growth;
  • The Atrush capital expenditures for 2021 are planned at US$53.2 million (US$14.7 million net to ShaMaran), pending final approval by the Ministry of Natural Resources of the Kurdistan Regional Government of Iraq (“KRG”). The Atrush 2021 capital program includes drilling and completion of a production well with targeted offtake rates of over 4,000 bopd and initiation of the gas solution project which will significantly reduce emissions and operating costs from reliance on diesel use;
  • The Atrush operating expenditure is forecast to be US$80 million (US$22 million net to ShaMaran) for 2021, in line with 2020 actual operating costs;
  • Atrush average lifting costs per barrel are estimated to range from US$4.70 to US$5.70. Atrush lifting costs are mainly fixed costs and dollar-per-barrel estimates should decrease with increasing levels of production and operational efficiencies;
  • Payments from the KRG for oil delivered in 2021 are expected to continue to be made one month after production. Recovery of the US$41.7 million receivable owed to the Company by the KRG for November 2019 to February 2020 entitlements has started as per the KRG’s December 2020 proposed repayment mechanism of sharing equally the incremental revenue if Brent prices exceed US$50 per barrel in any month;
  • ShaMaran will continue to implement prudent management of its cashflow in 2021 with an annual corporate budget of US$5.6 million, a 30% reduction in spending over 2020; and
  • Following the amendment of the ShaMaran bond terms in January 2021 the Company intends to use its free cash flow to buy its bonds should commercially attractive rates be available in the market and as a result will be reducing its debt burden over the coming year and will update the market of such activity on a quarterly basis.

Q1 2021 Operational Highlights

  • Cumulative production of 40 million barrels achieved on January 4, 2021 despite the challenges of the global COVID pandemic with its impact on crude oil prices, and a significantly reduced capital development program in 2020;
  • Average production of approximately 38,212 barrels of oil per day (“bopd”) for the first quarter of 2021; slightly lower than the 2020 average as expected due to the deferral of capital development wells and as a result of operational interventions aggregated in the first quarter;
  • First quarter 2021 lifting costs per barrel of $5.12 in line with 2021 guidance and a 13% decrease vs Q1 2020 lifting costs due to improved operating efficiencies; and
  • Atrush Property gross 2P reserves2 increased 108% to 109.9 MMbbls as at December 31, 2020 from 108.5 in 2019. The Company’s gross 2P reserves increased from 29.9 MMbbls to 30.3 MMbbls. A consistent record of reserves replacement year on year since the inception of production.

Q2 2021 Operational Highlights

  • The second quarter of 2021 saw a record profit with net result of $ 6.8 million, resulting in a profit for the first six months of 2021 of $9.3 million;
  • Cumulative production of 45 million barrels achieved on May 13, 2021 despite the challenges of the global coronavirus pandemic (“COVID-19”)2; and
  • Average production of approximately 39,538 barrels of oil per day (“bopd”) for the second quarter of 2021. With the resumption of capital development spending, Atrush has seen a return to sustained quarter on quarter production growth in 2021 (current production rates are approximately 42,000 bopd).

Sarsang Acquisition

  • The Company has:
    • signed an agreement to acquire an affiliate of TotalEnergies (the “Acquisition”) that holds an 18% non-operated participating interest in Sarsang, adjacent to the Atrush block;
    • successfully placed its new $300 million bond (the “2025 Bond”);
    • announced the approval of proposals for the conditional refinancing of the existing bond (the “2023 Bond”) as well as necessary waivers for the issuance of the 2025 Bond; and
    • agreed with Nemesia S.à.r.l. that the planned $30 million rights offering will be underwritten by them.
  • Upon the successful closing of the Acquisition, the interest in Sarsang block effective as of January 1, 2021:
    • adds immediate incremental participating interest production of approximately 5,000 bopd of light crude oil (36 – 38 API);
    • is expected to double ShaMaran’s Q2 2021 average net production, exceeding 20,000 bopd, following the completion of the processing facility expansion at Swara Tika field by mid-2022; and
    • enhances ShaMaran’s oil reserves through the addition of high API and low sulphur oil that achieves a low discount to Brent.

Atrush Operations

  • Cumulative production of 45 million barrels achieved on May 13, 2021 despite the challenges of the global COVID-19 pandemic;
  • Average production of approximately 39,538 barrels of oil per day (“bopd”) for the second quarter of 2021. With the resumption of capital development spending Atrush now sees a return to sustained quarter-on- quarter production growth in 2021 (current production rate at approximately 42,000 bopd); and
  • Atrush development drilling activities resumed with the spudding from Pad A of the CK-17 well on April 1, 2021. The CK-17 well was drilled and completed ontime, below budget and came online at an initial rate of 2,000 bopd and brought the Atrush production well count to eleven.

Atrush Financial

  • The second quarter of 2021 saw a record profit with net result of $ 6.8 million, resulting in $ 9.3 million net profit for the six months of 2021;
  • A very strong EBITDAX of $18.4 million for Q2 2021 and $31.9 million for the six months of 2021, over six times the EBITDAX result for the six months of 2020;
  • The KRG continues to repay the $41.7 million of outstanding receivables for November 2019 to February 2020. At the date of this news release $13.8 million has been invoiced to the KRG and $9.6 million paid; and
  • The Company’s 2023 Bond amortization payment due in December 2021 has been reduced from $15 million to $5 million, due to the Company purchasing 2023 Bonds and retiring them in the first six months of 2021, the total of ShaMaran 2023 Bonds outstanding is $180 million and 2025 Bonds is $111.5 million as at the date of this news release.

