ROMANIA

The transaction agreements, which were signed on 27th November, came as Iraq attempts to rebuild its oil and gas industry following years of sanctions and conflict.

The 25-year contract, one of the biggest deals that Iraq has signed in recent times, will see the creation of a new company, the Basra Gas Company (BGC).

The BGC will process gas from three large fields near Basrah in Southern Iraq in order to satisfy domestic consumption requirements, and will also have the right to pursue a Liquefied Natural Gas (LNG) or other gas export project for any remaining gas.

The Vinsons team includes partners Christopher Strong and Ahmed el-Gaili, while the Cleary Gottlieb team includes partners Andrew Bernstein and Gamal Abouali. “We are thrilled to be working with the Ministry on such an innovative and large-scale project,” said Ayman Khaleq, Middle East managing partner at Vinson & Elkins, in a statement.

“The signing… was a key milestone for this deal, which is significant to the overall gas industry in Iraq, and it’s a privilege to be a part of that.” 

(Source: Legal Business Online)

Erbil, Iraq – Nine years ago, five companies committed themselves to piping natural gas from Iraq and other nations to the heart of Europe.The executives christened the pipeline Nabucco after the Verdi opera they would attend together in Vienna.

But Nabucco, which has yet to lay a centimetre of pipe in the ground, has remained too long in the realm of fiction, says the oil minister of Iraqi Kurdistan, which was to feed gas into the pipeline alongside other regions of Iraq.

“If a pipeline capability does not materialise in time … then we will go for the LNG plant in Ceyhan, [Turkey],” said Ashti Hawrami, threatening to send the gas to international markets by sea rather than waiting to pipe it to Europe over land via Nabucco. “We are in a hurry. We have the gas, we need to monetise the value of this gas, and we cannot wait for investors to come up with a plan.”

Although the pipeline plan has received the backing of the EU and a slate of major companies from the countries along its proposed 3,900km path, it has faced delays in the start of construction and ballooning costs from its original budget estimate of €7.9 billion (Dh39.86bn).

Backers of the project, including Austria’s OMV and Germany’s RWE, say the delays arise from the reluctance of governments in Azerbaijan and Turkmenistan to commit to providing gas for the pipeline.

Supplies from these Central Asian countries are vital to justifying the final cost of the project, which BP – not a Nabucco backer – has estimated to be €14bn because of the high cost of steel.

OMV, which is quarter-owned by Abu Dhabi, says Nabucco might start bringing gas to Europe only in 2018, a year later than planned.

Meanwhile, competitors to Nabucco are gaining traction. They include a Russian pipeline called South Stream that is meant to deliver 63 billion cubic metres of gas a year to Europe – versus Nabucco’s proposed capacity of 31 billion cu metres. In March, Wintershall, a German energy company, agreed to back South Stream.

This week in Erbil, Mr Hawrami, the oil minister, made clear his impatience with the delays.

“We will be anxiously awaiting for Nabucco and other project developments in Turkey,” he told an audience of energy industry executives from companies including OMV.

Mr Hawrami’s sense of urgency represents two aspects of the Kurdish region’s approach to its oil industry, which is less than a decade old – speed and pragmatism.

Iraqi Kurdistan has been swift to welcome foreign partners, signing its first oil contract with the Turkish explorer Genel Enerji in 2002, one year before Saddam Hussein was pushed from power.

In the years since, the authorities of this relatively undeveloped region in northern Iraq – said to contain as much as 45 billion barrels of oil – have signed more than 40 production-sharing contracts with other companies, over Baghdad’s objections that such agreements violate the Iraqi constitution.

Mr Hawrami, a Baghdad-trained engineer, defends Kurdistan’s strategy as a matter of economic necessity and geopolitical safety.

“Waiting for Baghdad to adopt a centralised oil and gas law was not an option for Kurdistan,” he said. “We would have remained in the dark with two hours of electricity. We would have been without fuel for cars and factories. We would be still using not suitable drinking water and so on. This would have much bigger ramifications than things not being available for our people. All of that would have meant undermining the region’s stability completely.”

For now, Kurdistan’s extra gas, he said, is going to waste lighting up the sky as it is burnt in the course of oil production.

