Tuesday, 16 June 2009

Asian giants join the race for riches in Iraq's largely untapped Kurdish oilfields

The scramble for Iraq's oil wealth is set to intensify after fresh agreements to develop three new exploration blocks in the country's Kurdish north.
The decision from the Kurdistan Regional Government, which governs the semi-autonomous region, to allocate the concessions comes amid mounting international interest in the oil-rich province.
Shares in Addax Petroleum, a London-listed oil explorer with operations in the region, surged 10 per cent yesterday amid speculation about a possible £4.8billion takeover by Sinopec, of China, and the Korean National Oil Company (KNOC).
Iraq holds the world's third-largest proven reserves of oil, after Iran and Saudi Arabia - about 115 billion barrels, according to BP - but large parts of the country, including the Kurdish region, where crude oil bleeds from the rocks in some places, remain relatively unexplored and there is the potential for the figure to rise sharply. The US Geological Survey estimates that the region could be found to contain 40 billion barrels of reserves.
Industry sources told The Times that a formal announcement from the Kurdish authorities on which companies had won the concessions, which lie on Iraq's mountainous eastern border with Iran, was expected soon. Bidding is thought to have drawn strong interest from a range of groups already active in the region, including Talisman Energy, a Canadian company, as well as new entrants.
Since 2003 the Kurdish administration has signed contracts with more than 20 foreign oil companies to develop exploration concessions across the country, some of which are already producing oil for export. As well as Talisman, they include DNO, of Norway, Sterling Energy, a British group that is due to start drilling on another Kurdish concession this autumn, Perenco, of France, and Western Zagros, another Canadian company.
Last week, Heritage Oil, another British company active in Kurdish Iraq, announced a $5.5billion (£3.4billion) merger deal with Genel, of Turkey, which will create a FTSE 100 company focused on the region. About ten further exploration blocks remain unallocated in the area.
A key reason for the present burst of activity is improved co-operatioon between Iraq's central government in Baghdad and the Kurdish authorities in Erbil, which since 2003 have clashed repeatedly over the latter's decision to strike deals to develop its oil reserves independently.
After years of squabbling over how oil revenues should be distributed, exports of crude from the region were finally allowed to start on June 1.
“The key driver for all of this activity has been the start of oil exports,” one Iraqi oil industry source said, speaking from the Kurdish north. “That has unlocked the value of these contracts, which previously some people were unsure about.”
Nevertheless, doubts persist over how much Kurdish licences will be worth. Companies including Addax, which are already producing oil from the Taq Taq field for export via the Iraqi pipeline system, are not yet being paid for their oil.
Separately, the Iraqi Government in Baghdad is preparing to announce the winners of a series of service contracts to develop more established oilfields in southern Iraq.
Iraq's total existing oil output stands at about 2.4million barrels per day, the highest since 2003, but Baghdad wants to increase it to four million barrels. No agreement has yet been reached over the country's oil law. It was first proposed in February 2007, but rows over how to distribute oil revenue have not yet been resolved.
Source: The Times

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