Q3 2021 Operational Highlights

  • Cumulative production of 50 million barrels was achieved in September 2021 despite the challenges of the global coronavirus pandemic (“COVID-19”)2; and
  • The Company saw a record oil sales revenue of $29 million for the third quarter of 2021.

Sarsang Acquisition

  • As announced on July 30, 2021, the Company has successfully issued and settled $111.5 million principal amount of the $300 million 12% senior unsecured bond 2021/20253 (the “2025 Bond”), which were issued at 98.5% of nominal value for gross cash proceeds to the Company of $109.8 million.  This portion of the 2025 Bond and the $188.5 million balance will be issued to refinance existing indebtedness of the Company in connection with, and conditional upon completion of, the Company’s acquisition of TotalEnergies’ affiliate that holds an 18% non-operated participating interest in the Sarsang Block;
  • Discussions are continuing with representatives of the Kurdistan Regional Government to secure the approval of the change of control of TotalEnergies’ affiliate as a prerequisite to the launch of the $30 million rights offering to the shareholders of the Company as previously announced on July 12, 2021; and
  • The Company’s completion of the acquisition of TotalEnergies’ affiliate is expected in the first quarter of 2022.

Atrush Operations

  • Average production of approximately 41,273 barrels of oil per day for the third quarter of 2021;
  • A planned partial shutdown of the Atrush central processing facility was initiated on November 1, 2021. This shutdown is required to perform routine maintenance activities and is expected to be completed during the second week of November, with full production to be resumed at that time. Due to this November shutdown, the Company anticipates that (i) the fourth quarter 2021 average daily production will be reduced from third quarter production levels and (ii) that the Atrush 2021 annual average daily production will likely be slightly below 39,000 bopd (the lower end of the Company’s 2021 production guidance). The Company expects Atrush production to return to third quarter production levels again during first half of 2022; and
  • The third quarter of 2021 lifting costs per barrel of $4.34 is an improvement to the 2021 guidance and a 3% decrease vs second quarter 2021 lifting costs as a result of operating efficiencies.

Atrush Financial

  • A very strong EBITDAX of $16 million for the third quarter of 2021 and $48 million for the nine months of 2021, over 3 1/2 times the EBITDAX result for the nine months of 2020; and
    • The KRG continues to repay the $41.7 million of outstanding receivables for November 2019 to February 2020. At the date of this news release $20.8 million has been invoiced to the KRG and $15.8 million paid. At the date of this news release the Company is in discussions with the KRG to offset the $6.4 million production bonus against the outstanding receivables owed to the Company.

Atrush Owership Interest

Atrush Owership Interest

Simplified Atrush Production Sharing Agreement

Simplified Atrush Production Sharing Agreement Learn More

Production

Monthly Production

Monthly Production

Quarterly Production Data

Quarterly Period Total Field Production (bbl) Average Daily Production (bpd) Average Netback Average Lifting Cost
Q1 2019 2.37 million 26,300 $47.76 $8.89
Q2 2019 2.58 million 28,300 $53.06 $9.28
Q3 2019 3.06 million 33,167 $46.43 $7.62
Q4 2019 3.83 million 41,700 $47.92 $5.32
Q1 2020 4.25 million 46,700 $35.21 $5.90
Q2 2020 4.27 million 46,900 $13.87 $5.36
Q3 2020 4.24 million 46,100 $27.26 $3.97
Q4 2020 3.75 million 40,800 $28.27 $5.10
Q1 2021 3.44 million 38,200 $45.14 $5.12

 

Strong Cash Flow

In Million USD Q1.2021 Q4.2020 Q3.2020 Q2.2020 Q1.2020
Operating cash, net of G&A and other cash expenses 14.1 3.3 9.0 (1.5) 7.3
Net gain on Atrush acquisition 0.0 0.0 0.0 0.0 0.0
Receivable/payable and working capital adjustments (8.9) 2.1 (4.5) 2.6 (5.5)
     Cash in from operations 5.2 5.3 4.4 1.1 1.8
KRG loans, interest and KRG carry receivables collected 2.5 2.6 2.6 1.8 2.1
Purchase of additional interest in Atrush 1 0.0 0.0 0.0 0.0 0.0
Atrush Development (2.1) (1.9) (1.5) (2.0) (3.5)
     Cash (out on) / in from investments 0.4 0.7 1.1 (0.2) (1.3)
Bonds repaid (4.4) 0.0 0.0 0.0 0.0
Bond coupon interst payments (11.5) (0.0) (11.4) 0.0 (11.4)
Nemesia Guarantee 0.0 0.0 22.8 0.0 0.0
     Cash out on financing (15.9) (0.0) 11.4 0.0 (11.4)
Total change in cash (10.3) 6.0 16.9 0.9 (10.9)
Opening cash 28.4 22.4 5.5 4.6 15.5
     Ending cash 18.2 28.4 22.4 5.5 4.6

The Atrush Block is a high-quality oil field that has a large production base with significant growth potential.

The Atrush Block is located approximately 85 kilometers northwest of Erbil, the capital of Kurdistan, is 269 square kilometers in area and has oil proven in Jurassic fractured carbonates in the Chiya Khere structure. The structure is expressed at surface by the Chiya Khere mountain which runs east‐west for approximately 25 kilometers with an approximate width of 3.5 kilometers.

30,000
bopd
2017 Startup Capacity
45,100 bopd
2020 Average Production
39,000 - 44,000 bopd
2021 Guidance
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