Output dream is reaching for the sky

Iraqi Kurdistan’s dream of joining the ranks of major oil exporters by pumping 2 million barrels per day by the end of the decade looks increasingly out of reach, amid deteriorating relations with the central government and a dearth of recent exploration success.

Buoyed by a wave of initial exploration discoveries by first movers such as Norway’s DNO and London-listed Gulf Keystone ­Petroleum and Genel Energy, the Kurdistan Regional Government (KRG) set itself a goal of pumping a million bpd in 2015, and doubling that thereafter.

“We have the potential to export 250,000 to 300,000 bpd of oil,” KRG’s Oil Minister Ashti Hawrami said in late 2012.

“We believe that by 2015 we will safely reach a million bpd and by 2019, 2 million bpd.’’

Hawrami is a supremely confident executive, whose smooth talk — allied to an intrinsic dislike of the Oil Ministry in Baghdad — has helped the semi-autonomous region to attract more than 50 foreign companies to its upstream sector, despite vehement opposition from the federal authorities.

Monetise discoveries But the rivalry is certainly casting a cloud of uncertainty over development plans by operators keen to monetise their discoveries.

Hawrami says international oil companies have spent between $10 billion and $15 billion on ­upstream activities in Kurdistan without seeing any financial ­reward.

Baghdad’s refusal to recognise the KRG’s production sharing contracts is the main hurdle, with little sign of any light at the end of the tunnel.

KRG has now cut off its official crude exports through the central government— running at about 200,000 bpd towards the end of 2012 — after Baghdad failed to make fresh payments to Kurdish operators.

However, KRG is said to be trucking 20,000 bpd to Turkey despite objections from central government.

The unresolved payment issue, coupled with a string of dry holes in recent months, threatens to hobble expansion plans and push back Hawrami’s aim of achieving his 1 million bpd.

“There is no way Kurdistan can produce 1 million barrels in 2015. If all goes well, they can reach 1 million bpd in 2017 from existing discoveries,” says a veteran oil executive in Erbil.

“Beyond that, we just have to wait and see if there are fresh discoveries.’’

The KRG is currently capable of pumping 300,000 bpd from the DNO-operated Tawke field, the Taq Taq field operated by a joint venture of Genel and China’s Sinopec and the Khurmala Dome developed by the local Kar Group.DNO is pressing ahead with plans to double Tawke’s production to 200,000 bpd by the end of 2014, despite the dispute with Baghdad.

“We are fast-tracking everything we are doing in Kurdistan,’’ DNO’s executive chairman Bijan Mossavar-Rahmani says.

Tawke can produce 200,000 bpd for a sustained period due to its estimated proven reserves of 700 million barrels.

Raising capacity At the same time, Genel and its Chinese partner Sinopec are also working to raise Taq Taq’s production capacity from the current level of 120,000 bpd to 200,000 bpd in 2014. Taq Taq has estimated proven reserves of 650 million barrels.

While expanding production from Tawke and Taq Taq may be relatively simple thanks to the easy nature of their reservoirs, other fields, such as the giant Shaikan, are complex structures containing heavy oil with high sulphur content.

London-based operator Gulf Keystone is submitting its development plan for Shaikan to the KRG’s Oil Ministry.

This envisages a phased production of 150,000 bpd in 2014.

A Kurdish Oil Ministry adviser doubts Hawrami would want a phased development as he is keen to produce as much as possible from Shaikan, which may be capable of producing at a peak rate of 400,000 bpd provided Gulf Keystone brings in an experienced and deep-pocketed operator to handle the giant structure, which has more than 12 billion barrels of oil in place. Gulf Keystone’s chief operating officer John Gerstenlauer says the company is on track to pump 20,000 bpd from Shaikan in March from its first production facility, which is now being installed. “The first module is here and is being hooked up. The second facility is shipping out of Canada.

“That will be at least another 20,000 bpd,” says Gerstenlauer.

“By the middle of the year we should be around 40,000 bpd.

“And then depending on how things go, we should get be able to be producing 60,000 bpd before the end of the year.

“We are in the process of ordering a third facility.’’

Pipeline is needed Initial output will be trucked, but a pipeline is needed at a later stage.

“The three facilities couldl give us a production of about 90,000 bpd, but for that amount you need a pipeline,” Gerstenlauer says. “We are hoping to start the pipeline early next year and have it completed in early 2014. Then we can get up to 90,000 bpd and maybe more.

“We have told the minister that, by the end of 2014, we will be at 150,000 bpd. We are doing everything we need to be able to do that,’’ says Gerstenlauer.

The pipeline will be built to the Turkish border. The production modules are built by Canada’s Qualitas International.

It remains to be seen if Gulf Keystone has the necessary expertise and financial muscle to develop a complex heavy oil field with various reservoirs and high sulphur.

There are suggestions that Exxon­Mobil is eyeing Shaikan, as the US supermajor is in a position to weather years of political uncertainty until the Erbil-Bagdad dispute is finally resolved to allow for a smooth development.


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