With no end in sight to the Islamic State (ISIS) insurgency, it seems almost perverse to report that prospects have brightened for oil and gas companies operating in the Kurdistan region of northern Iraq. But there you have it. Last week, the Kurdistan Regional Government (KRG) announced that oil exports via the Khurmala pipeline into Turkey had risen up to 300,000 barrels per day (bopd) - a 60 per cent increase since August. It's now on-track to hit 500,000 bopd by the first quarter of 2015.
And by the end of next year, the KRG hopes to be exporting around 1m bopd. But the authority is involved in a long-running dispute with government officials in Baghdad over commissioning rights and royalties linked to Kurdish oilfields. Iraq has withheld the KRG’s 17 per cent share of budgetary revenues for several months, which might seem a little churlish given that the Kurdish peshmerga has come to be seen as the only viable defence against the jihadists, and their northward expansion.
The Iraqis and the Kurds have never been easy bedfellows, but Baghdad maintains – not without foundation – that Kurdish leaders have been acting unilaterally, securing territory outside the autonomous Kurdish lands and brokering oil deals in the midst of the crisis. Although the KRG is certainly in a stronger bargaining position, the best interests of the UK-listed producers in the region would be served if the two parties successfully negotiated a long-term revenue-sharing agreement.
Regardless of protests from the new administration in Baghdad, the pipeline route into Turkey effectively bypasses Iraqi infrastructure. Multiple cargoes of Kurdish crude have already made their way to the Turkish Mediterranean port of Ceyhan. In all, 34.5m barrels of oil have been exported, generating close to $2.9bn in revenues. The KRG also looks to have found another ready outlet for its oil exports through a recent field development deal struck with Hungary’s MOL Group. The KRG has also pledged to make an initial $75m payment to regional producers this month. More importantly, the KRG intends to step-up payments on a regular basis allowing the likes of Genel Energy (GENL) and Gulf Keystone Petroleum (GKP) to manage their cash-flows with a better degree of certainty.
