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Debate Continues on Legality of Kurdistan’s Petroleum Contracts

Debate Continues on Legality of Kurdistan’s Petroleum Contracts

By Thomas W. Donovan, Managing Partner at Iraq Law Alliance, PLLC.

Introduction

Several recent events have prompted a return to the lingering debate over the legality of the production sharing contracts entered into by and between the semi-autonomous Kurdistan Regional Government (KRG) and around 35 private international companies over the past few years. The KRG, through its own Ministry of Natural Resources, is adamant that the signing and negotiation of contracts for any ‘new’ petroleum developments (ie, those taking place under the 2005 Iraqi Constitution) remains its sole responsibility, and not that of the federal Iraqi government.

The current federal government in Baghdad, under the new minister of oil, Abdul Karim Al Luabi, has signalled a significant departure from previous policy, which was insistent that all petroleum policy be derived and managed by the federal Iraqi Ministry of Oil. Since assuming power in the new Iraqi government on December 21 2010, Al Luabi has made public statements confirming the legality of the production sharing contracts under Iraqi law, allowed Kurdish petroleum to be exported through Iraqi national pipelines and remitted payment to international oil companies operating in Kurdish fields under the contracts.

Many commentators have argued that Al Luabi’s recent acts are conciliatory in nature and a realisation of the authorities that numerous international oil companies are already operating in Kurdistan despite Baghdad’s attempts to derail the process. Other commentators assert that provoking the Kurdish bloc with a significant legal dispute will lead to further domestic political instability and increased calls for independence by the KRG.

Notwithstanding these considerations, the debate over the legality of the Kurdish production sharing contracts is grounded in an analysis of the division between federal and regional authorities in Iraq. The division is apparent in the notions underlying both the 2005 Iraqi Constitution and Iraqi law as applicable in the Kurdistan region. Previous pronouncements by the Ministry of Oil in Baghdad to the effect that the majority of the contracts were illegal or unconstitutional under Iraqi law appear difficult to support under close scrutiny. Instead, there appears at least a modicum of justification to the position that the future development and application of petroleum policy in Kurdistan remains under the sole jurisdiction of the KRG.

‘Present field’ v ‘future field’ distinction

The constitution allocates any power that is not reserved exclusively for the federal government to the regional or governorate governments and gives priority to regional or governorate laws where there are disputes over power-sharing.(1) Federalist notions were enshrined to the effect that no law may be enacted that contradicts the Iraqi Constitution or a part of any regional constitution, or any other legal text that contradicts the Iraqi Constitution.

Posted in Oil & Gas1 Comment

DNO Updates on Kurdistan Operations

DNO Updates on Kurdistan Operations

Norwegian oil producer DNO issued a report today (Monday) on the status on its activities in Kurdistan Region of Iraq.

Summail-1 exploration well update

The Summail-1 exploration well was spudded on 19 April 2011. The well has now been drilled ca. 25 meters into the Cretaceous interval and hydrocarbon shows were detected while drilling. An open hole test (DST) was undertaken of this top interval, and the well flowed 4 million standard cubic feet of gas per day (scf/d) through a restricted choke size (24/64 inches).

The drilling will now continue through the total Cretaceous section, which has an estimated total thickness of 800 meters, and testing will be undertaken as required. Thereafter the plan is to set casing and drill into the Jurassic and Triassic intervals.

Bastora-1A test production

The Bastora-1A well is a horizontal side-track drilled from the original Bastora-1 discovery well. A horizontal section of 660 m in length was drilled through one of the oil filled carbonate zones with the objectives of penetrating multiple fracture systems to enhance productivity and furthermore enable the well to be used in an early production concept. Testing of the well commenced by using artificial lift through installation of a down hole jet pump, and as previously reported, preliminary results indicated initial test rates of 2,000 to 2,300 bopd of crude oil of 18-19 API. The flow from the well has now stabilized at around 1,700 – 1,800 bopd and the crude oil produced is trucked to the DNO operated facilities at Tawke for export.

The forward plan is to continue flowing the Bastora-1A well in order to acquire more production and reservoir information, which will serve as an important input to the development plan to be prepared for the Bastora and Benenan oil discoveries. DNO as Operator will issue a declaration of Commercial Discovery for these two discoveries to the KRG by 25 June 2011.

Confirmation of export payment

As previously reported payment to DNO in the amount of USD 103.7 million for February and March crude oil exports had been approved for payment by the KRG, and the Company can confirm that this amount has now been deposited in the Company’s account.

This first payment for crude oil export marks another important milestone to DNO in relations to its operations in Kurdistan Region of Iraq. This combined with the recent positive and encouraging results from the ongoing operations, form a solid basis for increased activities and investments within the Company’s portfolio in the Region.

