Iraq gives go-ahead to Kurdish oil contracts

Oil exports from Kurdistan to restart following agreement with Baghdad to end long dispute over resources jurisdiction.

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Iraq's new central government plans to recognise contracts for oil and gas production in Iraqi Kurdistan, a step towards healing an extended rift that has delayed development of some of the world's largest oilfields.

Several UAE companies stand to benefit if the dispute is resolved.

Abdul Luaiby, two days into his new job as the Iraqi oil minister, said yesterday that there was an agreement between Baghdad and the regional government of Kurdistan.

"We have already signed an agreement with Kurdistan," Mr Luaiby said in Cairo yesterday on the sidelines of a Christmas Day meeting of the Organisation of Arab Petroleum Exporting Countries.

Under the deal, Baghdad would recognise several dozen contracts that the Kurds have unilaterally signed with more than a score of foreign oil and gas producers in their semi-autonomous territory in north-eastern Iraq.

The deal would also contain a revenue-sharing provision allowing foreign companies to be paid for oil and gas they pump for export.

"Yes, we will recognise them," Mr Luaiby said of the Kurdish contracts, which his predecessor, Dr Hussain al Shahristani, had declared illegal.

His statements followed five days of intensive talks last week when Nouri al Maliki, the Iraqi prime minister, led a delegation from Baghdad to meet Kurdish politicians on their home turf to hammer out a deal for an Iraqi coalition government.

The country has been without a government since its national election in March, and winning the support of the Kurds has proved the essential last step for Mr al Maliki to form a cabinet.

"The mood is much more positive now," said Hussein Baker, a Kurd from Erbil, the regional capital.

"The Kurds are very excited with the recent developments. The expectation is that foreign companies will now be able to export their oil and gas and the economy will boom."

The promise of an end to the increasingly acrimonious dispute, which had dragged on for nearly four years, should be good news not only for the Kurds and their foreign partners, but also for Iraq as a whole. One of the major casualties of the disagreement was a draft Iraqi federal oil law, badly needed to lend legal weight to the fistful of long-term service contracts that Dr al Shahristani signed with international oil groups over the past 18 months to develop large Iraqi oilfields outside Kurdistan.

Some of those fields, including a cluster of supergiants in the country's southeastern province of Basra, are among the largest in the world. But as long as the federal oil law remained stalled in parliament over the Kurdish dispute, the international oil companies that had signed the 20-year agreements to pump crude from the southern fields could not be sure that their contracts would not be overturned.

In Kurdistan, meanwhile, exports into Turkey of about 90,000 barrels per day (bpd) of crude by pipeline and tanker trucks were halted more than a year ago because Dr al Shahristani and Ashti Hawrami, the Kurdish resources minister, could not agree on a mechanism for paying the foreign oil producers.

The companies directly affected were Norway's DNO International, Turkey's Genel Enerji, and the Chinese state-owned Sinopec.

DNO, which is 30 per cent owned by the UAE's RAK Petroleum, cut back its output from the Tawke field in Kurdistan to 4,000 bpd last month because it lacked an export licence. Between June and September last year, it exported as much as 50,000 bpd from Tawke through a link to Iraq's northbound export pipeline.

Last year Genel Energy and Sinopec pumped about 40,000 bpd of crude from Kurdistan's Taq Taq oilfield for export, moving the oil by lorry. In October, Genel agreed to sell part of its stakes in Taq Taq and two other Kurdish fields to South Korea's UI Energy. The Turkish company has meanwhile pursued a project to build a refinery in Kurdistan for Taq Taq oil.

DNO and Genel have estimated that oil exports from the two fields could restart at a combined 150,000 bpd. Kurdish officials see this rising to 250,000 bpd within a year, equivalent to 10 per cent of Iraq's total current oil output.

Waiting in the wings is Pearl Petroleum, a consortium led by the Sharjah partners Crescent Petroleum and Dana Gas, with smaller stakes held by the Austrian petroleum group OMV and Hungary's MOL.

Pearl has developed gas and condensate production from the Khor Mor gasfield. It supplies the gas free of charge to local power plants and sells the condensate, a type of light oil, on the Kurdish domestic market. The group also has rights to develop a second gasfield, Chemchemal, and hopes to export some of its future output to Europe.

While Dr al Shahristani, who became Mr Hawrami's nemesis, is to remain in Mr al Maliki's cabinet in the newly created position of deputy prime minister for energy, there are signs that Mr Luaiby will be allowed to take the lead in further discussions with the Kurds.

Mr al Luaiby is seen as an "interlocutor" in northern Iraq, said Samuel Ciszuk, the senior Middle East energy analyst with IHS Global Insight.

"Allowing the new oil minister to handle much of the relationship … might allow for some of the conflicts to be defused, as the personal issues between [Dr al Shahristani and Mr Hawrami] would be removed," he said.