Pressure to push up oil exports opens doors for Iraqi Kurdistan. Urgent and intense pressure to raise crude oil production in Iraq has opened the door for the northern Kurdistan region to commence its first oil exports from June 1
By Martin Clark
Oilfields in northern Iraqi Kurdistan are to commence crude oil exports from June 1
Iraq’s Oil Minister Hussein al-Shahristani is under fire for failing to raise production
Hopes of a breakthrough in the first Iraqi bid round are also expected next month
There has been official confirmation –from most sides, at least – that the Kurdistan region of Iraq will be allowed to start exporting its oil from June 1. This is a major breakthrough, a triumph for the Kurdistan Regional Government (KRG) and the bold, but savvy, investors that planted their flags early on in this highly prospective but politically charged territory. There are two fields that are significant here: the Tawke field, which is operated by Norwegian company DNO, and the Taq Taq field, operated by Addax Petroleum.
Final preparations
Final preparations for first oil exports are underway. A DNO executive said last week that the company was ready to go ahead, with output from the Tawke field expected to add 60,000 bpd to Iraq’s overall output numbers. “We have built 45 km long pipelines from the Tawke field, east of the border city of Zakho, to the border point of Fishkhabour to reach the strategic port of Ceyhan,” he was quoted as saying by the Aswat al-Iraq news agency. He also confirmed that exports would commence, as planned, on June 1. A further 40,000 bpd will come from the Taq Taq field, with oil initially trucked out before flowing into the Iraqi- Turkish pipeline.
The KRG has also confirmed that oil will be sold through Iraq’s State Oil Marketing Organisation (SOMO), with all revenues deposited in a federal account. This resolves the potentially tricky issue as to who would get their hands on the oil money, though the details of how these revenues will be split remain unclear.
It is a sign of progress in the longrunning and frequently bitter dispute between the KRG and the federal government in Baghdad. But it is not an end to the squabbling, with Iraq still disputing contracts signed by the KRG and foreign oil investors. Indeed, Baghdad’s tough stance on a proposal to channel gas from the Kurdistan region into pipelines heading for Europe illustrates that its position remains unchanged (see story on p5: OMV-MOL Kurdistan gas deal could boost Nabucco hopes).
What may be significant, however, is the mounting pressure that is now facing Iraq’s Oil Minister Hussein al Shahristani. Iraqi lawmakers have called on the Minister to resign after failing to lift the nation’s oil production in any meaningful way since taking charge. Iraq’s oil production currently stands at 2.4 million bpd, less than pre-war production of between 2.5 million and 3 million bpd. In January, it hit a new low, dropping to just 2.1 million bpd. At a time when oil prices have slumped from the highs of last summer – now pushing up into the US$60 per barrel bracket – this is painful, especially so for a country with such huge development needs and one that relies on oil for 90% of its income.
It is possible that this may have had some bearing on negotiations with the KRG and the resolution of an issue that has frustrated many politicians – and oil producers – for years. The KRG agreeing to its oil revenues passing through SOMO marks a clear compromise on its part to meet the embittered oil minister half way.
Face the music
For his part, al-Sharistani is ready to face a parliamentary committee in Baghdad to explain why there has been such lack of progress in raising oil output. He could, of course, cite a long list of reasons: neglect and under-investment during the Saddam Hussein era; insurgency and violence since the 2003 invasion as well as Parliament’s own failure to pass a new petroleum law.
This final piece of the jigsaw is clearly vital if Iraq is to set the right legal framework for sustained international investment in the industry. International companies are lining up to tackle Iraq’s upstream projects set aside in the first couple of bid rounds, and despite whittling through the list, there is still no action on the ground, where it counts.
Some of these projects are expected to be awarded in June if all goes well, but further delays, especially given that this is a debut round, would be no surprise. Getting these contracts signed and seeing activity in the field is a vital step forward both for Iraq and al-Shahristani himself.
What is certain is that the oil industry in the northern Kurdistan region is now opening up for real, an area that presents huge opportunity for smaller and midsize companies, those perhaps without the ambition to take on Iraq’s own mighty fields.
DNO and Addax are already seeing the benefits, now that the path has been cleared for oil exports. Both have seen share prices surge since the consent came through. For these and other similarly sized companies, the Kurdistan region offers access to reserves on a scale that might not be available elsewhere. Addax, for instance, has submitted a full field development plan for Taq Taq that would raise production to 180,000 bpd.
There are plenty of others. One emerging player in this area is Turkey’s Genel Enerji, which has taken a foothold in the Taq Taq project alongside Addax. Heritage Oil will have also taken heart from these developments after striking oil with its Miran West-1 discovery recently, which is estimated to contain between 2 billion and 4 billion barrels. In a management update on May 19 it stated: “Recent announcements by two licence operators in Kurdistan that they will commence exporting crude oil via the Iraq-Turkey main export pipeline to the Mediterranean port of Ceyhan in June 2009 have moved the commercialisation of the Miran field closer, which will have a significant positive impact on Heritage.”
While progress further south has been slow, as Baghdad continues to pore over new legislation and contracts, things are now gathering steam in northern Iraq.
