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Feb 11 2012

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A second giant eyes Kurdish oil

TOTAL to sign oil exploration deal with KRG
The French oil giant TOTAL is reportedly close to reaching an agreement with the Kurdistan Regional Government authorities to explore oil in a number of fields in the Region.

While both, the KRG and TOTAL have not disclosed any information, a report by The Sunday Times claims that results are expected to be announced within weeks.

By signing a contract with the KRG, TOTAL will become the second international oil giant, after Exxon Mobil, to enter the rich oil market in Kurdistan. This comes following a number of large oil discoveries in different fields in the Region.

Exxon Mobil's deal, which was announced in November 2011, came as a surprise to almost everyone. Until then, oil giants had refrained from dealing with the KRG due to threats from the Iraqi central government to blacklist international companies doing business with the KRG.

Despite Baghdad's threats to blacklist the company and to terminate its contracts in the southern regions of Iraq, Exxon Mobil signed a production sharing agreement with the KRG for exploration rights in six field blocks, three of them located in the disputed areas of Kirkuk and Nineveh Provinces.

With the announcement of the Exxon Mobil-KRG deal, Kurdish officials were hoping it would convince other oil companies, such as TOTAL, to also enter the market.

Although TOTAL's oil deal is expected to raise tensions between Erbil and Baghdad; it will also likely to be a point of strength for the Region and its oil market.

Having attracted smaller firms to the Region, the Kurdish government is keen on the industry's biggest players to develop the reserves they have discovered. Ashti Hawrami, the Kurdish Minister of Natural Resources has set a target of 1 million barrels of oil per day within four years, reported The Sunday Times. In 2007, Kurdistan produced 2,000 bpd from a single well.

Experts believe the initiatives by Exxon Mobil and TOTAL are an indication that Kurdistan is to become a more important player in the international oil industry in the near future. Only five years ago, Kurdistan was producing only a small amount of oil. Today, it is aiming for 1 million bpd by 2015.

This is said to also open doors for other oil companies to step in, with the US giants Chevron and ConocoPhilips at the top of the list. There are rumors that the two are approaching the KRG to sign exploration deals for the few remaining fields.

The Region's government, which has already attracted dozens of small and medium-size international oil companies, is hoping to attract the industry's biggest names to reach its lofty goals of significantly boosting its production to feed its fast pace reconstruction and developmental needs.

The oil market in Kurdistan Region is growing rapidly amid ongoing tensions between Erbil and Baghdad, as the central government has not yet reached a final agreement with the KRG over the management of natural resources. Despite these tensions, and especially the central government's threats to blacklist Exxon Mobil in the center and south of the country, the company is reported to have started to quietly move into the Region.

"They [Exxon Mobil] are definitely here and they are definitely assessing living and working accommodations," said a Western industry source in Erbil. "There are around 10 individuals here at any one time, looking at what it takes to fully mobilize here -- office space, housing space, and these types of things. No oil company comes in a day."

Minister Ashti Hawrami told Reuters in January that the KRG was holding talks with other major oil companies and he expected further agreements to be signed in the next few months.

One more factor behind the increased interest in the Region from oil giants is the relative security, safety and political stability the Region enjoys compared to the rest of the country.

Since few unclaimed fields remain in the Region, TOTAL is said to be aiming to take over some areas in the north of the Region, reported Reuters late January.

Italy's Eni and Russia's Lukoil, with small stakes in the south, are also rumored to be eying Kurdistan Region's oil.