Tag Archives: Oil Law

As oil deal with Baghdad threatens to unravel, Kurdistan must decide – is oil to be their curse or treasure?

The backdrop to a raging battle with the Islamic State (IS) in Iraq is a raging political battle for control of the vast oil wealth of the country.

The billions of barrels of oil reserves under the Iraqi feet should be a real treasure and a divine gift but it has proven much more of a historical curse.

First misuse of revenues under Saddam Hussein to fund expensive wars and campaigns of repression against the Kurds and now since 2003, with the exception of the Kurdistan Region, Iraq is in a worse state in terms of economy, infrastructure and public services in spite of record revenues in recent years.

Control of oil exploration and revenues has been a real thorn in the relations between Kurdistan Region and Iraq. Several years later, no national hydrocarbon law exists and disputes continue to linger.

Many agreements have been reached between Erbil and Baghdad, often through gritted teeth and bitterness than real compromise or a common vision. As soon as the oil taps have turned on, it hasn’t been long before they were switched off again.

In addition to the rise of IS in large swathes of Iraq, another milestone in 2014 was the first independent Kurdish oil exports and revenues.

It may have sent relations with Baghdad spiraling downwards but certainly for their self-sufficiency and increased autonomy the direction was firmly upwards. Baghdad has sporadically paid Kurdistan’s share of the budget since January 2014 and Kurdistan was forced to take unilateral action but at the same time found itself in legal grey zones.

Finally, a deal was struck in late 2014 between Erbil and Baghdad that brought much optimism. Signs of unity and a willingness to find a true solution to the age old dispute came as IS remained deeply entrenched in Iraq.

The Kurds committed to export 550,000 in 2015 and in return Baghdad would resume over $1billion of monthly budget payments.

However, it didn’t take long for the agreement to become a source of more contention.

The Kurdish government has long complained that they have kept their end of the export bargain but Baghdad, suffering a massive budget deficit due to the crash in oil prices and owing over $21 billion to oil companies alone, was not moved.

Then comes the sheer irony. Kurdistan Region is washed with oil and yet still relies on budget payments from Baghdad. Oil revenues are the last noose or umbilical cord that Baghdad has over the Kurds.

Do the Kurds play the patient game that has borne little fruit or do they cut the umbilical cord and go alone, by receiving revenues directly or going after the buyers of Kurdish oil via SOMO, after all Baghdad has frequently threatened to sue buyers of Kurdish oil.

Kurdistan would receive more revenues than Baghdad would ever give if they exported directly from fields under their control. Then there is the plethora of oil companies in Kurdistan who are suffering due to the oil noose around the region. The capacity and infrastructure is there but the oil companies of course need their own revenues.

Kurdistan has criticized Baghdad for treating them like an oil company then a key part of Iraq. Although both Erbil and Baghdad recently reinforced their commitment to the deal, the government of Kurdistan has a very clear plan B. sells their own oil and receives revenues directly and bypass Baghdad altogether.

It may strike the ire of Washington who has placed firm political conditions on their campaign against IS, but if the disagreement continue unabated, then the immense oil under Kurdish feet continues to feel like a curse when salaries are unpaid, services are disrupted and the economy is hit.

First Published: Kurdish Globe

Other Publication Sources: Various Misc

A long-term oil law, the making or breaking of Iraq

“This deal cannot solve all the problems currently but it is considered a good step,” Kurdish Prime Minister Nechirvan Barzani

One of the greatest items of contention in Iraq has been a formula to share its immense oil wealth amongst its distrusted and fragmented ethno-social mosaic. Since oil was discovered in Iraq almost a century ago, it has been akin to more of a curse than a blessing for the ordinary people.

It’s difficult not to imagine what Iraq would have been like today if its oil wealth was not in the hands of tyrants and those who have abused Iraq’s treasure.

Kurdistan oil is home to estimated 45 billion barrels of oil and trillions cubic feet of gas, yet ironically the Kurds have seen the oil in the past used to purchase arsenal in their repression them and destroy their villages and livelihoods. It is a little wonder that the Kurds were keen to muster a level of autonomy on their energy reserves as part of the Iraqi constitution negotiated in 2005.

