The relationship between the KRG and Baghdad will have a massive impact on Iraq’s energy mix
By mid-2012, Kurdistan was host to 23 rig drilling exploration wells, making it one of the most intensive areas for oil and gas exploration in the world.
The Kurdistan Regional Government (KRG) has awarded approximately 50 contracts to international companies to explore and produce oil with a goal of increasing oil production to 1 mb/d by 2015, based on existing discoveries and doubling output to 2 mb/d by 2019 after expected discoveries are made, says the IEA Iraq report.
“The Kurdistan region is proving to be a world class hydrocarbon resource base, discovery is well above industry standards and the growth rate of infrastructure development is accelerating,” said Nicholas Atencio, DNO general manager of Kurdistan, speaking at ADIPEC last month.
For Nabil Al Alawi CEO of the UAE’s largest homegrown oilfield service company, Al Mansoori Specialized Engineering, forging ahead and building business in Northern Iraq has proved an immensely successful platform which delivers a regular flow of lucrative business.
Previously there were very few service companies with Al Mansoori’s portfolio operating in Kurdistan. The major international companies were afraid of being blacklisted in the south by operating there.
“Those companies operating in the Kurdistan region have been excellent customers, and its proved quite a good bit of business because the companies scrapping it out in the south have been undercutting each other to the point where I don’t think the work is particularly attractive or profitable,” he said in an interview with Oil & Gas Middle East.
“The competition is so intense that I believe the rates being worked today are below what I am contracted for in the Kurdistan region. I have been told that 80% of the companies that have gone in are losing money. They have underestimated the cost of security quite drastically when they signed those contracts.”
While there may be a higher rate of companies entering Kurdistan, there is still some apprehension over the political relationships between the federal government and the KRG.
In 2007, the KRG unilaterally passed the Kurdistan Oil and Gas Law and began to sign
PSC agreements with various companies. However, the federal government has argued that such actions by the KRG are in breach of the region’s constitutional obligation, ultimately voiding the PSCs.
“The problem is that the constitution is so ambiguous on purpose because they weren’t able to agree on anything, so each side has its own interpretation.
It’s a federal state formation, but it’s not completely a federal state,” observes Ruba Husari, managing director at Iraq Insight. “A question of chicken and the egg, do you agree on the law first and then modify the contracts, or modify the contracts and then create a law that goes along with it.”
Resolution of current differences could open up the possibility for the KRG to produce between 500-800 kb/d by 2020, and 750-1200 kb/d by 2035. Recent discoveries in the Shaikan field alone are projected to be 12-15 billion barrels of oil.
There is a lot for the entire country to gain if this dispute between the federal government and the KRG can be resolved quickly.
Accelerating the modernisation of a vast resource of heavy oil in Iraq will be a hugely beneficial opportunity for everyone. “It’s there for those willing and ready to make the effort,” says Atencio.
