Kurdistan is a region to watch in 2007 say Wood Mackenzie
Tuesday 13th March 2007
Wood Mackenzie believes that Kurdistan is a petroleum region to watch in 2007, according to a recent report. Iain Brown, Manager - Middle East Upstream Research for Wood Mackenzie said: "Early entrants have shown that it is an area where exploration activities can be successfully concluded, and have trodden a path in which others are certain to follow." The larger oil companies have been reluctant to negotiate with the Kurdistan Regional Government (KRG) for fear of 'overstepping the line' with Baghdad, but this may change very quickly once the legal regime is formally in place and commercial production takes off. Wood Mackenzie predicts that the oil-rush which the Kurds have long anticipated may at last be imminent.
In the report titled 'Petroleum Strategies in the Kurdistan region of Iraq', Wood Mackenzie discusses the political history of the region and looks at the opportunities and future challenges it presents.
Kurdistan in Northern Iraq has had semi-independence since the Gulf War and, following the US-led invasion in 2003, the KRG has consolidated its position as an autonomous political entity. Brown said: "For the oil and gas industry, this means that the KRG has the authority to licence blocks and fields to international companies for exploration, appraisal and development." Since 2003, the KRG has issued five Production Sharing Contracts (PSCs) and there are several Memoranda of Understanding awaiting conversion into PSCs.
Wood Mackenzie says that there has been a reluctance from larger international oil companies and the super majors to take a pro-active role in the Kurdish areas for fear it may inhibit their chances of being awarded larger contracts in Southern Iraq. Brown continued: "If this reluctance continues, it is likely to be a handful of independents who will become the first international oil producers in the new Iraq."
The report states that the region is largely unexplored but there are five oil fields and two non-associated gas fields within its borders. Brown said: "Speculative estimates for total reserves potential of the region are between 12 billion and 45 billion barrels of oil, and 100 tcf of gas, which would put Kurdistan on a par with prolific producing regions such as the Caspian and North Sea. Whilst this may be over-stating its potential, there remains a high probability of significant discoveries."
Wood Mackenzie says that the discovery of the Tawke field by DNO in December 2005 signalled Kurdistan's emergence as a major petroleum exploration province. Four appraisal wells were tested at rates of between 4,000 and 8,500 barrels of oil per day and the field is now poised for production. Activity has continued apace on the nearby Taq Taq field, operated by Genel Enerji, where well TT-4 flowed at an aggregate rate of almost 30,000 b/d in November 2006.
Kurdistan's undoubted reserve potential offers tangible commercial opportunities the report goes on to say, however these are balanced with a number of risks. Brown explained: "Political instability stems from a number of issues including the KRG's relations with Turkey. Kurdish ambitions for independence conflict with the national interests of neighbouring Turkey, as well as Iran and Syria." If these ambitions are managed effectively, Wood Mackenzie believes this will be mutually beneficial for Kurdistan and Turkey, in the form of a foot-hold for Turkish companies in the region and continued cross-border trade. Conversely, the planned referendum on the future of Kirkuk, one of the 'disputed territories', is a potential flash-point which could bring the sectarian conflict in central Iraq to Kurdistan's borders.
Sensitive negotiations on a national oil law, between the KRG and the Federal Government of Iraq are making progress. However, Brown said: "There are still several uncertainties surrounding federal revenue sharing, annexes to the main law covering a model PSC and the responsibilities of the Iraq National Oil Company, the KRG and the Oil Ministry." Wood Mackenzie says that the KRG is expected to retain the right to sign contracts for exploration and production in Kurdistan, whilst existing contracts will be honoured by the federal authority.
Wood Mackenzie's analysis also finds that the region faces some technical challenges, the most pressing of which is the lack of seismic and drilling companies with international standing who are prepared to work in the region due to safety concerns.
The report concludes that there are a number of positives to consider to balance these risks. Brown said: "Providing a secure business environment is a key policy of the KRG as the development of their petroleum assets is fundamental to the region's security and self-sufficiency."