Although, the Iraqi constitution has clear stipulations around oil exploration, revenue sharing, export and control of federal regions, oil has been a contentious thorn in relations between the Kurdistan Regional Government (KRG) and Baghdad.

Oil minnows have flocked to the region as the early pace-setters and for the like of Gulf Keystone Petroleum, Addax, Heritage Oil, Western Zagros, Genel Energy and many more, the early bird really does catch the worm. Such is the spectacular promise and potential of energy in Kurdistan that akin to a rags-to-riches story, juniors have become majors in their own right almost overnight.

Oil giants coming off the fence

Any oil company anywhere in the world would have been misguided not to see the unravelling of the newest and perhaps last global oil frontier before their very eyes. However, while some smaller companies jumped in with both feet at the rewards and the lucrative terms of the Production Sharing Agreements (PSA) on offer, oil majors, while licking their lips at what was on offer, sat on the fence to preserve their interests and contracts further south and to appease Baghdad.

In spite of Baghdad’s fierce rhetoric against the KRG deeming their contracts signed with foreign companies as “illegal” and sending stern warning to oil companies, oil majors could simply no longer remain idle.

A spate of oil majors such as Chevron, Total and Gazprom have recently joined the fray with ExxonMobil’s oil deal a little short of a year ago serving as the ice breaker. Whilst from 2003 onwards there was a rush of juniors, now there appears to be a rush of majors keen not to lose out on the limited spots remaining at the Kurdish oil counter. Royal Dutch Shell is the latest major rumoured to be in discussions with the KRG which will serve as another symbolic feather in the cap for Kurdistan.

The possibility of Shell signing an agreement with Kurdistan, after twice coming close in the past before pulling back, comes as Baghdad continued to threaten ExxonMobil this week. As part of the timelines of the PSA with the KRG, ExxonMobil is starting logistical preparations to dig its first exploration well.

In reality none of the oil majors need to be reminded about the threats on offer, they are all fully aware. Furthermore, they have first class law teams and their confidence in the legal dealing with Kurdistan is a major endorsement to KRG policies. The fact that Baghdad effectively asked these companies to take sides makes the feat all the greater.

ExxonMobil has a major interest in the southern lucrative West Qurna-1 oilfield and Shell has its supergiant Majnoon field in addition to a multibillion gas venture.

But just what can Baghdad do to actually implement their threats? What would be left for Baghdad if it blacklisted all these oil majors? Simply put, Baghdad will do some sabre-rattling but ultimately it can’t afford to shoot itself in the foot and lose out.

Resolution over oil payments

The Kurdistan oil export taps have been frequently used in recent years for political gains, threats and concessions. While the production rate has been modest, it has the potential to significantly ramp up output.

Last week an agreement was ratified between the KRG and Baghdad ensuring that oil exports could continue and a dispute over oil payments could end with the Kurdistan receiving 147,000 barrels of oil products per day.

Lack of payment to foreign oil companies in Kurdistan and the stop-start nature of oil exports and thus oil revenues for these companies has been the only major blemish in an otherwise spectacular rise of the Kurdistan energy sector.

Kurdistan will keep export at around 140,000 bpd per day this month before ramping up to 200,000 bpd for the remainder of the year. In turn, Baghdad would pay around $857 million owed to foreign companies working in Kurdistan.

“It was agreed to form a permanent committee to follow up on the terms agreed, and give the committee authority to resolve any obstacles blocking implementation,” a KRG statement confirmed.

This committee is perhaps the most important step of all. If any side has any reason to doubt any elements of the oil revenues or the activities of any party, including foreign oil companies, then it must address them legally, politically and with clear audits, accounts and evidence to eliminate any doubt, accusations or grey areas.

While this agreement serves as a major relief or in the words of KRG Oil Minister Ashti Hawrami “a big breakthrough” and a promising step towards a new oil law, it is hardly comprehensive and may serve as another false dawn.

The bones of contentions stretch much deeper than just payments to oil companies. The question of federal autonomy and more importantly territorial disputes are etched much deeper. The issues of oil, article 140 and disputes territories and KRG foreign policies are very much intertwined.

