Russia’s Gazprom Neft has become the latest large oil company to enter the Kurdish region of Iraq, taking stakes in two blocks and risking its operatorship of the 3 billion barrel Badra field in the south of the country.
The oil division of Russian gas export monopoly Gazprom will take a 40% share in the large Garmian block in the far south-east of the Kurdish region under a third party assignment option retained by the Kurdish regional government.
Canadian firm WesternZagros, which is the other production sharing contract participant with a 40% share, will remain the project operator until the commencement of the development period mandated by the PSC.
WesternZagros says it will receive around $83 million in back costs from Gazprom Neft in connection with the assignment by 9 August, with the net amount retained by WesternZagros being $56 million after reconciliation with the KRG.
As of 1 June WesternZagros and Gazprom Neft will split the costs at Garmian equally, with the Canadian firm welcoming Gazprom Neft’s “extensive technical and operational expertise in crude oil production, refining and marketing.”
Gazprom Neft will also get an 80% share in the adjacent Shakal block where the company will be the operator. The Kurdistan Regional Government carried interest in both contracts is 20%.
The Russian company says it is paying $260 million to strike the deals, and will spend no less than $150 million on drilling and exploration to 2015.
Gazprom Neft estimates they contain 3.6 billion barrels of oil equivalent, an increasingly popular industry measure that includes oil, condensates and gas.
“Based on our positive experience in cooperation with the Republic of Iraq, where we are already participating in the development of Badra field, the company had decided to expand its presence in this country,” Gazprom Neft First Deputy Chief Executive Vadim Yakovlev said in a statement.
“Carrying out these projects will allow Gazprom Neft to increase its input in Iraq’s plans to boost oil production, to gain additional experience in this country and to expand its presence abroad,” he added.
Gazprom will be braced for a verbal blast from Bagdad and a likely vow to strip the company of its interests in the South.
The company has a 30% operating interest in the $5.5 a barrel Badra technical service contract, with Kogas (22.5%), Petronas (15%) and Turkey’s TPAO (7.5%) holding non-operating stakes. The Iraqi government holds 25%.
Iraq’s Oil Ministry told Total it is now working to cancel Total’s contract at the Halfaya field. Total has a non-operating 18.75% stake in the technical service contract to develop Halfaya, which recently entered production.
Norway’s Statoil is the subject of speculation that it will be the next major entrant into the region, having sold out of its minority stake in the West Qurna II field in the south to operator Lukoil.
The KRG, buoyed by the recent entry of Gazprom, Chevron and Total, has announced that it will resume pumping 100,000 barrels per day (bpd) into the Iraq-Turkey Pipeline this month, chiefly from DNO’s Tawke field and Genel Energy’s Taq Taq field.
The region had stopped oil supplies to the pipeline after a payment dispute with the central government, forcing regional producers such as DNO to sell their oil to local markets signficiantly below international prices.
In a statement on its website, the KRG describes the export re-start as a “goodwill initiative” to incentivise negotiations. “The decision was a confidence-building measure aimed at solving once and for all the ongoing oil and gas issues in Iraq,” said the statement. The KRG says exports would remain at 100,000 bpd for a month and if payments were forthcoming, they could move swiftly up to 200,000 bpd.
Kurdish producers will not be guaranteed payment for resumed exports, as oil export revenue is collected by Baghdad and distributed – or not – to Iraq’s regions.
“It is time to put aside futile and time-wasting attempts to re-impose an illegal centralised control over oil and gas in Iraq,” Natural Resources Minister Ashti Hawrami said. “The country is crying out for cooperation and coordination on these issues, not confrontation.”
