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KRG keeps registering growth

Isolated from instability in the south, the pioneers of the north’s independent oil industry are quietly pushing ahead

Attention on Iraq's oil sector typically focuses on the giant fields in the federally-governed south. But the independent oil industry in the autonomous north under the aegis of the Kurdistan Regional Government (KRG) has been broadly flourishing over the past two years—despite nominal opposition from Baghdad on the grounds of alleged unconstitutionality.

The KRG last published production data a year ago; but output is believed to be running at 450,000-500,000bl/d, and is gradually rising, chiefly on the back of renewed investment by the territory’s three stalwart foreign operators. A bedrock of around 200,000bl/d comes from the locally-managed Khurmala Dome portion of the giant Kirkuk field.

Norway's DNO proved the biggest winner from early licensing activity, picking up the prolific Tawke licence back in 2004, which turned out to contain not only the eponymous field—still the largest foreign-operated producer—but also Peshkabir, discovered in 2017, which has been swiftly ramped-up to largely offset Tawke's natural decline. Production from the secondary field hit 55,000bl/d during the first half of the year, and total average output from the concession this year and next is on track to exceed 120,000bl/d, DNO said at the end of October.

Flush from several years of timely KRG payments, combined with a landmark settlement of historic dues two years ago, the Norwegian firm is now expanding elsewhere in the Kurdistan Region of Iraq (KRI). The first well was spudded last year at the newly-acquired Baeshiqa licence, a sensitive concession straddling the disputed federal border. The licence was formerly operated by ExxonMobil. After being made aware of Baghdad's disapproval, the major showed little appetite for developing it. DNO is testing a second, deeper well and plans a third next year.

Output is believed to be running at 450,000-500,000bl/d, and is gradually rising

Anglo-Turkish Genel Energy vied with DNO for top spot during the first half of the decade by dint of operating the then similarly-prolific Taq Taq field. However, the risks inherent in the KRI's complex geology were dramatically manifested in the form of rapid water breakthrough leading to successive, swingeing reserves downgrades in 2016-17. Production averaged a mere 10,870bl/d in the third quarter of this year, less than a tenth of its 2015 peak, the firm said in early November. 

To compound its problems, Genel then trumpeted development plans at the Bina Bawi and Miran gas fields, home to combined 2C reserves of an estimated 14.8tn ft³ as an envisaged financial saviour—only for provisional gas sales agreements with the KRG, tied to an opaque intergovernmental export deal with Turkey, to lapse earlier this year. The latest plan, yet to be approved by Erbil despite months of discussions, is for a phased, integrated development starting with oil at Bina Bawi. 

Galvanised progress 

Fortunately, Genel also saw Tawke's potential and farmed-in with a 25pc stake a decade ago, providing a reliable and rising source of revenues amid its difficulties elsewhere. Restored to financial health by the 2017 arrears settlements and higher oil prices, the company will pay a maiden dividend in 2020, according to plans announced in March, shortly after closing acquisitions from Chevron of stakes in the non-producing Qara Dagh and Sarta concessions, becoming operator of the former.

After years when the major had made minimal investment in the acreage, the entry of a more focused partner has galvanised progress, with first production from Sarta, from a 20,000bl/d processing facility, due next year. Genel reckons that a single reservoir at the field contains reserves similar in size to those at Peshkabir.

London-listed Gulf Keystone Petroleum (GKP) is the third of the original 'big three' foreign producers—by dint of operating the Shaikan field, adjacent to Tawke in the north-west, which has production capacity of 40,000bl/d. As with Genel, but for different reasons, the firm's core asset has failed to fulfil its potential.

GKP has had detailed plans on the table for years to raise production to 55,000bl/d, latterly updated with phases lifting ultimate output to 110,000bl/d; however, lengthy negotiations with the KRG failed to arrive at a mutually-satisfactory new production-sharing contract. This prompted the operator, faced with creeping field decline, to decide in 2018 that investment in the first increment would proceed regardless. First-half output averaged just than 30,000bl/d. But the firm continues to predict the 55,000bl/d milestone will be reached in the second quarter of 2020.

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