Oil & Gas —
The Kurdistan region of Iraq is wakening to the potential benefits its untapped oil can bring to citizens across the country. It is depending on foreign investors such as TAQA to help it realise this dream
Signs of the oil boom are everywhere: construction sites on every street corner, foreign businessmen setting up shop in residential villas, hotel lobbies as busy as a train station and roads clogged with expensive cars.
The landlocked Kurdistan region of Iraq is thriving as it embraces a new era of oil wealth.
“Erbil itself is a very interesting place,” says Hans Zuurendonk, the Iraq country manager for TAQA. “It has a very strong history and there is a lot of building work going on. There are a lot of new companies coming in and it is developing very fast,” he adds.
The region is increasingly becoming recognised as an investment and diplomatic hub. The UK, for example, opened a Consulate General in Erbil in 2011, and in 2013 the UAE government did the same. Hardly a week goes by without a trade delegation paying a visit to the region, and the economy is now growing at an annual rate of 8%, faster than India and China. The UAE is one of the largest investors in the region, with companies such as Etihad, Emaar, Emirates, Rotana and Dana Gas all having a significant presence.
“Erbil is a gateway to Iraq as it belongs to a stable Kurdistan region,” said Abdullah Al Saleh, Undersecretary, UAE Ministry of Foreign Trade, on a recent visit.
On the rise
After decades of neglect and oppression by the former President Saddam Hussein, the region has steadily gained stability and prosperity during the past 10 years under the stewardship of an autonomous regional government.
The boom was triggered by an influx of foreign investment linked to the award of almost 60 highly prospective oil and gas exploration concessions. The regional government plumped for a contractual model known as “production sharing”, as opposed to the “service contracts” favoured by the federal government. This has attracted billions of dollars in investment from the oil industry, but also set off a political dispute with the Baghdad government in Iraq.
Today, 40 rigs are drilling wells in the region, with billions of barrels of oil and gas discovered. Notional production capacity is set to hit 400,000 barrels daily by the end of the year. But the dispute with Baghdad, which stopped paying Erbil for its oil, has meant that production has all but ground to a halt. Dr Ashti Hawrami, the Minister of Natural Resources of the Kurdistan Regional Government (KRG), expects this to change very soon.
The KRG will complete a new oil export pipeline by the end of September with an initial capacity of 300,000 barrels per day (bpd). This raises the prospect of large-scale independent oil exports from Kurdistan to the world market for the first time.
With the construction of new pumping stations, the pipeline would be able to export more than one million bpd by the end of 2015 and two million bpd by 2019.
“Atrush is a company maker. There are uncertainties, but the opportunity is unique: to build a world-class oil and gas development in a proven hydrocarbon basin from scratch.” David Cook, Executive Officer and Head of Oil & Gas, TAQA
The KRG is relying on foreign investors such as TAQA to realise this dream. TAQA acquired a controlling stake in the Atrush concession, located about two hours north of Erbil by car, in December 2012. Having cut its teeth as an oil and gas operator in the North Sea and North America, TAQA is now beginning an important new phase of its growth as an oil and gas operator in the Middle East.
“Atrush is a company maker,” says David Cook, TAQA’s Executive Officer and Head of Oil & Gas. “There are uncertainties, but the opportunity is unique in the world today: to build a world-class oil and gas development in a proven hydrocarbon basin from scratch.”
The company is interested not only in oil and gas, but is engaged in talks to buy a 50% stake in a major power station in Sulaymaniyah, which is known as the cultural capital of Kurdistan.
Already three wells have been drilled in TAQA’s Atrush block, and another two are planned before production is expected to start in 2015 at 30,000 barrels daily. Ultimately, the Atrush concession could produce as much as 120,000 barrels daily, but there are many challenges along the way.
On the technical side, the reservoir is world scale, but is highly fractured, under pressured and high in poisonous hydrogen sulphide. This all means extra investments in treatment facilities at the site. TAQA’s experience at operating in similar geology in North America is one card the company brings to the table.
The social environment is also a challenge, as much of the region is still poorly developed, with the majority of the population living off subsistence farming without much access to electricity or clean running water.
From the regulatory point of view, it is also work in progress. And then there is the traffic.