Erbil, Kurdistan Region – Iraq (KRG.org) – The Kurdistan-Iraq Oil and Gas Conference in Erbil heard confirmation that the Kurdistan Regional Government has signed an oil exploration contract with ExxonMobil, the world’s largest oil company.Ashti Hawrami, the minister for natural resources, told the conference that the KRG had signed a contract with ExxonMobil and that the federal government was kept informed throughout the negotiations. He said, “This will make a dynamic change in the region and will lead to mergers and acquisitions.” He said that Kurdistan had initially signed contracts with “small and beautiful” companies and was now working with “the giant and magnificent”.

In answer to questions from the audience, Dr Hawrami said the ExxonMobil contract was signed on October 18 and involves six exploration areas. “This agreement is good news not just for us but for all Iraq. This is also good news for the industry. It adds more value in terms of expertise and investment,” he said.

Dr Hawrami was speaking at the two-day conference which attracted hundreds of industry executives from around the world, including representatives from major oil companies not currently working in the region

The conference was opened by Prime Minister Barham Salih on Sunday and was attended by Kamal Kirkuki, the Speaker of the Kurdistan Parliament, Selahattin Cimen, Turkey’s deputy energy minister, and Britain’s ambassador to Iraq Michael Aron.
“Not long ago holding such a conference in Kurdistan was beyond a dream,” said Dr Salih in his opening speech. He set out the economic deprivation and genocide in Kurdistan over several decades, in contrast with today’s economic boom. “The economy today is moving on and moving forward.” He said Kurdistan has a major stake in a successful and strong Iraq and that Kurdistan is exercising its constitutional right to develop its resources. “I dare dream that from the devastation and destruction of the genocide we can have a future that’s democratic and prosperous.”
The prime minister said the KRG and the federal government had agreed that the 2007 draft hydrocarbons law would be used as the basis for discussions on a federal law. He added that it was agreed a draft would be presented to the parliament by the year’s end.

Kurdistan’s oil and gas sector has taken off in the past few years from a standing start, which has put Kurdistan on the global energy map. The KRG has signed 45 contracts with companies from 17 countries. In 2012, Kurdistan will export 175,000 barrels of oil a day. It will provide electricity to neighbouring provinces in the near future thanks to several gas-powered energy plants.

Dr Hawrami told the conference that the KRG would continue publishing its contracts for the sake of transparency and said he hoped this would become a model for the region.

Dr Hawrami also spoke about pipelines, gas and the important role of Turkey as an energy transportation route to Europe with the possibility of Kurdistan joining the Nabucco pipeline or using an LNG terminal in Ceyhan in Turkey to export gas to Europe. He said the KRG has a target of 1million barrels a day of oil exports via the Kirkuk-Ceyhan pipeline and to increase Kurdistan’s oil refining capacity to 300,000 barrels a day.

The conference also heard from Dr Cimen who spoke about Turkey’s position in the energy world. Turkey’s Genel Enerji was among the first oil companies to enter Kurdistan and is now merging with Vallares, former BP chief executive Tony Hayward’s company.

British MP Nadhim Zahawi delivered a message of congratulations to the conference from Britain’s energy minister Charles Hendry.

The conference heard discussions on oil and gas services, finance, pipeline and infrastructure plans, the need to hire local labour, projects to support local communities, and plans to export electricity.

www.KRG.org

 

Immaculately dressed with neatly cropped hair, Baz Karim gestures to the rows of vehicles lining up in the loading bay outside the Erbil refinery. More than 200 trucks pass through every day, picking up oil products such as fuel oil and benzene, before delivering them to cement and steel factories, and distribution networks around the region.The Erbil refinery, the fourth largest in Iraq and the largest private sector one, is a shiny new symbol of private, local investment in Kurdistan – and of the region’s ambitions.

It is part of the Kar Group that Mr Karim founded in 1999, a services company for the oil and gas industry. The company started in fuel trading during the period of United Nations sanctions on Iraq, before the US-led invasion in 2003, supplying fuels funded by non-governmental organisations to the rural poor in Kurdistan.

Mr Karim’s team moved on to help rebuild the country – government ministries needed everything from desks to computers after the war, he recalls.

Unlike international oil and gas companies that have come to Kurdistan to explore, which are blacklisted by Baghdad, local service contractors have managed to bridge the divide.