 

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Austria’s OMV Strikes Oil in Iraqi Kurdistan

Austria’s OMV Strikes Oil in Iraqi Kurdistan

Just days after WesternZagros struck oil at Sarqala, Austria’s OMV announces that it too has struck oil at its Bina Bawi block in the Kurdistan Region of Iraq.

OMV is currently drilling an exploration well (Bina Bawi 3) and encountered hydrocarbons in one of the primary reservoir targets. The well is still being drilled and further investigations are planned in the course of the well operations including evaluation of deeper potential targets. OMV will inform about the full potential as soon as more information is available.

Jaap Huijskes, OMV Executive Board member and responsible for Exploration and Production stated:

We are very pleased to announce this discovery of oil. It seems good quality oil and it was flowing to surface following a drawdown test. We are now going to continue drilling but I am confident that the final results will be promising.

OMV has direct stakes in five blocks in the Kurdistan Region of Iraq, of which in three as operator. Operated blocks are Bina Bawi (36%), Shorish (100%) and Mala Omar (100%).

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German Businesses Comment on Kurdistan Visit

German Businesses Comment on Kurdistan Visit

A business delegation from Bavaria spent a few days looking around Erbil and was very impressed with what they saw: from the security situation to the trade fair locations. Last but not least, they also enjoyed German draft beer in the Middle East, fresh from the tap.

Iraq and the state of Iraqi Kurdistan need German business and investment – this was made clear, time and time again, to the 12 members of the economic delegation from Bavaria. Representatives from the telecommunications, high tech and logistics industries as well as architectural and city planning sectors were in Erbil on the fact finding mission.

The mission had been organised by the German-Arab Friendship Association (DAFG) and the Bavarian Business Association in co-operation with the German Trade Office in Iraq (DWI).

For most of the participants it was their first trip to Iraqi Kurdistan. Their aims were to form their own individual impressions of the country, to make contacts or to prepare for cooperative ventures. The packed programme of activities and meetings helped them achieve all of this.

They were able to speak to high ranking politicians – including the Minister for Trade and Industry Sinan Abdulkhalq Ahmed Chalabi, the Minister for Planning Ali Osman Haji Sindi, the President of Chamber of Commerce Soran A. Aziz, the Governor of Erbil Nawzad Hadi and the Minister for Foreign Affairs Falah Mustafa Bakir.

All of the politicians reiterated that almost every business sector had a pressing need for German investment, German service providers and German businesses. The transfer of knowledge and information was a prerequisite for sustainable economic relationships.

Additionally they also emphasised that Iraqi Kurdistan could well make a suitable base for any businesses wishing to work further afield, from the south of Iraq to Iran, Syria and even Turkey.

The security situation in the north was better than many other areas in the Middle East, they said, and pointed out that this was also the reason that many Iraqi businesses were transferring their headquarters to the north. Additionally the state had barely been affected by the financial crisis and had the potential for extremely good economic growth in the near future.

At an evening event organised by the German Trade Office in Iraq (DWI) and held at the European Technology and Training Centre (ETTC), the participants were then able to talk over their impressions of the place, as they wined and dined and were treated to German beer. They were also able to discuss German-Iraqi business relations with members of the German Bundestag, Wolfgang Tiefensee and Uta Zapf of the Social Democrats, who were also in attendance.

Voices from the delegation:

Tarik Essaida

Senior Sales Manager, Middle-East and North Africa, with Muehlbauer

Sector: Smart cards and electronic passports

As a company with 30 years of experience, we can certainly contribute to some of the larger projects being undertaken in Iraq and in the federal state of Iraqi Kurdistan. This mission has helped with that, in making suitable contacts and discussing potential co-operative ventures. In terms of what Kurdistan had to offer, I was happy to simply let myself be surprised – and I’ve been very impressed. I can say with certainty that I will return to Erbil again, in order to take these discussions to the next level.

Posted in Industry & Trade0 Comments

WesternZagros Strikes Oil in Kurdistan – Shares Rocket

WesternZagros Strikes Oil in Kurdistan – Shares Rocket

Shares in WesternZagros Resources are up 35% on Tuesday following the company’s announcement of an oil discovery in the Jeribe Formation at the Sarqala-1 exploration well in the Kurdistan Region of Iraq.

The cpmpany says the Jeribe Formation flowed light, 40 degrees API oil at a stabilized rate of 6,000 barrels per day over the 24 hours of the initial flow period. This rate was achieved through a 36/64 inch choke at a flowing well head pressure of 3,900 psi and without any stimulation. No water was produced during this flow.

Simon Hatfield, CEO of WesternZagros commented:

We’re very excited to confirm an oil discovery in the Jeribe Formation. With these encouraging initial results, we will continue the testing to evaluate the full flow capability at the well and its potential for early production.

