January 18, 2010 8:09 pm

Kurdish minister pushes for Iraqi oil deal

Shares in DNO, the Norwegian oil company, rose more than 16 per cent on Monday after authorities in Iraqi Kurdistan said they were ready to resolve a dispute with Iraq’s central government over distribution of oil revenues and payment of foreign operators.

But the statement appeared to be a political overture, not a binding plan capable of breaking the deadlock that has prevented full-scale exploitation of Iraqi Kurdistan’s estimated 40bn barrels of oil.

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Ashti Hawrami, oil minister for the autonomous Kurdistan regional government (KRG) of Iraq, said in the statement that the KRG was prepared to resume international oil exports after holding a “serious dialogue” with Baghdad over how to pay operators such as DNO and Turkey’s Genel Energy.

Mr Hawrami proposed paying DNO a minimum amount that would cover DNO’s cost of oil exports. The payments would come from Baghdad-controlled oil revenues. That step, he suggested, “would create a suitable and positive atmosphere” in which to restart oil exportation. Then all sides, he said, could resolve the thornier issues of operators’ profits and out of which government’s budget payments are paid.

Winning access to Iraq in 2003, DNO was able to start exporting oil from its Tawke field in June 2009. Those exports were orchestrated by the Kurdish government. They were intended to mark the end of tensions with the central government, which continued to call the KRG’s oil licences illegal. But Baghdad retained all revenues from those exports and did not remit payments to the companies. The KRG did not pay operators out of its budget. In October DNO said it would halt oil exports until a payment mechanism was set up.

DNO declined to comment on the statement, including whether or not they endorsed a break-even payment plan.

“The KRG is ready to start a serious dialogue regarding this matter, and we are also ready to immediately restart the process of oil exporting from Kurdistan Region’s fields,” Mr Hawrami said, adding that two committees should be established to ensure fair payment to the operators.

Mr Hawrami appealed to Baghdad to consider the revenues it could gain by co-operating in a new plan. Those revenues could rise from $2.75bn in 2010 to $25.62bn in 2014. Over those four years only $6bn of the $67bn in Baghdad-controlled revenues would need to be allocated to Kurdistan-based operators as compensation, he said.

Exports could initially be 100,000 barrels per day, rising to 200,000 later this year and 1m barrels in five years, he added.

The Kurdish statement was in response to remarks by Nouri al-Maliki, the Iraqi prime minister, who said earlier this month that it was time to settle the dispute “with flexibility and realism” in order “to preserve the rights and interests in these contracts”.

Trond Omdal, analyst at Arctic Securities in Oslo, said the statement indicated momentum was building towards a deal. But he cautioned that much would remain uncertain until after Iraq held parliamentary elections in March.

Shares in DNO closed at NKr6.20 on Monday.

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