The company’s first contract, in 2004, was with Baghdad for the engineering and supply of equipment to the Khurmala Dome oilfield. In 2008, a rare joint decision by the federal and regional governments determined that the Khurmala Dome would be developed and operated to supply oil for the Erbil refinery. The Kar Group gets a set fee from the regional government for processing the crude – a model introduced to help kick-start the refining industry.

The refinery processes 40,000 barrels a day, but under an expansion plan its capacity is expected to nearly triple to 110,000b/d by the second half of next year. Mr Karim reckons that once the expansion is complete, the refinery will be able to cover close to 80 per cent of local needs.

In addition to Erbil and the refineries at Baiji, central Iraq, Baghdad and Basra, there are dozens of backyard, so-called “teapot”, refineries. Together they are capable of processing a total of about 790,000b/d of crude, according to the US Special Inspector General for Iraq Reconstruction. The teapot refineries can only produce low-grade diesel, fuel oil and, in some cases, kerosene. In northern Kurdistan, some of them are able to process fewer than 1,000 b/d of very low-grade products.

The surge in Kurdistan’s oil consumption is part of a broader trend within Iraq. The country has seen its oil demand rise to more than 700,000 b/d in 2011, up from just 450,000 b/d in 2003, as economic activity improves, according to estimates by the US Department of Energy.

Power shortages have contributed to the rise in demand, as some areas of Iraq only have a few hours of electricity a day, relying on diesel-powered generators the rest of the time. Although the region has enough refining capacity to meet its rising consumption, years of neglect mean that most plants are only able to run at about half their capacity, forcing Iraq to import refined products from neighbouring countries.

The US Department of Energy estimates that Iraq relies on imports for a third of its petrol consumption and nearly a fifth of its liquefied petroleum gas, including butane and propane.

The lack of capacity has created an opportunity in Kurdistan to build refineries to meet the region’s demand, but crucially also to export south towards Baghdad, and beyond.

DNO, the Oslo-listed oil company and one of the first to enter Kurdistan, has built a small refinery at its Tawke oilfield. The 6,000b/d installation was meant to provide the oilfield’s power generators with diesel, but since then it has become part of DNO’s strategy to market its production, executives say.

The company cannot export as much oil as it would like, because of the disagreements between Erbil and Baghdad, and neither can it sell all its crude oil output into the local market. Thus the small refinery provides DNO with naphtha, diesel and fuel oil, which are in strong demand in Kurdistan.

Other explorers, such as Genel Energy, which recently listed on the London Stock Exchange and is headed by Tony Hayward, the former chief executive of BP, the UK oil group, also argue that even if exports remain limited, the domestic opportunity for their product is large.

Baghdad’s own plan to expand the refining capacity has so far been delayed. In 2008, the federal government announced a 10-year plan to build four refineries with a capacity of 740,000 b/d, at a cost of $20bn.

At the Kar Group, ambitious expansion plans are afoot. Mr Karim wants to develop the business into an integrated oil and gas player. Over the next five years, he plans to focus on investing in the downstream and midstream sectors – including power plants and petrochemical plants – followed by developing exploration and production capacity.

One of the biggest challenges, Mr Karim says, is the “20-30 year management and skills gap” in the country. Iraq, he says, needs to “fast-track” to fill it.

Overall, he is optimistic. “International investors want to see what the country can do. Now that they see the market is stable, the risk is manageable,” he says.

By Sylvia Pfeifer and Javier Blas, Financial Times

While plans for exports mature, in Kurdistan the domestic natural gas industry is growing rapidly. The biggest companies are Crescent Petroleum and its affiliate, Dana Gas, which signed an agreement in April 2007 with the KRG to developed several gasfields. Two years later, the companies signed a deal with OMV of Austria and MOL of Hungary to develop two key fields.

The companies started production in October 2008, with the gas supplying local power stations that produced about 1,620 megawatts of electricity – about the same as a nuclear power plant.

“This has ensured an almost continuous power supply for 4m people in the Kurdistan region, in contrast to the electricity crisis in other parts of Iraq, and has provided savings of over $2bn annually in fuel costs for the government,” says Majid Jafar, chief executive of Crescent Petroleum.

But analysts believe the export market will be the most important over the medium term. “In the absence of local demand, gas exports remain the only option of monetising these large discoveries [of natural gas],” Citigroup wrote on a recent report about the oil and gas sector in Kurdistan.