Major questions remain over the enduring legitimacy of production sharing contracts being signed by Iraq’s Kurdistan Regional Government (KRG).
According to Iraq’s draft federal petroleum law, the Kurdistan PSCs require Baghdad’s endorsement, but federal Iraq has been unable to enact its own legislation. The prospect of the KRG deriving revenue from oil production is clouded by the fact that large-scale exports depend on pipelines owned and operated by the national oil company.
Nevertheless, early drilling on at least two of the PSCs appears to have established world class oil reserves and grabbed the notice of greater industry in a way not previously attained, said Wood Mackenzie consultants, Edinburgh, UK.
“Kurdish oil assets, which previously were thought to have limited capacity, are being proven by DNO, Genel Enerji and Addax to be prolific, regionally significant assets and not necessarily the poor relations to more established fields in the south of Iraq,” Wood Mackenzie said in a September research report.
Kurdistan developments
The KRG in Erbil has several more contracts ready for signature soon, noted Wood Mackenzie.
DNO ASA, Oslo, has already begun test production from Tawke oil field near Dihok north of Mosul (OGJ Online, Aug. 27, 2007).
DNO started extended test production from Tawke in June and reported output of 5,800 b/d in July and 6,900 b/d in August. The oil is trucked to the domestic market. DNO said it is entitled to all produced oil from Tawke, net after royalty, until it has recovered all project costs to date.
Meanwhile, Genel Energi AS and Addax Petroleum Corp. have tested appraisal wells at high rates in Taq Taq field east of Kirkuk (OGJ Online, Sept. 6, 2007). Oil in place has been estimated at 1.2-2.7 billion bbl, and reserves are expected to exceed 250 million bbl.
A development plan for Taq Taq involves a $1 billion-plus capital investment and a production plateau of more than 200,000 b/d and should be submitted in late 2007.
Dana Gas, Sharjah, UAE, won a service contract in April 2007 to appraise and develop Kormor and Chemchemal gas fields south of Taq Taq (OGJ Online, Apr. 25, 2007). Each field is believed capable of delivering several hundred million cubic feet of gas a day.
Hunt Oil Co. and Impulse Energy Corp., both private entities, were awarded a PSC on unspecified acreage in the Dihok area in September 2007 (OGJ Online, Sept. 14, 2007). The area is not believed to contain any proved reserves. Drilling could begin in 2008.
KRG’s announcement of the award to Hunt and Impulse said that “revenues from this Kurdistan petroleum development will be shared by the KRG throughout Iraq, consistent with the Iraq constitution and the new oil and gas law of the Kurdistan Region.”
The uptake
The Hunt-Impulse contract maintains the momentum of the KRG’s licensing policy and expresses KRG’s “frustration at the lack of progress toward a consensual oil and gas law, which would allow it to proceed with licensing and oil field developments in concert with the federal authorities,” Wood Mackenzie noted.
Kurdistan’s parliament approved its own regional oil and gas law in August 2007, and authorities outlined plans to offer 40 exploration blocks for competitive bidding.
“This raises the prospect of Kurdistan progressing the exploration and development of its oil and gas assets well ahead of the rest of Iraq,” the Wood Mackenzie report said.
The Iraq Oil Ministry under Hussein al-Shahristani could exclude companies that do business in Kurdistan from participating in larger developments in southern Iraq.
“This may become less of a deterrent as concerns grow over southern Iraq’s political future,” the consultant said.
KRG pointed out that the Hunt-Impulse PSC is consistent with Kurdistan’s petroleum law and with the draft federal oil and gas law promulgated in early 2007.