Baghdad’s last remaining grip on Kurdistan is in the oil sector. It was naturally alarmed with the signing of landmark oil exportation deals between the KRG and Turkey in recent months. With the proviso of an independent oil pipeline under implementation, Kurds have much more control over the energy sector.

The national hydrocarbon law has stalled since 2007 and without formal ratification of an oil sharing law the Iraqi energy sector will remain rocky at best.

Iraq’s oil infrastructure is in urgent need of revitalisation and Iraq is in urgent need of additional revenue for it’s much needed and delayed reconstruction.

Oil for all of Iraq

Ironically, whilst Baghdad has accused the Kurds of manipulating its oil reserves, the oil in Kurdistan belongs to all of Iraq. The KRG has made it clear from the outset that they will abide by the 17% ratio agreed with Baghdad.

It is outdated mentalities that prevent Baghdad from realising that should Kurdistan gain then so does the whole of Iraq. Arab nationalists are quick to remind Kurds that Kurdistan is actually on Iraqi soil but then by the same token, treat Kurds like they are trespassers on their own soil, even if the Kurdish rise to prominence is essentially a major gain for all of Iraq

Kurdish oil exports and payments of foreign companies was actually on the of key prerequisites of the Kurdish political parties supporting Iraqi Prime Minister Nouri al-Maliki and joining the coalition and thus there was already agreements in principle, but in Iraq agreements are not always worth the paper they are written on.

The successful passing of a national oil law in Iraq could be the making or breaking of Iraq such is the immense oil resources Iraq has at stake. If it was not for oil, Baghdad would have given disputed Kurdish territories back to the Kurds many months ago, would have implemented article 140 and would not have implemented its Arabisation policy in the first place.

First Published On: Kurdish Globe

Other Publication Sources: Various Misc.

As the oil dispute heats up, time for Obama and the US to come off the fence in Iraq

In many ways, the US adventure in Iraq was marked by failure. Billions of dollars, thousands of lives and countless years later, and the Iraq of day is not much different to that of 2003.

The US had the painstaking task of stitching warring factions, striving for its elusive goal of national reconciliation and playing the mediator, but all they did was buy time.

The US relied heavily on the Kurds at their time of need, with the Kurds stepping up to plate at the height of the Iraqi civil war and with US grip on security in free fall. The Kurds will always be grateful for the ousting of Saddam but remain weary of long-term US intentions towards them and have not always been rewarded for their pro-American stance.

Too often in the past the Kurds have been cruelly played and it remains to be seen what position the US will take long-term.

It has tried to remain neutral but sitting on the fence in a place like Iraq has its evident limits. Months after the withdrawal of US troops and Iraq is in a fresh and escalating crisis that has left Iraq at breaking point.

Dispute over oil sharing and oil contracts has always been in the thorn of Baghdad-Erbil relations, but when US oil giant Exxon Mobil entered the fray, the landscape suddenly changed. Frequent rhetoric from Baghdad about the illegality of oil contracts signed by the Kurdistan Regional Government (KRG) is nothing new but Iraqi Prime Minister Nouri al-Maliki has tried to take the matter up a level by formally requesting that US President Barack Obama intervenes to stop Exxon Mobil from proceeding with its deal with the KRG.

Although, the letter has been received by the White House, Obama has not yet responded. Maliki had warned the deal would severely jeopardise the stability of Iraq.

The Kurds wait anxiously for Obama’s response, as they find out which side Obama will pick. Whenever a dispute has arisen, Washington has been quick to point out that all issues should be addressed based on the principles of the Iraq constitution and within its plural and democratic framework. However, clearly many aspects of the constitution have been continuously sidelined especially the implementation of article 140 and the US has remained largely idle.

Any oil in Iraq belongs to all of Iraq and the constitution is clear on rights of regions to control and explore oil. The notion of a disputed territory doesn’t necessarily mean that Baghdad has exclusive access as per the constitution.

While the Kurds have done more than their share in keeping Iraq intact, persevering with democratic channels and remaining patient, Baghdad works hard to display them as overreaching or jeopardising the unity of Iraq.

