Turkey's state firms TPAO and Botas seek opportunities abroad
With an energy-hungry domestic market to feed, TPAO and Botas see opportunities abroad, especially in Iraq
Turkey's upstream-focused NOC, Turkish Petroleum Corporation (TPAO) dominates the Turkish hydrocarbons landscape, producing three-quarters of the country's total crude output of about 310,000 barrels a day (b/d) in 2012.
But the state-owned player, which still enjoys preferential rights in the semi-liberalised domestic market, has planted its footprint further afield in recent years, allying itself with supermajors Shell and ExxonMobil and extending its reach into Libya, Azerbaijan, Colombia and Kazakhstan and - crucially - Iraq.
This overseas reach mirrors the shifts in the Turkish state's relationships with its neighbours, and the growing strength of Turkey's economy during 10 years of AKP leadership.
Turkey's Islamist government wants TPAO to lead the expansion of domestic output in conjunction with foreign oil majors, and improve on its derisory share of domestic production, estimated at just 8% of total consumption.
Turkish oil consumption grew by 2.3% in 2012, but overall energy demand is surging amid impressive GDP growth estimated by the IMF at 3.5% for 2013 - well ahead of the tepid eurozone growth forecast of 0.4%.
This has led TPAO to promote an uptick in offshore drilling in the Black Sea and Mediterranean basins, with exploration spend estimated to have risen to $610 million in 2012, compared with just $42m 10 years earlier. Commercial Black Sea production is expected to come on stream in 2016.
But there are challenges to TPAO's vaunted domestic status. A draft petroleum law, first submitted to parliament in December 2012, aims to increase exploration and production (E&P) activity by attracting new upstream investors that promise better terms for new entrants and an end to the last vestiges of privilege enjoyed by the state oil company.
This legislation follows complaints by foreign partners, such as Chevron, about the investment climate in Turkey's E&P sector. The US major pulled out of a two-well drilling commitment in the Black Sea last year, amid claims that TPAO was still calling too many of the shots. TPAO has since taken over the vacated Kuskayasi field, where it is due to start drilling in 2014.
Not all Western majors are scaling back their upstream commitments, and TPAO has been able to swing some joint cooperation deals in the past few years. For example, TPAO struck an exploration deal with Shell in 2011 for Mediterranean and Southeast Turkish exploration, and the two plan to start drilling off the coast of Antalya in 2015.
TPAO's forays into the big hitters of Middle Eastern hydrocarbons, notably Iraq, present broader strategic hurdles.
Turkey's active role in the autonomous Kurdistan region of Iraq has dragged TPAO into a dispute between the Baghdad central government, which is loth to see the Kurds devise their own oil-export strategy, and the Kurdistan Regional Government (KRG).
Turkey's government views the KRG region as a vital energy source for Europe's fastest-growing economy. But this has upset Iraqi prime minister Nouri al-Maliki's government.
In November 2012, Baghdad wrought vengeance on TPAO, evicting it from a Kuwaiti-led consortium that was due to sign a 20-year production-sharing agreement for Block 9 in southern Iraq.
Like other NOCs, TPAO must pay the price for the decisions of its political masters. However, its interests in the Mansuriya and Siba gasfields in Iraq appear to be safe, for the time being.
And Baghdad's froideur has not stymied TPAO's appetite for acquiring Kurdish assets. In May 2013, reports emerged that TPAO would join with ExxonMobil in oil exploration in the region.
A broader agreement grouping Turkish investors and foreign majors in and upstream and export development in Kurdistan has also been in the works for some time.
TPAO will not be alone venturing into uncharted waters. Turkey's other major state-owned energy player, Botas - officially the Petroleum Pipeline Corporation - has long dominated the midstream Turkish gas market, but its role is also changing.
Botas's monopoly of the gas import, trading, transmission and storage markets has been eroding since the private sector started entering the distribution sector in the 1990s. Yet Ankara has failed to meet its targets. Plans to crimp Botas's share of imports to 20% by 2009 have not been met.
Even so, Botas can read the writing on the wall. In August 2012, Gazprom signed a 6bn cubic metre (cm) a year supply contract with four Turkish companies, replacing a previous long-term contract with Botas that expired in December 2011.
Botas has seen its imports decline, according to the latest available figures - importing 19.1bn cm of gas in January-June 2013 compared with 21.8bn cm in January-June 2012.
In September 2012, the Ministry of Energy and Natural Resources proposed a fresh gas liberalisation bill that calls for Botas to be unbundled into a liquefied natural gas trading group, a gas transmission system operator, and a storage facility operator.
Gas import and export rights would be transferred to private companies in the sharpest challenge to Botas's freedom of manoeuvre since its formation 40 years ago. But it is not all bleak news for the state gas player.
Botas saw its girth swell in January 2013, after the ownership of the state Turkish Petroleum International Company (TPIC) - officially the foreign arm of Turkish oil - was transferred from TPAO to Botas, as part of an effort to improve TPIC's chances of participating in overseas projects.