Lower oil prices threaten KRG capacity growth

Investment in exploration in northern Iraq’s semi-independent Kurdistan region, particularly by the smaller foreign operators, could suffer from the fall in oil prices, according to Petroleum Argus.

‘The reality of $50/b might have an impact on exploration,’ London-listed independent Genel Energy’s President Mehmet Sepil says. Foreign companies working in Iraqi Kurdistan will incur falling profits or losses, he adds. Genel has reduced its output target for 2015 to 150,000 b/d from 200,000 b/d, citing technical reservoir issues.

Foreign operators are worried that falling oil prices will make it even harder for them to recover costs and receive payment for output. The cash-strapped Kurdistan Regional Government (KRG) has not reached agreement with Baghdad over how it will reimburse companies’ costs. KRG Oil Minister Ashti Hawrami hopes that renewed negotiations with the federal government will resolve the issues.

London-listed Gulf Keystone planned to boost Shaikan capacity to 40,000 b/d in January, but has delayed a further increase to 70,000 b/d until at least 2017. Development could start next summer and would take two years, Chief Executive John Gerstenlauer says. But development of Shaikan depends on receiving regular payments, he adds.

The KRG is committed to paying foreign oil firms, says Hawrami. However, he admits that, until a comprehensive agreement is reached with Baghdad, the KRG ‘will have limited capacity’ to fulfil its promise. Erbil received a $500mn transfer from Baghdad in November 2014 in line with agreements to provide 150,000 b/d crude for Iraqi state-owned marketer Somo to sell at Ceyhan, Turkey, before the close of the year, rising to 250,000 b/d in 2015. In early December 2014, Tawke field operator Norwegian DNO and Genel each received $30mn from the KRG and Gulf Keystone collected $15mn. But this is a fraction of what they are due. DNO is owed over $1bn, Chairman Bijan Mossavar-Rahmani says.

In addition to crude from its area, the KRG will transport up to 300,000 b/d from Iraqi state-owned North Oil through its export system. The crude will come from northern fields still under federal control — 29,000 b/d Khabaz, 53,000 b/d Jambur and the 250,000 b/d Kirkuk field’s Baba dome. The KRG and Baghdad plan a 300,000 b/d pipeline linking those fields to the KRG export system that will take three months to build, says Hawrami.

The KRG took control of Kirkuk’s Avanah dome and 190,000 b/d Bai Hassan in June last year, from Islamist group Isis. They are believed to be producing a combined 135,000 b/d that is feeding KRG refineries. Output from Khurmala, Tawke and Taq Taq of around 375,000 b/d is piped to Ceyhan. That volume is forecast to rise to 500,000 b/d by 2Q2015.

Most of the 260,000 b/d of Iraqi crude loading at Ceyhan in late 2014 was marketed by Somo, with the KRG selling around 80,000 b/d. The KRG will continue selling more crude than the amount earmarked for Somo, with revenue taken as compensation for federal debts, Hawrami says. The KRG says Erbil will receive its 17% of Iraqi budget revenues once it supplies 2015’s crude to Somo.