A man in Baghdad continues to amass power, control security forces, a number of ministries and breaks agreements with nonchalant ease, and yet has the audacity to write to the US to warn about the serious affects the Kurds are having on Iraq.

If the US endorses the Exxon Mobil-KRG relations, then this is a major feat for the Kurds and a de facto endorsement of their autonomy, strategic standing and rights under the constitution. If it sides with Baghdad, then it’s a warning sign for Kurdistan that as warm as their relations with the US may appear or have been, ultimately, the US will work to serve their greater aims, as witnessed on countless occasions in the past.

Hussein al-Shahristani has been as vociferous as anyone in his quest to derail Kurdish hydrocarbon ambitions, and warned French companies this week that their contracts with Baghdad would be deemed void if they inked deals with Kurdistan. French giant Total, appeared very keen to do business with the KRG, but it remains to be seen whether they have been sufficiently influenced to back away from Kurdistan.

From the outside, one would easily forget with the frequent attempts to shackle its development and onward drive, that Kurdistan is a part of Iraq. If Baghdad was really so intent on maintaining unity and serving Iraq, why would it be fixated on creating handicaps for the Kurds and limiting their ambitions?

According to al-Maliki’s spokesman, Ali Mussawi, the premier maintains that the oil deal between Exxon Mobil and the KRG region could mean the “breaking up the unity of Iraq” and the “outbreak of wars”. Such a statement resembles more as a threat than a warning. The deal was signed almost 8 months ago, but now with the immense political heat on Maliki, he is using all forms of tactics to divert attention and pressure.

Signing of oil deals between KRG and foreign companies is not new, and the only difference is that Exxon Mobil are a massive corporation whose entry into Kurdistan could spark a new phase for the oil industry in the region.

Even Ninenwa Governor Atheel Nujafi of Ninewa, has come to realise the benefits of the deal and has provided his crucial endorsement. Some of the Exxon Mobil exploration blocks may reside on disputed territories, but how long do the Kurds wait for the implementation of article 140 and let Kurds, that clearly form the majority of those areas, suffer?

When Kurdistan President Massaud Barzani warned Obama on the centralist tendencies of Maliki at a recent meeting in Washington, Obama only reiterated his support for a democratic Iraq that abides by the constitution and fell short of criticising Maliki, when clearly the writing was on the wall.

Now it would be interesting, if they side with the same man that is affectively strangling democracy in Iraq.

Maliki warned that the deal with Exxon Mobil would lead to conflict. Clearly, it is his actions that is the brewing the very wars he warns on. How long can Kurdistan stay idle when the issue of Kirkuk and other disputed territories is ignored, when there is no national hydrocarbon law or when the likes of Maliki in Baghdad continue to pursue the Arab nationalist policies of the past?

Is it the actions of Maliki or Kurdistan that smell of war?

Iraq does not want to see Kurdish growth and prosperity, but the aim of Kurdistan should not be to serve Baghdad but only its people. American policies serve their short-term interests and for Baghdad its Arab nationalist goals. Kurdistan is siding ever closer to Turkey with historic oil deals and a new move to build pipelines that would completely bypass Iraq.

Kurdistan must ensure it is never at the mercy of any regime or power, even one as powerful as the US. The days when it could be bullied or swayed are over.

With or without the help of Baghdad, the endorsement of US or even the Exxon Mobil contract, the Kurdistan project will not be derailed. At the end of the day, the oil is on Kurdish soil and is not the property of Baghdad or any foreign power.

According to Mussawi, “Maliki is prepared to go to the highest levels for the sake of preserving the national wealth and the necessary transparency in investing the wealth of the Iraqis, especially oil”. Such warnings are a bit rich coming from a man that at the current time, the vast majority of the Iraqi parliament is frantically trying to remove.

First Published On: Kurdish Globe

Other Publication Sources: Various Misc.

Latest disappointment with oil draft gives Kurds spur to break an already fragile coalition

Oil has unenviably proved as the paradoxical treasure and curse of the Mesopotamian plains. With the third largest oil reserves in the world, Iraq has the potential to become one of the most solid and prosperous economies in the world and bring with it a great standard of living for it people.

