Sunday, August 05, 2012

Insight - Oil's big players raise the stakes in Iraqi Kurdistan
By Peg Mackey and Andrew Callus


LONDON (Reuters) - Iraqi Kurdistan's crude oil is plentiful and easy to get at, rare among undeveloped energy resources. The man managing it, a former North Sea engineer and consultant turned politician, knows how to attract investment.

But the companies working there under contracts with the semi-autonomous Kurdistan Regional Government (KRG) are not getting much out, and they are not getting paid, all because of a dispute over control with the national government in Baghdad.

Despite the row, rooted deep in the tinderbox politics of Iraq, ever bigger oil companies are moving into the northern region, angering Baghdad with their seal of corporate approval for a government that is seeking more autonomy in one of the most volatile parts of the world.

Something has to give.

"The northward migration continues," said a senior oil executive involved in Iraq. "And this could well be the tipping point."

Output in this mountainous region bordering Turkey, Syria and Iran is an on-off trickle for now in global terms but, given the right investment and an export route, it could reach 1 million barrels per day by 2014, and 2 million five years later, according to Ashti Hawrami, the KRG natural resources minister.

That would be more than Libya, the North African producer whose civil war outage led to a sharp jump in prices last year.

Hawrami worked in Scotland for the British National Oil Company in the 1970s and early 1980s. He later ran an oil services firm, then moved into consulting before becoming a KRG minister in 2006.

Oil men admire his commercial savvy. They say he understands that companies have a simple need for returns that justify investments, in stark contrast to suspicious governments they deal with elsewhere in the Middle East.

"The difference is that they want us here while in the south of Iraq, it feels like they don't," said one oil executive.

The sticking point for KRG development is that Baghdad has jurisdiction over all exports, and contests the validity of contracts signed with the Kurdish government in Arbil.

It tries to keep the region on a tight leash, limiting supplies of fuel and restricting its flow of cash under an entitlement based on 17 percent of the country's oil export income.

There is much friction, claim and counter-claim over the arrangements, and in its most recent act of protest, the KRG halted oil exports in April, saying Baghdad owed $1.5 billion.

In 2002 Turkish company Genel Enerji blazed an exploration trail to the region. Norwegian company DNO and others followed after the U.S.-led invasion of Iraq in 2003.

Now more than 40 foreign companies are drilling in oil territory so rich that in some places the crude seeps out of the hillside and collects in the valley below.

Proven reserves in Iraqi Kurdistan of 45 billion barrels amount to more than a third of the national total of 143 billion recorded in BP's annual statistical review, where Iraq accounts for 8.7 percent of all the world's known oil.