William MacNamara Kurds close in on deal to use oil export pipeline

Jean-Claude Gandur of Addax Petroleum, one of the Iraq-invested oil E&Ps closest to reaching commercial viability in the Kurdish region of Iraq, said last week that Baghdad and Erbil were closer than ever to reaching an agreement that would allow Kurdish oil to start reaching international markets through a pipeline running from Iraq to Turkey.

“The [Kurdish regional government] oil minister says he has a full understanding with Baghdad,” Mr Gandur said. They know how to share oil. After weeks and weeks of disagreement, the disagreements have essentially come to nil.”

Investors sceptical that there can be an agreement, because of wider uncertainties over how Baghdad and Erbil will balance political authority and resource revenues over coming decades, are not looking at the facts, Mr Gandur said. Hussain al-Shahristani, Iraqi oil minister, is reviewing models of resource investment and encouraging foreign investment, he said.

“We are talking about production-sharing agreements,” Mr Gandur said. “That is how far things have come. Not whether you will produce. We are talking about real operations.”

Other involved E&Ps disagree how far the talks have come toward an actual resolution. Far clearer is the growing prospectivity of the KRG’s oil fields. Drilling at the Miran field near near Taq Taq, Heritage last week announced provisional indications of an oil-bearing interval over one kilometre (1.1km), saying: “good quality light sweet oil was recovered to surface during drilling operations.”

Addax is already producing limited amounts of oil from its fields at Taq Taq, which some analysts consider to be a giant field with multi-billion barrel potential. But Addax and DNO do not yet have authority to export their oil through a pipeline, controlled by the central government that passes through the Kurdish region and then to the Turkish coast.

Heritage Oil, exploring near Taq Taq, also said it expected an agreement on the pipeline export scheme by the second quarter of the year.

Mr Gandur went on to say that it needed “a first drop to hit the pipeline” for the issue to stop being so politically controversial. “Politicians become less interested the day after it is shown to work.”

Speaking six weeks ago, another E&P company based in Baghdad cautioned: “The politics of oil contracts between Baghdad and Kurdish Regional Government are not at all worked out. But they tilt in favour of Baghdad.”

The E&P company, said a top executive who job is to liaise with the Baghdad government, “would never sign an agreement with the KRG expecting it to be honoured in full in Baghdad.”

He added, however, that this does not necessarily endanger the prospects for foreign-owned oil companies in the Kurdish region. “The ongoing issue is the percentaging of the two governments’ share of the production sharing agreement, not the percentaging between the companies and the government.”