However, the gift of nature has seen it empower and finance brutal dictatorial regimes and facilitate a centralisation of power that has been used to forcefully bind Iraq’s disparate social mosaic. Whoever controlled oil had the keys to the gates of Iraq. In this light, the Sunni’s used their control of oil revenues to underpin their power and influence.

Kurdistan was severely affected by policies of exclusion and systematic negligence that saw a very limited amount of its legitimate portion of Iraq’s oil revenues spent on infrastructure. Free from the clutches of dictatorship, the Kurds were able to progress from a standing start by building new roads, hospitals, universities and various facilities.

Given a unique chance to shape the new Iraq, Kurds and Shiites were keen to leave their imprint on the Iraqi oil sector. Ironically, while Sunni’s used oil to consolidate power, the majority of Iraq’s oil wealth is actually located in the Kurdish and Shiite regions, one of the contributing factors to a sense of Sunni despair in post-Saddam Iraq.

Sharing of the cake

Iraq has had a number of significant political handicaps to overcome as it has stumbled on the transitional path to democracy. The format of a new hydrocarbon oil law has proved the most strenuous of laws to agree.

The sharing of the Iraqi cake amongst a number of diverse and embittered groups has had ramifications in a number of spheres, but none more so than in the oil law that has come to epitomise the difficult challenge of keeping all sides happy.

Striking concord on the law oil law has implications on a number of other thorny issues plaguing Iraq such as federalism, balance of power and status of disputed territories

Over four years since the original draft was rejected amidst a highly charged and animated parliament, the task of formulating a draft that would appease all parties appears as elusive as ever.

Kurdish rebuke of new law

Any hope for ratification of the new oil draft that was passed by the Iraqi cabinet and submitted to parliament, were quickly dashed as the presidency of the Kurdistan region condemned efforts to usher the new draft in parliament.

Discussions around the oil law continue to place Kurdistan and Baghdad at loggerheads with the Kurds denouncing the current draft as contradicting the principles of the constitution.

Baghdad has refused to relinquish its historic grasp on the oil industry while the Kurds are keen to explore and develop their immense hydrocarbon potential. According to the Iraqi constitution there is a clear delineation between control of new oil fields and existing oil fields.

As a largely unexplored entity, almost all of Kurdistan’s newfound wealth can be considered as newly discovered.

As the gulf between both parties has grown over oil sharing, Kurdistan has continued a unilateral development of its oil sector with the awarding of dozens of oil contracts to foreign firms to the annoyance of Baghdad that has repeatedly deemed any deals without its consent as illegal.

The stalemate has gathered pace as a number of smaller oil exploration companies have struck black gold in spectacular fashion. As further oil wells are drilled, more flow tests prove successful and more seismic data is undertaken, the strength and potential of Kurdistan swells by the day.

Gulf Keystone Petroleum (GKP) is one British company that has benefited hugely from its eagerness to jump the queue. The potential recoverable resources has seemingly increased by billions of barrels as each new well has proved a success and GKP alone stands to have anything between 7-11 billion barrels of oil on its books. Other companies have included DNO, Genel Energy, Western Zagros and Heritage Oil with degrees of success.

While Kurdistan’s rise as a respectable oil power has been historic, its quest is greatly restricted by the noose that is Baghdad.

Issues over payments to third parties, revenue sharing, transportation of oil and Baghdad’s refusal to recognise any oil contracts signed by the Kurdistan Regional Government (KRG) threatens to derail Kurdish aspirations and at the same time deepen the animosity between Arabs and Kurds.

Kurdistan has been allowed to make limited exports but payment issues have quickly limited throughput.

Whilst Kurdistan is enjoying increasing attention from major global oil giants, threats by Baghdad to blacklist firms signing contracts with Kurdistan have deterred many parties. Only recently Iraq’s Oil Ministry excluded U.S. oil firm Hess Corp from competing in the 4th round of its auction of oil fields.

Basis for political concord

Such is the Kurdish sentiment on the enactment of a balanced oil law that it has formed a key prerequisite for Kurdish support of the current coalition.

However, much like the many promises over the implementation of article 140, the lack of reconciliation on oil law has served to only antagonise the Kurds.

