Kurdistan is on the raidar-nice readThis was an article posted from WZR, nice read...FX
Kurdistan raises temperature in struggle for Iraq?s oil
Britishentrepreneurs are piling into Kurdistan, helped by a law that offersgenerous terms to lure oil companies to explore there
Danny Fortson Published: 7 August 2011
Recommend(0) Comment (0)PrintFollow Business By midday on Tuesday, thetemperature in central Baghdad had hit 51C. As sandstorms swept in fromthe desert, the Iraqi government went into meltdown.
Unable to generate enough power to cool its buildings, the government closed down and sent ministers home.
About 190 miles to the north in Erbil, it was business as usual ? and not because it was an autumnal 49C.
Thecity ? capital of the semi-autonomous region of Kurdistan ? generatesenough energy from locally produced gas to keep the power going for allbut a few hours a day. Baghdad sometimes has electricity for as littleas four.
Why the difference? Four years ago Kurdistan passed itsown oil and gas law that offered generous terms to lure companies to aregion ignored by the industry and brutalised by the regime of SaddamHussein.
About 40 companies took the bait. Not one of them wasin the league of BP or Shell. The industry giants wanted access to theenormous fields in the south, and Baghdad, which has tried and failedfor years to pass an Iraq-wide oil law, made it clear that any firm thatdid business with the Kurds would be frozen out.
So the regionwas left to a mixed bag of mid-sized companies and wildcat explorers,many of them backed by London investors. For some, the gamble could soonpay off.
A new crop of companies has arrived in recent months,encouraged by signs of a thaw between Erbil and Baghdad. Tony Hayward,the former BP chief executive, is considering a $3 billion (£1.8billion) bid for Genel Enerji, one of the region?s biggest operators,through his London-listed vehicle Vallares.
The American giants Marathon and Murphy Oil bought blocks last year.
OsmanShahenshah, chief executive of Afren, the FTSE 250 oil explorer, saidKurdistan presented ?a once in a lifetime opportunity?.
That iswhy he agreed last month to pay $588m for a pair of blocks, even if theywere far outside the company?s normal patch, in Nigeria.
?Nowhereelse can you find world-class fields that an independent can grabbefore being snapped up by the big boys. When the chance came, wecouldn?t pass it up,? Shahenshah said.
So is the dam about tobreak? The answer comes down to politics. When Kurdistan?s president,Massoud Barzani, threw his weight last year behind prime minister Nurial-Maliki to head Iraq?s government, he insisted on a pledge thatBaghdad would pass a hydrocarbons law by the end of this year.
Timeis running short.The law will set royalty terms for foreign operators,but there is fierce debate in Baghdad over which draft ? one approved byMPs and another by the cabinet ? can be passed.
Severalproposals have been put forward since the post-Saddam parliament wasformed in 2005 but they have been lost in the treacle of domesticpolitics. Oil revenues account for 95% of Iraq?s GDP.
AKurdistan government source said that whichever version is finallypassed, the legality of its deals is beyond reproach. ?The contractswere signed under our 2007 law, which was passed in line with thefederal constitution,? he said.
?We have a transparent institutional framework.? In the past, however, Baghdad has called the deals ?illegal?.
The year-end hydrocarbons law deadline coincides with America?s target date for pulling its remaining troops out of Iraq.
Tensionsbetween Baghdad and Erbil are high. Barzani?s government sent 10,000troops in February to surround Kirkuk, an oil-rich city that the Kurdswant to reincorporate into their territory.
It took a month ofdelicate negotiations before they withdrew the troops. The departure ofthe American military buffer will put that d?nte to the test. Despitethe dangers, more and more companies are betting that Kurdistan is aboutto turn the corner.
One of the biggest reasons is a recent dealbetween Baghdad and Erbil that allowed the Kurdish government to payoil companies, including Oslo-based DNO, for the first time in more thantwo years. Exports have resumed via a pipeline to Turkey.
Iraqowns the world?s third-largest reserves after Saudi Arabia and Iran.This is focused in the south but Kurdistan?s fledgling industry has hadan incredible run.
From a standing start in 2007, it nowproduces 175,000 barrels a day. That could grow to 1m a day by 2014,according to the plan laid out by Ashti Hawrami, the Kurdish oilminister, who has masterminded the region?s development.
Of the wells that have been drilled, two-thirds have struck oil. The hit rate in the North Sea is one in ten.
Nonethless,sceptics abound. Thamir Uqaili at the Centre for Strategic andInternational Studies said the Kurds would be lucky to hit a quarter ofthe target.
?One million barrels is impossible,? he said. ?To beable to do that you need new production centres in Kurdistan andtransportation linked with the federal system. There are still a lot ofproblems to be worked out. It?s mostly politics but it is reserves aswell. A lot of the [reservoirs] are small and geologically difficult.?
ToddKozel has little time for such doubts. He was first in line whenlicences were put up for grabs in 2007 and has been rewarded fabulously.
Gulf Keystone, his AIM-listed company, made one of the largestdiscoveries in the country with its Shaikan block. ?What you are seeingnow, with the likes of Marathon and Hess coming in, is the result of ashift in perception of the risk here. It?s good for Kurdistan, and it?sgood for Iraq,? Kozel said.
The best blocks are now largelyspoken for, so many of those willing to brave the political and securitypitfalls will probably have to stump up for one of the companies thatgot there first.
Kozel said: ?As far as future licensing roundsgo, there are a few things still to go for. But the next round ofdevelopment in Kurdistan will be about consolidation.?