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Iraq's Kurdistan Losses One Foreign Oil
Company, But May Gain Another
23.2.2012
By Joel Wing — ekurd.net |
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February 23, 2012
Since the 2003 fall of Saddam Hussein, the central
government and the Kurdistan Regional Government
(KRG) have been in a dispute over control of the
country’s oil resources. The Kurds have followed
their own independent energy policy, which Baghdad
has objected to. The Oil Ministry has tried to stop
companies from signing with the Kurds by banning
them from operating in the rest of the country. The
latest example of this argument just came to light
when a South Korean company backed out of an
agreement with the Kurds to take part in a new
bidding round for oil and gas fields put on by the
Oil Ministry, and a French corporation said it was
willing to leave southern Iraq to work in the north.
In early February 2012, South Korea’s SK Energy
announced that it was divesting itself of Kurdistan
so that it could work with the central government.
On February 9, it was reported that SK Energy was
selling its share in the Bazian oil field in
Sulaimaniyah, so that it could participate in the
fourth bidding round for 12 oil and gas fields put
on by the Oil Ministry in May. SK originally signed
its contract with the Kurdistan Regional Government
(KRG) in November 2007. In January 2008, the Oil
Ministry blacklisted it from working in the rest of
the country in retaliation. The corporation is South
Korea’s largest oil refiner. Starting in late-2008,
SK Energy began backing out of its deal with the
Kurds. In November, it said it would not invest
anymore money into its Kurdish holdings until
Baghdad approved it. It then allegedly refused to
join a $2.1 billion infrastructure improvement plan
at the Bazian field with the Korean National Oil
Corporation.
In December, the Oil Ministry said it would sell oil
to SK as a result, which started in February 2009.
Then a report came forward in October that SK was
involved in drilling at Bazian, and the Oil Ministry
demanded that the corporation clarify its position,
because it would not be allowed to purchase anymore
petroleum if it was still working with the Kurds. It
took until the beginning of 2012 for SK Energy to do
so, and now it wants to be able to bid in the fourth
round of auctions. The South Koreans obviously found
little profits in Kurdistan, because it was only
involved in exploration work there. The attraction
of buying oil from the central government, and
developing blocs obviously became too powerful, and
that led it to exit the KRG, and reconcile with the
Oil Ministry. That’s exactly what Baghdad has been
hoping for with its oil strategy.
As Kurdistan lost one company, it might be gaining
another. On February 10, 2012, France’s Total let
the press know that it was interested in working in
the KRG. Total’s CEO said that the fourth bidding
round did not look attractive, while Kurdish
contracts offered better terms than those offered by
Baghdad. In December 2009, Total put in the winning
bid along with the China National Petroleum
Corporation (CNPC) and Malaysia’s Petronas for the
Halfaya field in Maysan. Total is a junior partner
in the joint venture, controlling 25%. The
consortium agreed to raise production to 535,000
barrels a day, and be paid $1.40 per barrel after
reaching an initial output target. Halfaya has
reserves of 4.098 billion barrels. Since then, the
French company has complained about the deal,www.ekurd.net
saying that the payments are far too law for it to
recover its costs in developing the field. Total
could join Exxon Mobile as the second major foreign
oil company to work in Kurdistan. Deputy Premier
Hussein Shahristani who is in charge of energy
policy, has already warned Total that no company can
sign an energy contract without going through the
Oil Ministry. Previously, Baghdad threatened to end
its deal with Exxon for a field in Basra, and banned
it from participating in the fourth bidding round
after it signed a contract for six oil and gas
fields in the Kurdistan region. Large oil companies
were lining up to work in Iraq in 2009, because the
country had been cut off since the 1990s due to
international sanctions and wars. It offered huge,
largely untapped oil reserves.
That gave the Oil Ministry the upper hand, as it
negotiated tough Technical Service Agreements, which
gave them access to foreign know how and capital,
while keeping most of the profits for itself. Since
then, many companies have complained about these
deals, saying that benefits are too low. They have
also found that the bureaucracy holds up all work
from getting visas to enter the country to getting
paid on time, many of the fields are littered with
unexploded ordinance from the Iran-Iraq War, which
requires clearing before any serious work can be
done, there are occasional attacks by militants, the
infrastructure needs massive improvements, and there
have been cases of locals protesting and sabotaging
fields to demand jobs and compensation. That’s the
reason why Total has expressed interest in
Kurdistan, and is willing to give up its share in
the Halfaya bloc.