While Baghdad has criticised the Kurds over the awarding of oil contracts, it has continued to encourage development of its oil industry with a number of contracts already signed and a fourth round of bidding currently on the table and scheduled to be finalised by January. This is in addition three major natural gas fields that were auctioned to foreign firms last year.

Baghdad has continued to encourage major oil films while at the same time the national oil draft has gathered dust. Iraq currently produces around 2.7 million barrels of oil per day (bpd) and has an ambitious target to multiply this to 12 million bpd in less than 6 years.

Grapple for power

Although pluralist governance and federalism was a key cornerstone of the constitution, Baghdad’s attempts of solidifying central control and diluting regional powers have been evident in recent years.

As the autonomy of the Kurdistan Region has continuously strengthened, one of the remaining ‘sticks’ to wane Kurdish advancement is Baghdad’s hegemony over oil.

Many countries have welcomed the potential role of Kurdistan as a core supplier to the long-awaited Nabucco gas pipeline but it was ironically Iraq that condemned and jeopardised such motions.

Potential deals by the Iraqi oil ministry to supply gas to Europe places a further cloud on Kurdish ambitions.

At the end of the day, billions barrels of oil are facts that speak volumes. As the economic and wealth of Kurdistan expands so does its influence and strategic power. One of major factors that saw the once unthinkable visit of a Turkish prime minister was the growing economic ties between Turkey and Kurdistan as much as a political thawing.

The likes of Turkey may have been weary of Kurdish oil been used to power its independence in the past but the reward as many foreign investors have discovered is too good to miss.

In the meantime, it could be a while yet before a draft oil law is passed by parliament. The new dispute over the hydrocarbon law may at the same time strike a fatal blow to an already sick political alliance in Baghdad.

First Published On: Kurdish Globe

Other Publication Sources: eKurd, Various Misc.

DNO dispute places an avoidable cloud on the Kurdistan Region

At a time when the Kurdistan Regional Government (KRG) is actively seeking foreign investment and the strengthening of its relationships with major international partners, the DNO fiasco serves as a major blow to the region.

The KRG has worked tirelessly to attract direct interest and investment predominantly in its oil sector, much to the dismay of the Iraqi central government. Already the stance of Baghdad towards what it labels as “illegal” contracts signed by the KRG, has deterred major oil companies mindful of meddling in political disputes. Now the publicity around this case unnecessarily raises concerns on investments in the region.

The fallout is a lot more politically relevant than any amount of commercials, at the centre of this dispute, would ever matter. Baghdad wasted no time in using this case to bolster its case against the KRG.

The dispute arose when the Oslo Stock Exchange (OSE) made public details of a DNO sale of shares in October 2008, in an ongoing dispute in the oil-companies delay in providing information. More specifically it highlighted the involvement of the KRG in acting as intermediaries in the transaction in question.

Such publicity and coverage around the KRG “role” was met naturally by stiff defence by Kurdish officials, who have remained insistent that their part in the deal was to only facilitate the sale on behalf of Genel Energy, the beneficiaries of the shares, and to help DNO at a time where exports in the region were been hampered by ongoing wrangles with Baghdad.

The KRG suspended DNO operations until it could sufficiently repair the “unjustifiable and incalculable” damage that it had done to its reputation.

Although, in later meeting betweens the KRG and OSE the government was cleared of any wrongdoing, the revelation and ensuing controversy was embarrassing. In the short-term, under such spotlight there could be no immediate repair to the KRG’s image.

DNO was one of the first foreign companies to start work in the region and mooted as the first foreign company to pump crude in Iraq since the 1970’s. The productive gains of DNO in its successful drilling in the Tawke oil fields simultaneously served as a remarkable political milestone for the Iraqi Kurds.

DNO started exports in June, much to the jubilation of the region. It is evident that success of DNO was important to the KRG not primarily due to the revenue streams that it unearthed to the region, but more due its symbolic importance to the region. Clearly, this stance by KRG was vindicated by increased heightened interest and economic coverage in the region upon commencement of exports.

