Summary:
- ShaMaran Petroleum (SNM.ST, SNM.CA) is poised for significant upside following the reopening of the Iraq-Turkey pipeline and the new export agreement.
- SNM’s netbacks are set to nearly double in 2026, with free cash flow expected to exceed $200 million, enabling debt repayment and potential dividends or buybacks.
- With a rerating to 6x FCF, SNM shares could see 100% upside in 12 months, supported by strong cash flow and shareholder returns.
ShaMaran Petroleum Corp. is poised to benefit from the reopening of the Iraq-Turkey pipeline, which will facilitate the export of oil from the Kurdistan region.
The pipeline reopened over the weekend, but the share price did not move much. The announced deal was more complex than the consensus expected. I read any research I could find on the resumption, but I did not understand what was going on and why the share price was not doubling. I spent the time to investigate. My take is that the market does not appreciate what is happening.
Surprisingly, the brokers are not providing much help; the research reports are quite unclear.
Introduction to ShaMaran Petroleum
ShaMaran Petroleum Corp. (OMX: SNM.ST, TSXV: SNM.CA) is an independent oil and gas company that produces from two adjacent blocks in the Kurdistan Region of Iraq. Shamaran is part of the Lundin Group, and the Lundin family is the largest shareholder, holding around a 30% stake, as well as the largest bondholder.
The Lundin family provides significant support to ShaMaran. William Lundin, who is on the board, bought ShaMaran shares in December 2024.
ShaMaran indirectly holds a 50% working interest (66.67% paying interest) in the Atrush Block and an 18% interest (22.5% paying interest) in the Sarsang Block.
Both assets are operated by the Ross Perot, Jr. company, HKN. The Perot family has a prominent Texas-based business with strong ties to Kurdistan and the Trump Administration. ShaMaran doubled its working interest production last year to over 20k barrels per day.
ShaMaran’s market capitalisation is around $600 million, and its net debt is $90 million. The stock is listed on the Canadian and Swedish exchanges. It is quite liquid, with a daily trading volume of around $1 million.
Why was the pipeline closed, and why did the reopening negotiations take so long?
The 2023 closure of the Iraq-Turkey pipeline resulted from a dispute between the Kurdistan Regional Government and the Iraqi central government over how Kurdistan’s oil revenues should be collected and shared.
Before the agreement was announced in September, the Kurdistan government collected about 50% of the take from all oil produced in Kurdistan. At the same time, Kurdistan was not funded from the central state budget.
Under the new agreement, Kurdistan relinquished all its oil revenues and will instead receive its share of the federal budget. Kurdistan has 14% of the population of Iraq, so it will get 14% of the federal budget, which is more than they have been making from oil under the old regime.
There is a significant mistrust between the central Iraqi government and the Kurdistan Regional Government. A considerable amount of time was spent on establishing a procedure to monitor actual oil sales, ensuring that no revenues would be missed.
What prices were ShaMaran selling while the pipeline WAS CLOSED?
In the first half of 2025, Shamaran sold to local traders and achieved revenue per barrel of $32 – $35. From this amount, the Kurdistan government took about 50%, so the actual net amount returned to ShaMaran was $16-$17.50. With a net production of over 20k barrels of oil per day, that is over $100 million in annual cash flow for ShaMaran.
What prices is ShaMaran selling after the pipeline REOPENED?
The parties agreed to establish an interim three-month mechanism to build trust between them.
Under the mechanism, ShaMaran would collect an initial payment of $16 per barrel, less a $2 transportation fee. During these three months, the contracts will be reviewed by Wood Mackenzie consultants. The interim period is expected to conclude in December. Wood MacKenzie is tasked to produce a certification of the process. After that is completed, ShaMaran will get a retrospective payment of an additional net $16 per barrel, approximately. The retrospective payments for deliveries made in 2025 should be paid out during the first quarter of 2026.
From January 2026, ShaMaran and others will collect the full market price for their oil, as per their contracts (more than $32 per barrel net back for ShaMaran). In summary, by 2026, the net realised price is expected to almost double compared to 2025.
The net backs and cash flow numbers mentioned in the text are an approximation based on current Brent oil prices.
ShaMaran terms provide them with the market price (Brent) for their oil, adjusted for oil quality (API) and transportation costs, so them net backs and cash flow will fluctuate with the oil price starting now.
What will be the impact of the pipeline reopening on ShaMaran’s FCF?
ShaMaran is a very lean producer. The lifting costs are very low, at $3-$5 per barrel, and the maintenance capital expenditure is also low, at $2 per barrel. ShaMaran was able to generate very healthy cash flows, even from local sales.
ShaMaran’s guidance is to generate FCF of $100 million in 2025. The FCF in 2026 is expected to more than double, exceeding $200 million, which will enable the company to repay all of its debt, initiate dividend payments, and/or repurchase shares.
Who will repay the old receivable that ShaMaran has from the Kurdistan Government?
When the pipeline closed, ShaMaran had $102 million in receivables from the Kurdistan Government. It was agreed that the receivables would remain the responsibility of the Kurdistan government. The debt is already being repaid – from $95 million at the end of 2023 to $69 million at the end of 2024 to $53 million as of the end of June 2025.
The receivable represents approximately 60% of ShaMaran’s net debt position of $90 million as of the end of June 2025.
What are the risks?
ShaMaran has a very strong balance sheet. Its net debt is only $90 million as of June, vs its $600 million market capitalisation. With the strong cash flow generation, ShaMaran is expected to be net cash positive by the first half of 2026 at the latest.
The main risk is political. The deal took two years to negotiate. The Iraqi parliament approved the agreement and has broader political support. The deal has the support of the US Government, whose officials have travelled several times to Iraq to push for the deal. Nevertheless, the risk is there; it is a politically less stable region.
What is the valuation impact of the reopening?
The consensus expected that ShaMaran would start selling oil at double prices from day one. It did happen, but in a structured way. The market was not prepared for this, and many retail investors might not have fully understood the deal.
One year before the pipeline reopened, ShaMaran was trading at 4 times FCF. If the exact multiple is maintained after the new process is certified and net realisable prices double, the share price should rerate at least by 30%.
Historically, Kurdistan producers have traded at a discount due to the perceived risk that the central Iraqi government would not recognise Kurdistan oil exports. Now that the central government has recognised their contracts, and Iraq is in charge of Kurdistan’s oil exports, the discount should be removed.
If the share price were to rerate to 6 times FCF, the upside potential increases to 100%.
Strong cash flow generation should enable ShaMaran to start buybacks and/or dividends as early as next year. That should further support the rerating. We see 100% upside potential in the next 12 months.
| FCF | P/FCF | Mkt cap | Share price | |
| $ million | $ million | SEK | ||
| Before reopening | 100 | 4 | 400 | 1.3 |
| Today | 100 | 6 | 600 | 1.9 |
| 2026 | 200 | 3 | 600 | 1.9 |
| 2026 | 200 | 4 | 800 | 2.5 |
| 2026 | 200 | 5 | 1000 | 3.2 |
| 2026 | 200 | 6 | 1200 | 3.8 |
Source: our calculations
Conclusion
ShaMaran is a well-run company from the respected Lundin group. The pipeline reopening should double the price ShaMaran can collect for its oil. The price increase should more than double its FCF and its valuation.
Strong FCF should enable the company to become net cash positive during the first half of 2026. I expect dividends or buybacks possibly already in 2026.
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