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Weekly UpdatesThe KRG's Minister of Natural Resources, Dr Ashti Hawrami, on March 16 warned international oil companies (IOCs) against signing deals with Baghdad on fields in territory the Kurds claim. He said the KRG would start exporting crude oil in the coming months.
Baghdad has invited IOCs to bid for 20-year technical support agreements (TSAs) on fields including some near the oil-rich city of Kirkuk in northern Iraq, which the KRG hopes to incorporate into its autonomous area but which is administered by Baghdad.
Another issue is that, while Baghdad limits deals to TSAs which are based on a fixed service fee and do not allow IOCs to book reserves, the KRG has signed exploration and production sharing agreements (EPSAs) which allow IOCs to book reserves, but which the central Oil Ministry calls null and void as they violate Baghdad's petroleum policy (see ood1-IraqOil-1-Jan16-09, ood2-IraqOil-2-Feb2-09 and ood3IraqDebt&KurdsMar16-09).
Hawrami said Baghdad's failure to consult with the KRG on its licencing round meant any TSAs on fields in disputed territories would be unenforceable. He added: "Oil companies must be crazy if they think they can go sign a contract with the ministry of oil and just get on and do the job. They can't, they need our co-operation".
Major IOCs including Shell, ExxonMobil, BP, Chevron and Total are assessing the oilfields on offer by Baghdad with a view to making bids in the licencing round. But most of them will avoid operating in fields in areas claimed by the KRG.
Baghdad and the KRG have been haggling for years over a new petroleum law which would govern revenue sharing. The major IOCs are worried that, without such a law, any TSA they sign might be changed by Baghdad should the central government bow to pressure from resource nationalists to toughen existing terms. Already the terms under the current TSA model are not as encouraging as the IOCs had originally hoped.
Pipeline Links To Be Ready Soon: Despite this dispute with Baghdad, Hawrami said he expected the KRG in the coming months to begin exporting crude oil via Iraq's crude oil pipeline network from Kirkuk to Turkey's Mediterranean terminal of Ceyhan. Until now, the central government has forbidden the KRG or any IOC operating in Kurdistan to use this pipeline for export.
DNO Int'l of Norway is in the final stages of connecting its Tawke oilfield to the Kirkuk-Ceyhan pipeline. Addax Petroleum is also in the advanced stages of readying its Taq Taq oilfields for potential export of crude oil, building a link to the pipeline. But investors in the KRG region fear that disagreements with Baghdad could delay exports indefinitely.
Hawrami said of DNO's concern: "We don't expect any real problem there despite our differences with Baghdad. From our point of view crude oil will flow the day it (the pipeline) is ready". He said this would happen even without agreement between the two sides on an over-arching petroleum law. He added: "We should not mix the two things". KRG President Barzani recently said the KRG area had the capacity to produce 1m b/d of crude oil in three years and criticised Baghdad's policies on oil as "failed".
Barzani said: "Today, the [KRG] region is able to export 100,000 b/d and towards the end of the year we will be able to export 200,000 b/d. By the end of next year it will be 450,000 b/d and after three years we will be able to produce 1m b/d". (Iraq currently produces some 2.4m b/d). But Barzani said reaching this KRG target hinged on an agreement on revenue sharing with the central government.
The KRG area now produces less than 10,000 b/d of crude oil for local consumption as it is unable to sell it through the Iraqi pipeline system. He did not say when he expected an accord with Baghdad to facilitate exports, nor did he offer any specifics as to how the targets will be achieved (see ood3IraqDebt&KurdsMar16-09).
Hawrami said revenue from any sales of Kurdish crude oil would go to the central government's Finance Ministry in Baghdad, which should then pay DNO its share. He said the KRG was seeking no part of the revenue until a petroleum law was agreed.
Hawrami predicted the Baghdad government's oil licencing round would be a failure, saying: "There is no model contract acceptable to the IOCs. Number two, the Oil Ministry has no legal authority to sign contracts".
The Oil Ministry hopes to award TSAs in June, although most industry executives and analysts expect the timetable to slip a few months at least. Hawrami said: "If you're telling me that by August they will be signing contracts - August which year?"
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