As such, KRG’s willingness and desire to aid its foreign partner is understandable, however, in the circus that can be the media spotlight, the move by the KRG was risky and avoidable. Whether the questions posed have any substance is one side of the equation, however, the mere fact that such questions are asked of a government has undesirable and long-term ramifications, even if it has been clearly proved by the KRG to the satisfaction of OSE that they have done no wrongdoing, or more importantly that they were never the object of the investigation in any shape or form.

The KRG should never have taken the risk of becoming directly or indirectly embroiled in such a far-reaching saga. Alternative and less murky facilitation of the finances would have avoided such allegations at government officials. DNO itself should have sought alternative means of short-term funding.

To many observers without insight into the exact nature of the deals, it is naturally unusual that a government would act as a mediator of such cash-raising initiatives. Without publication of the full extent of the dealings, with selective information as was published by OSE, people will draw their own predictable conclusions on the part of the Kurdish government.

Furthermore, why did the OSE reveal such information if it knew that the KRG was not implicated wrongly in the deal, knowing full well that it was not a Kurdish organisation that would be affected but essentially the region itself?

More importantly, it is the job of DNO to ensure full compliance with Norwegian laws and regulations, why did it take so long to release the relevant information requested to the OSE? It should have acted much sooner, in the knowledge of what potential releases by the OSE would entail to both itself and its Kurdish partners.

OSE released this information under a freedom of information law, propelled by requests from newspapers. It begs the question, whether those who pressurised the OSE to release the information had political and commercials gains in the knowledge of the likely storm that this would bring.

Although, “risky” in the eyes of some investors, the lucrative returns on the momentous untapped Kurdistan market is plain to see. Many smaller oil companies have struck gold in the region and DNO is no different. The fact that its shares plummeted by over 50% upon the announcement by the KRG that it would suspend its operation for six weeks and would reserve the right to revoke DNO’s contract, tells its own story.

While payment terms have not been agreed for its recent exports, for companies such as DNO its simply a case of bridging short-term financial exploration burdens, once the Production Sharing Agreement (PSA) kick in, its financial clout increases dramatically.

This is clearly the reason behind its decision to sell a portion of its shares to create necessary capital that would allow it to assume its unprecedented windfall when exports commence.

While the lack of a national hydrocarbon law, owed to intense disputes between the Iraqi mosaic on sharing the immensely rich Iraqi cake, has proved a major obstacle, Baghdad’s agreement to authorise limited exports from the Kurdistan Region started a surge of interest in the region.

Kurdistan has the capacity and the capability to become one of the major oil and gas producers in the world, and the race to take “early” advantage has paid healthy dividends to a number of international companies. Some companies scrambled to increase their financial and strategic clout to assume a stronger hand in the region. For example, Heritage Oil Ltd is in the process of merging with Turkey’s Genel Energy International Ltd. While more recently, china’s second-largest oil company, China Petrochemical Corp., agreed the purchase of Addax Petroleum Corp.

In the aftermath of the DNO dispute, there has been perception of increased risk to licenses in the Kurdistan Region. This has placed the KRG in a highly-difficult position. While the threat to oust DNO altogether certainly got hold of Norwegian ears, any action to carry out this threat would see the KRG lose just as much as DNO, as it would seriously undermine general operations in the area and may in fact increase spotlight on the debacle further.

Regardless of the fact that they may not be at direct fault in an internal Norwegian issue, the KRG must work hard to remedy its image as much as it has demanded DNO do to their satisfaction. There is a much bigger picture, than the operations of a single company in this case.

Already, StatoilHydro ASA, Norway’s biggest oil and gas producer, involved in the preliminary bidding of some contracts in Iraq, expressed that it was monitoring the DNO situation.

Fortunately, the furore over this dispute has died down significantly after various meetings and mediations with the share value of DNO on the rise after dramatic falls. However, the KRG can ill-afford the smallest of controversies, lest give their adversaries in the region the ammunition to undermine their development and quest for prosperity and strategic standing.

In spite of this case, the immense interest in investing in the region, underpinned by some of the most favourable foreigner friendly legislation around, will be unaffected once the dust settles.

First Published On: Kurdish Globe

Other Publication Sources: Peyamner, Various Misc.