The Kurds’ oil policy seems to be winning more
international attention recently. In 2003, the Kurds
signed their first deal with Turkey’s Pet Oil. After
that, it claimed the 2005 Iraqi Constitution allowed
it to develop new oil fields. It then went ahead and
created its own Natural Resources Ministry in May
2006, and after negotiations over a new oil and gas
law broke down in parliament, it passed its own oil
legislation in August 2007. It has also offered
production sharing agreements, which provides
greater profits for companies, which have led to
several dozen contracts being signed, mostly for
exploration and drilling work. Now, with companies
getting a taste of what working with the Iraqi Oil
Ministry is like, and experiencing the operating
conditions in southern Iraq, they are beginning to
show more interest in Kurdistan where none of these
problems exist. While there are fewer fields and
smaller reserves in the north, companies have the
possibility to make greater profits, much quicker
than in the rest of the country, which is the reason
why Total may be the latest company to agree to
terms with Kurdistan.
So far, the central government has held the upper
hand in these arguments. It controls the vast
majority of the country’s oil, and more importantly,
the pipelines that export petroleum, and the
revenues they bring in. That has drawn in over a
dozen medium to large size international
corporations to work with it, and the reason why SK
Energy has abandoned its work in the KRG. Now that
balance of power seems to be shifting just a little
bit. Exxon was the first major to sign with the
Kurds, and Total may quickly follow suit. How this
works out is the real question now. Will these
contracts bring the two sides together, and agree
upon a new oil and gas law, or will they continue to
battle each other for control of the country’s
resources? Prime Minister Nouri al-Maliki has
promised the Kurdish Coalition that energy
legislation would be passed, but in the meantime,
Baghdad has continued with its threats against any
company that signs a deal with the KRG. Even if the
two sides do not reconcile, it’s apparent that more
foreign firms are willing to work in Kurdistan, no
matter what the Oil Ministry threatens to do to
them.
SOURCES
Abbas, Mohammed, “Iraq Central Gov’t, Kurdistan
Agree Oil Exports (UPDATE 2),” Reuters, 11/28/08
Agence France Presse, “Iraq declares Korean oil deal
with Kurds illegal,” 4/2/09
Carey, Glen, “Iraq to Start Oil Exports to South
Korea’s SK Energy in January,” Bloomberg, 12/24/08
Fang, Bay, “An Oil Rush in (Yes) Iraq,” U.S. News &
World Report, 11/13/06
International Crisis Group, “Iraq After The Surge
II: The Need for a New Political Strategy,” 4/30/08
- “Oil For Soil: Toward A Grand Bargain On Iraq And
The Kurds,” 10/28/08
Jacobs, Caroline and Boselli, Muriel, “UPDATE
3-Total latest oil group to shift Iraq focus to
Kurdistan,” Reuters, 2/10/12
Lando, Ben, “Blacklist enlarged and challenged,”
Iraq Oil Report, 10/1/09
The National, “Iraq oil deals,” 12/12/09
Reuters, “Shahristani says Total cannot sign
Kurdistan deals,” 2/12/12
Sabri, Abdullah, “Skorea’s SK Innovation
participates in 4th round of Oil & Gas licensing
after selling shares in Kurdistan,” AK News, 2/9/12
Salaheddin, Sinan, “Iraq to resume oil sales to
South Korean firm SK,” Associated Press, 12/6/08
Joel Wing, with an MA in International Relations,
Joel Wing has been researching and writing about
Iraq since 2002. His acclaimed blog, Musings on
Iraq, is currently listed by the New York Times and
the World Politics Review. In addition, Mr. Wing’s
work has been cited by the Center for Strategic and
International Studies, the Guardian and the
Washington Independent. You may visit his Blog
Musings On Iraq at musingsoniraq.blogspot.com
Copyright © 2012 ekurd.net
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