 

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UK Firms Invited To Explore Opportunities In Kurdistan

UK Firms Invited To Explore Opportunities In Kurdistan

The Middle East Association has this message for UK businesses looking for growth opportunities:

Dear Members and Friends,

The MEA, in partnership with UK Trade & Investment, Invest Northern Ireland and the Kurdistan Regional Government, will be leading a Trade Delegation to Iraqi Kurdistan from 23rd to 28th October to coincide with the seventh Erbil International Trade Fair, Iraq’s largest general trade exhibition. Mission Participants will have the opportunity to exhibit at the Fair’s British Pavilion, as well as to meet government ministers, senior business leaders, and the local Chambers of Commerce.

The stable security situation in Kurdistan has lent itself to business prosperity. Economically, the region is moving rapidly ahead of the rest of Iraq, although the UK is a late entrant to this market and currently trails behind its EU competitors.

  • There are excellent opportunities in Construction & Infrastructure, Engineering, Agriculture, Healthcare, Technology, Telecommunications, Power, Oil & Gas, Environment & Water, Financial & Legal Services, and Education & Training.
  • Over 50 British companies are already registered in Iraqi Kurdistan.
  • British-Kurdish relations are strong, and British business is welcomed and encouraged for the high quality of its skills, expertise, and products.

Last year’s UK delegation to the Erbil International Trade Fair was led by the MEA, in parallel with a delegation led by former UKTI CEO Sir Andrew Cahn, and comprised 53 delegates representing 35 companies. During the Mission, both the KRG President and Prime Minister visited the UKTI stand and spoke to exhibitors. There will be a UK VVIP delegation again this year. In light of last year’s success and Kurdistan’s increasing importance, we anticipate an even larger delegation for this year’s Fair, which will attract:

  • 850 Exhibitors and 75,000 visitors
  • Representation from 25 countries
  • Support from a large number of trade promotion agencies, chambers of commerce, associations, ministries and embassies.

Exhibition space at the Erbil International Fair is finite, so we advise you to register your interest early. The cost of a stand at the Fair will be $3400 (currently about £2100). More information about the fair can be found here:http://www.eif-expo.com/.

For further details about joining the Mission and/or taking a stand for your company at the International Trade Fair please contact the Mission Manager, Lyndsay Snowden (email: mea@ctgrouptravel.co.uk; full contact details on flyer attached).

For advice on the Iraqi Kurdistan market and its possibilities, please contact David Lloyd, Senior Consultant at the MEA and Mission Leader (david@the-mea.co.uk), or Vian Rahman at the KRG’s UK Representation (vian.rahman@krg.org).

Warm regards,  Chris

Chris Moses
Marketing Executive
The Middle East Association

Posted in Industry & Trade1 Comment

Kurdistan Will Expand Faster Than Dubai

Kurdistan Will Expand Faster Than Dubai

US companies are put off from investing in Kurdistan by security fears, even though the Iraqi region is relatively safe and stable.

Iranian businesses are more aware of the lower risks in this part of the country and are desperate to invest and take advantage of its heavy investment and rapid growth, despite tax and other restrictive conditions imposed by the Iranian regime on its domestic businesses.

Reza Cheraghifar, export manager for large Iranian fiber optics manufacturer SGCC, told Aknews: “In ten years Kurdistan will expand its economy more than Dubai. Everyone is looking to get involved in that, particularly Iranian companies who share so much cultural heritage with Kurds.

“The speed of the growth means that they want to buy so much, it’s a real opportunity.

“The reason Kurdistan is doing so well, compared with Iran, is that it has a good relationship with all of its neighbors. People in charge here know how to separate business and politics.”

Habib Talavat, managing director of Urmia Petrochemical, said of Kurdistan: “It’s a very attractive place. There is a very young population who are keen to work and the labor price is much lower than in some other places in the region,”

With its relaxed laws allowing easy investment from foreign companies, Kurdistan may have to watch out that foreign countries do not set up and take their profits away with them. Cheraghifar said of the region: “They need to get investment for their own companies or have joint projects.”

 

(Sources: Aknews)

Posted in Industry & Trade, Investment0 Comments

Loans up to $83,000 for Kurdistan’s Farmers

Loans up to $83,000 for Kurdistan’s Farmers

The KRG’s Ministry of Agriculture has said that any farmer can get an agricultural loan of up to 100 million Iraqi dinars [$83,000] from the Government.

The agriculture minister said that the Kurdistan Regional Government has allocated 100 billion Iraqi dinars from the budget for the current year, in order to enable farmers to borrow from the government, adding that recipients can include orchards and poultry farms.

The provincial government had been paying half the value of new farm machinery in the form of agricultural loans, but the provincial government decided this year to increase agricultural loans to 80% of the cost of buying the equipment and agricultural machinery.

(Source: KRG)

Posted in Agriculture0 Comments

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