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Ministry of Natural Resources announces seven new petroleum contracts for Kurdistan Region, reviews five existing contracts

TUE, 6 NOV 2007 19:00 | KRG Cabinet

KRG Minister of Natural Resources Dr. Ashti Hawrami
Following the unanimous decision of the Regional Oil and Gas Council ("the Council") of the Kurdistan Regional Government (KRG) at its third meeting on Sunday 4 November, the KRG Minister of Natural Resources Dr. Ashti Hawrami today announced that seven new production sharing contracts (PSCs) have been signed by the KRG.

"There has been great interest in Kurdistan's exploration acreage," said Dr. Hawrami. "We are pleased to be able to meet that demand."

Pursuant to the Iraq Constitution, the Kurdistan Oil and Gas Law of August 2007 is the supreme law governing oil and gas activities in the Region. All revenues from petroleum activities in the Kurdistan Region will be shared proportionately throughout Iraq pursuant to the Constitution.

New production sharing contracts

The Prime Minister of the Kurdistan Region, Nechirvan Barzani, executed the seven new PSCs on behalf of the Council, together with Minister Hawrami.
  • Award of two PSCs, for the Mala Omar and Shorish Blocks (of 285 and 526 square kilometres respectively) in Erbil Governorate, to OMV Petroleum Exploration GMBH, a wholly-owned subsidiary of OMV Aktiengesellschaft, the largest oil and gas company in Central Europe. The blocks are considered to be low to medium exploration risk areas.

  • Award of the Akre-Bijeel Block (889 square kilometres) in the Dohuk Governorate to Kalegran Limited, a wholly-owned subsidiary of MOL Hungarian Oil and Gas PLC, and Gulf Keystone Petroleum International Limited, a wholly-owned subsidiary of UK-listed Gulf Keystone Petroleum Limited. The Akre-Bijeel Block is a medium exploration risk area.

  • Award of the Shaikan Block (283 square kilometres) in the Dohuk Governorate to Gulf Keystone Petroleum International Limited, Texas Keystone Inc., and Kalegran Limited. The Shaikan Block is a low exploration risk area.

  • Award of the Rovi and Sarta Blocks (517 and 607 square kilometres respectively) to Reliance Exploration and Production DMCC, a wholly owned subsidiary of Reliance Industries Limited. These PSCs had been negotiated prior to the entry into force of the Kurdistan Oil and Gas Law, and had been awaiting the passage of the Law and the approval of the Council.

  • Award of another block (1226 square kilometres) also in the Dohuk Governorate to a western company, with details to be announced in coming days. The block is considered to be a medium exploration risk area.

If commercial discoveries are made, these seven PSCs will provide an estimated aggregate return/profit of over 85% to Iraq and around 15% to the contractors. The commercial terms of these contracts conform to the term guidelines published by the KRG on its website on 29 June and provide similar returns to Iraq.

All contracts issued by the KRG are in the form of the Model PSC, also published on 29 June. Under the seven PSCs, the KRG has the right to a participation interest of between 20% and 25%, and it has retained the right to assign third party participation interests of between 15% and 25% to qualified Iraqi and international companies to further stimulate the local economy.

Updated map and commercial guidelines

A map of the Kurdistan Region contract areas that remain open for negotiation can be downloaded here. Corrected and updated guidelines of commercial terms can also be downloaded here. These guidelines now include a new category, "frontier blocks", along the Iraq-Iran border.

Review of old contracts

At its Sunday meeting the Council also reviewed the PSCs of the companies whose contracts predate the Kurdistan Region Oil and Gas Law to bring them into conformity with the Law and Model PSC. Those PSCs are held by DNO, Genel Enerji/Addax Petroleum, WesternZagros, Hawler Energy/A&T Petroleum and Shakal/Trilax/Petoil.

The results of the review, including commercial terms, have now been communicated to the PSC holders.

KEPCO / KNOC contracts

On Sunday the Council also approved the award of four strategic blocks in the Suleimaniah-Erbil area to the Kurdistan Exploration and Production Company (KEPCO), a government-owned oil exploration and development company established by the Kurdistan Oil and Gas Law.

KEPCO was awarded PSCs for the blocks on terms that will be identical to those applicable to international oil companies (IOCs), and will contain a condition that KEPCO bring into their contract areas as a partner a suitable large IOC, to be approved by the Ministry of Natural Resources and the Council. The IOC will provide technical and financial support to KEPCO in the execution of its responsibilities under the PSC.

The Council also approved the award of an integrated project to the Kurdistan National Oil Company (KNOC), a government-owned development company, for a refinery by developing the Khurmala field discovery. The associated natural gas and fuel oil from the refinery will be processed and supplied to the Kurdistan Region Ministry of Electricity for power generation purposes.

The project will be in the form of a service contract which, when it is executed, will provide for a 30-month development phase for the construction of a new 50,000 barrels per day refinery. KNOC will be entitled to bring in third parties, including reputable local or international companies, to provide financial and technical/management support on all aspects of the project. The engagement of third party contractors shall be subject to the approval of the Ministry of Natural Resources and the Council.

Production from the Khurmala field will start gradually from existing appraisal wells, and more wells will be drilled to boost production to a peak rate of 250,000 barrels per day. Excess oil not used for the refinery will be exported to boost petroleum revenues for all Iraqi people.

Twenty IOCs now working in Kurdistan

Having made these announcements, Dr. Hawrami said: "I am very pleased at the rapid pace of progress in the Region. With these new PSCs executed today, we now have 20 experienced international oil companies working in Kurdistan. Twenty companies and rising fast. Five additional blocks are reserved pending the finalisation of ongoing negotiations. A further 24 blocks in the Region are the subject of intense interest from international companies. There will be more announcements soon."

Dr. Hawrami added: "These contracts are a major step towards the Kurdistan Region's goal of increasing oil production from the Region to one million barrels per day. This new level of exploration and production activity in the Kurdistan Region will also galvanise investment interest for the rest of Iraq once a transparent, investor-friendly and unambiguously constitutional oil and gas law for Iraq is in place."

Pursuant to revenue sharing principles agreed with the Federal Government, only a 17% share of government revenues from petroleum operations in the Kurdistan Region will stay in Kurdistan. 83% of the revenues will, under the Constitution's revenue sharing principles, be for the benefit of Iraqis outside Kurdistan.

Industry and media inquiries: spokesman(at)krg.org

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