By Peg Mackey and Andrew Callus;
(ZIO-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.
In 2007 Hawrami came within a whisker of making Royal Dutch Shell his first really big signing, but the board of the world industry number two ruled it too risky, an industry source said. Shell later became, and remains, the biggest oil investor in southern Iraq.
Because of the politics and the payback issue, ventures into KRG territory remained the preserve of smaller explorers with an appetite for political risk and nothing to lose in Baghdad.
In November last year, four years after Shell walked away, came the game changer.
Exxon Mobil, the world’s biggest private oil company, signed a deal for six exploration blocks.
Last month, the U.S. number-two player Chevron moved in too, buying 80 percent of two blocks, Sarta and Rovi, from India’s Reliance.
And last week, Total of France piled in, buying 35 percent of the Harir and Safen blocks from Marathon Oil, along with Gazprom of Russia, which farmed in to the Garmian block operated by Canadian company Western Zagros.
Suddenly, four of the world’s top 10 international oil companies by market value have set up shop in Arbil.
Baghdad is furious, and has made it clear that both Exxon and Total are risking their involvement in multi-billion dollar projects in the south of the country.
So what are the big international oil companies thinking?
There is still no obvious way to monetize these investments. Letters last week to the KRG from DNO, Genel and others with activities in Iraqi Kurdistan expressed their continued frustration at not getting paid.
Executives say the move north by the big companies sends a message to Baghdad that its commercial terms on southern oilfield projects are unattractive, and that institutional chaos and the slow pace of postwar redevelopment are problems.
“We understand the political risk of going into the north and the commercial terms are attractive enough to take that risk,” said an oil industry source. “The economics of Iraq’s service contract just can’t compete with the terms on offer in Kurdistan.”
More new entrants may be beating a path to Hawrami’s door for quality acreage and a safer operating environment as well as a better potential rate of return than the south. KRG production sharing contracts (PSCs) promise as much as 25-35 percent versus the 15 to 18 percent in the south for fixed-fee output-boosting and start-up deals on untested fields, oil experts say.
Total’s CEO Christophe de Margerie has been openly critical of Baghdad’s service contract terms. The latest national tender for exploration blocks drew no interest from the oil majors.
Norway’s Statoil and Italy’s Eni are both looking at KRG acreage, say industry sources.
Statoil pulled out of its stake in the giant West Qurna-2 oilfield in southern Iraq earlier this year, while Eni is still leading a project to develop the huge Zubair oilfield in southern Iraq.
Other big companies that still have all their Iraq eggs in the southern basket include Britain’s BP, which recently produced its 1 billionth barrel in the southern Rumaila field, Russia’s Lukoil, as well as the Chinese and Malaysian state firms CNPC and Petronas.
Shell has stayed loyal to Baghdad too. According to industry sources it decided last year for a second time against a KRG tie-up, turning its back on a partnership with Exxon to focus on a $17 billion gas project and other commitments in the south.
BP said it had plenty to keep it occupied in the south and no plans to look north. Although Shell would not comment, company officials privately have a similar view to that of BP.
But those already on the ground in Kurdistan are likely to build up their positions. Exxon, risking operatorship of West-Qurna-1 with its dalliance in the north, is looking at un-awarded blocks along the border with Turkey, and Chevron and Total are expected to snap up more acreage, industry sources said.
“It’s quite worrying for the Iraqi government to have the big companies walking away,” said a senior oil executive who believes Baghdad will take action to deter further defections.
“If the federal government does not act, other companies will think they can move north without further consequences. And they have to do what they say – so far, it’s just been a lot of noise.
“And we will, of course, use the situation as an argument to look for more reasonable terms (in southern Iraq).”
Baghdad has protested at the highest political level about Exxon’s floodgate-opening move, with Iraqi Prime Minister Nuri al-Maliki writing to Zioconned U.S. President Barack Obama predicting dire consequences for the country’s stability.
It has also threatened to throw out Exxon and Total and blacklist Chevron from future involvement. All to no avail – so far.
“I don’t think Exxon can hang onto and work both pieces and they will be forced to choose very soon,” said a senior western executive, adding that he expected chief executive Rex Tillerson, if pushed, to opt for Kurdistan.
