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Norwegian company DNO to pump first new
Iraqi Kurdistan oil
16.5.2007 |
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The
first crude oil pumped by a foreign company in
Kurdistan-Iraq in decades will flow into the global
market next month. Initial production from the Tawke
field is expected to be 15,000 barrels a day, and
increase it to 25,000 b/d by the end of the year.
May 16, 2007
DNO, a Norwegian oil company, will announce on
Wednesday that it will begin producing a small
amount of oil from the northern Iraqi region of
Kurdistan, marking a symbolic return of foreign
companies to Iraq after 35 years of state control.
The company’s experience is being closely watched by
larger competitors, eager for a slice of the world’s
third-largest oil reserves, but deterred by security
fears and the lack of a legal framework for Iraqi
oil.
But DNO’s announcement could add strain to relations
between Iraq’s Kurdish authorities and the central
government in Baghdad. DNO’s contract is with the
local administration in the relatively peaceful
north of Iraq, rather than with Baghdad.
The sharing of oil resources has been a point of
dispute between Iraq’s sectarian communities. The
Kurdish authorities’ decision to sign separate
contracts, which could bring them a direct income
source and consolidate their power, has provoked
fears of a break-up of Iraq. |
Oil fields in Kurdistan region (Iraq) |
DNO’s contract may have to be amended once the
country’s hydrocarbons law is finally agreed.
Passage of the law – which is critical to attracting
foreign investment – through the Iraqi parliament
has stalled over control of individual oil fields.
The Norwegian oil company will almost certainly have
to deliver early output by truck, because Baghdad
has not granted access to the export pipeline.
Helge Eide, DNO’s chief executive, said: “We are
ready to pump. We never thought that we would be in
a position to start producing oil from Kurdistan
only two years after we commenced exploration.”
DNO, which is quoted on the Oslo stock exchange,
discovered the Tawke oil field in late 2005, after
signing a production sharing agreement in June 2004
with the Kurdish regional government, a
semi-autonomous area of Kurdistan (northern Iraq).
Ashti Hawrani, the Kurdish oil minister, said
Kurdistan’s regional government would share revenue
with the rest of the country.
Initial production from the Tawke field is expected
to be 15,000 barrels a day, and increase it to
25,000 b/d by the end of the year. While that is a
drop in the global oil market of 85m b/d, it is the
first sign that production in Iraq may, at some
point, return to pre-war levels. Iraq’s oil output,
which was near 3m b/d before the US-led liberation
The Iraqi cabinet approved a draft law in February
and set a deadline of the end of May for parliament
to pass it, something officials admit is unlikely.
With the law not passed, Baghdad officials say the
KRG is going beyond its authority to sign deals like
the DNO accord before the country has agreed on a
national oil policy.
The Kurds argue that the federal system outlined in
Iraq’s 2005 constitution gives them the right to
sign such deals, and that Baghdad politicians’
inability to agree on a law should not block the
urgently needed development of their
resources.
With the third largest oil reserves in the world,
Iraq continues to be a target for international oil
companies desperate to get access to new reserves.
“Coming here to Iraq was a very wise decision,”
Magne Normann, DNO vice-president and head of the
Iraq project, tells the Financial Times in a rare
visit to the company operations in Tawke. “For
security reasons it would be extremely difficult to
work in the wider Iraq, but Kurdistan is different.”
DNO signed its production sharing agreement in June
2004 well before the formation of Iraq’s national
government. George Yacu, an oil adviser for the
Kurdistan Regional Government, says: “When DNO
signed the agreement we were begging them to come.
They took all the risk: technical, political,
security.”
Under the contract, Kurdish officials estimate the
government would receive about 85 per cent of the
profit, leaving the Norwegian and its partners with
a 15 per cent take.
Security remains a major issue, underlined by a car
bomb in the town of Makhmour, near the Kurdish
capital of Erbil, which killed 30 people and wounded
50 others on Sunday. The oilfield razor-wire
perimeter is guarded by more than 250 Kurdish
soldiers, manning heavy machine gun positions along
watchtowers.
But today contractors working in Kurdistan believe
security is acceptable. “There are many other places
in the oil industry more dangerous than northern
Iraq,” said Rod Vallee, a 37-year-old Canadian, who
has worked in 29 countries and is now a contracted
drilling manager in Tawke. “Sudan, Somalia, Ethiopia
... Nigeria or Colombia are more dangerous,” he
says.
Saed Shengali, commander of the regional security
forces in Dihok governorate, which includes Tawke,
says: “I have never used so many soldiers to protect
anything.” But working in Iraq means that oil
companies face unexpected problems.
When DNO was building its 44km-long pipeline, for
example, it needed to hire a company to clear
several minefields. “The mines were old, but you are
never sure if they are going to blow up or not,”
says Mr Normann.
To navigate the challenges, DNO has found strong
support from Kurdish officials, who are backing the
company as if it were its own national enterprise.
For the region, oil could be a lever in its
political disputes with Baghdad.
If Kurdistan authorities were to cash all the money
from the oil – something they say they will not do
as they promise to redistribute – the region could
earn $1.7m daily.
“Without oil we have nothing,” says Tahir Aziz
during a break in his shift on the oil rig. “Kurds
can not be independent without oil. But now, we have
our own oil,” he says, pointing with pride to his
rig.
FT com
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