Eric Watkins
Senior Correspondent
LOS ANGELES, June 27 -- The Kurdistan Regional Government (KRG) awarded contracts to South Korea's Korea National Oil Co. for the exploration and development of eight blocks near key cities in the northern region, five of them located near Irbil and the other three near Sulaymaniyah.
Together the blocks have oil reserves estimated at 7.2 billion bbl, of which the Korean firm will have the rights to around 1.9 billion bbl.
"Trial production should begin in about 3-4 years, with exploration likely to start in about 2 months," said Suh Moon-kyu, KNOC's senior executive vice-president. The agreement includes Bazian field, estimated to hold 500 million bbl of crude.
In February, a consortium of Korean firms, including KNOC, signed a memorandum of understanding with KRG that gave it a 60% stake in Bazian field; under the new agreement, that stake will increase to 80%.
Suh said exploration and initial drilling of the fields will cost $100 million, with other Korean companies required by the MOU to invest $2.1 billion in various infrastructure development projects. In addition to KNOC, the consortium includes Hyundai Engineering & Construction Co., Ssangyong Engineering & Construction Co., and Kolon E&C.
The South Korean construction companies will finance the projects through domestic financial institutions, and KRG will repay them with its profits from the blocks.
The agreement proceeded despite earlier protests from the Iraqi central government. KRG has signed more than 20 production-sharing contracts with a handful of international oil companies, but those contracts are considered illegal and null by the Iraqi Oil Ministry, which has threatened to exclude and blacklist companies that sign such deals. Last April, the Iraqi Oil Ministry excluded the KNOC consortium from taking part in future bids to develop Iraq's gas and oil fields due to be announced June 30.
Apparently shrugging off concerns of blacklisting, South Korean officials cited the fact that Kurdish Prime Minister Nechirvan Barzani went to Baghdad on June 22 for meetings with Prime Minister Nouri Al-Maliki on a host of issues, including the federal oil law. According to Suh, negotiations between Baghdad and KRG have been proceeding well, while another executive said, "We expect a settlement on the issue to be reached in the near future."
Earlier this week, Talisman Energy Inc. Calgary, also eyeing a possible settlement of differences between the Iraqi central government and KRG, said two of its subsidiaries entered into agreements with KRG for "interests" in Blocks K44 and K39 (OGJ Online, June 23, 2008).
Contact Eric Watkins at [email protected].