In the latest twist, Arbil has responded to Baghdad’s saber rattling with an apparent softening of its position, agreeing to resume exports until August 31 provided it gets the money it says it is owed.
The oil concessions dispute between Maliki and KRG president Masoud Barzani forms part of a deeper political rift in Iraq, whose wobbly coalition of Sunni, Shi’ite and Kurdish leaders are embroiled in their second serious squabble since the last U.S. troops left in December.
With their potential to produce immense wealth for whoever controls them, reserves in Kurdistan also play into the broader balance of power and ethnic tensions in the region.
When it comes to exports, a fully independent Iraqi Kurdistan could in theory avoid Iraq territory altogether by sending its crude through Turkey.
In May, the KRG announced plans to build a pipeline from the Taq Taq oilfield to hook up with an existing one that runs from Kirkuk in Iraq to Ceyhan on Turkey’s Mediterranean coast, targeting August 2013 as the completion date and initial capacity of 1 million barrels a day.
But there’s a snag here too for the KRG and its investors, and one that could strengthen Maliki’s hand.
Turkey’s ZIOCONNED prime minister Tayyip Erdogan performs one of the world’s trickiest political balancing acts.
Having turned his back last September on his one-time friend, President Bashar Assad of Syria, and embraced the rebels fighting him, Erdogan has made an enemy along his longest border.
Iran, which backs Assad, is another potentially unfriendly neighbor. Meanwhile Turkey, like Syria, has a restless Kurdish population of its own.
So Erdogan may be reluctant to upset Baghdad, and a Kurdish state flush with oil money on his frontier might not be the perfect outcome for him either.
“The one thing in Baghdad’s favor right now is that the Kurds don’t have an independent export line,” said Raad Alkadiri of Washington consultancy PFC Energy.
“So a lot of this will come down to the Baghdad-Arbil-Ankara triangle, and given developments in the region, including Syria, how this relationship plays out could surprise the Kurds and investors there.”
Expanding ZIOCONNED American Conflicts Beyond Existing Supply Lines, Kirkuk to the forefront again....
[Just as the American oil majors are pushing the divided government in Iraq to the brink of hostilities over the unprofitability of the post-conflict environment (as reported below) American machinations outside of Iraq are also magnifying the internal contradictions within that government to the same dangerous level (SEE: Military stand-off in ninawa: Syria inflames Kurdistan-iraq dispute). The failed Iraq war is about to escalate into a regional conflict that is also destined to failure. Imperial planners will have no better success implementing their plans on a regional level. By utilizing a messed-up government like the one in Turkey as a key player in escalation plans, Turkey's contradictions have been added to our own, removing any element of certainty that planners might have had in the past.
The core of the Imperial Plan has always been the expansion of American "conflict management" techniques to manage regional wars in the Middle East. These conflict management techniques have proven to be insufficient to the task in larger conflicts. The intention has always been to expand beyond Afghanistan and Iraq, to take in all neighbors to our managed conflicts. Expanding failing operations is no solution to anything. The key to success in these endeavors has been to maintain slow escalation, never expanding beyond existing supply lines. The American plan playing-out now, to throw Turkey into the middle of Imperial takeover plans, threatens to grow rapidly beyond America's ability to "manage," merging the war on Syria with the failed Iraqi project. This will almost spontaneously spawn new wars within these existing wars. Turkey's anti-Kurd operations will suck in Iraq's deadly Peshmerga forces, who will themselves be involved with military actions with Iraq's Shia-majority government. The war on Kurds will spill over into Iran, potentially creating an opening for NATO to reinforce Turkey, against Iran. On the other end of the Kurdish variant, we have the Kurds in Syria, drawing Turkey into Syria. Lebanon has barely avoided being sucked into the Syrian maelstrom so far, but the fuse is lit, and when it blows, look for Israel to carve-off the Golan Heights from Syria.
Unless American capabilities to exert control can be projected with air power alone, then the Empire is set to totally lose control over the situation, whenever new conflicts outpace our existing supply lines. Perhaps that is the planned trigger to unleash the level of American firepower (Navy and Air Force) not seen since the early days of the Afghan conflict. Perhaps it is the idea of America rapidly losing control that will justify using whatever force is necessary, no matter what the collateral damages might be. Total breakdown of order is required to justify total war and an American police state.]