International oil companies with an eye on Kurdistan had reason tocelebrate on Monday, after the central government of Iraq pledged to honour the oil agreements signed between the Kurdistan RegionalGovernment and oil companies operating in the region.
In aninterview to news agency AFP, Iraqi Prime Minister Nuri al-Maliki saidthe government will respect the production sharing agreements (PSA), in amove that would appear to give Kurdistan's oil companies full recognition of their profit margin entitlements.
The declarationwould bring to an end a spat between the two factions which has lastednearly a year and a half and saw Kurdish oil exports halted.
Al-Malikisaid the agreement was in part due to the extraction of oil inKurdistan, which requires bigger efforts than oil activities in Basra.
Headded: "The companies continue producing according to the contract signed between them and the KRG and will take their shares, and what isleft will come to the state budget."
Middle East energy analystSamuel Cizsuk at IHS Global Insight said it would be difficult foral-Maliki to now backtrack on issue, given his decision to go into somedetail as to how the export revenue will be divided, and described hisstrong endorsement of the previously rumoured agreement as designed tocreate a sense of "political fait accompli".
Implications
Al-Maliki'sendorsement of the KRG oil contracts will no doubt be greeted withgreat optimism by the international oil companies that have alreadyinvested in the region.
Several have made significant discoveries,with Norwegian company DNO having already developed some productioncapacity on the Tawke field, and filling the 20-plus oil companies inthe region with optimism about making their own discoveries, followingthe surge of small risk-taking minnows into the region over the past fewyears.
Both AIM-listed Sterling Energy (SEY) and fellow explorer Gulf Keystone Petroleum (GKP) have been making a name for themselves in the semi-autonomous region; the former with its Sangaw North block and the latter with its interest in the Shaikan block, Akri-Bijeel, Sheikh Adi amd Ber Bahr.
However,not many of the smaller companies operating in the region are of a sizewhere it would be possible for them to develop larger discoveriesalone, and even if they are, they would certainly expect needcontractual security about their profit share before committing todevelop a discovery.
"If a deal now has been struck and lookslikely to be upheld, the exploration and development activity in IraqiKurdistan should quickly pick up speed, while larger oil companies -which have so far been afraid or unable to justify the legal risk - willnow start looking at buying their way into the region, whichincreasingly is proving itself a prolific oil and gas play on its own,"Cizsuk added.
He hailed the breakthrough a "considerable victory"for the Kurdistan region, after stubbornly refusing to concede topressure from Baghdad.