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Tony Hayward Loads Trucks With Kurdish Oil Awaiting Pipe: Energy

July 30, 2012

Tony Hayward Loads Trucks With Kurdish Oil Awaiting Pipe

An oilfield, 10 kms south of the Iraqi Kurdish city of Arbil, 310 km north of Baghdad. Photographer: Safin Hamed/AFP/Getty Images

Tony Hayward, the former chief executive officer at BP Plc (BP/), is now loading a fleet of as many as 500 trucks a day while he waits for a new pipeline to carry oil from his fields in northern Iraq.

Since joining Genel Energy Plc (GENL) last year, Hayward has pushed the semi-autonomous Kurds to finish building a link to neighboring Turkey so he can find buyers outside the local market. Kurdish contractor Kar Group said it has completed 23 percent of the first 48-mile (77-kilometer) section of the line north to the border, though Turkey hasn’t said publicly it will take the oil.

Kurdish authorities, feuding with the central government over sharing oil revenue, plan in the next two years to complete the 175-mile export link that will start at a Genel-operated field and move as much as 1 million barrels a day, equal to a third of Iraq’s output now. Following Hayward into the region are Exxon Mobil Corp. (XOM:US) and Chevron Corp. (CVX:US), bolstering the Kurdish plan to break Baghdad’s control of shipping crude from the landlocked territory that’s ruled itself since the U.S.-led invasion ousted Saddam Hussein in 2003.

“This will be a transformational development for companies operating in the region,” Hayward, who ran Europe’s second- biggest oil company until 2010, said in an e-mailed response to questions. “It will allow the direct export of crude oil production to Turkey and international markets and accelerate the monetization process for resources” in the Kurdish region.

Genel dropped 2 pence, or 0.3 percent, to close at 626.5 pence in London trading today. The stock has fallen 19 percent this year.

Course for Independence

Iraq’s Kurds, who historically have resisted control by Arab-dominated central governments, are charting a course to independently develop oil reserves that the Kurdistan Regional Government calculates at 45 billion barrels -- larger than BP’s estimate for the U.S. or Nigeria, Africa’s biggest producer.

The Kurdish region plans to increase output to 2 million barrels a day by 2019, Michael Howard, an adviser to Kurdistan Natural Resources Minister Ashti Hawrami, said in a June 10 phone interview. It has signed energy agreements with about 50 companies and plans to increase output to 1 million barrels a day by 2015 from about 300,000 barrels a day now, he said.

Service Contracts

Kurdish authorities recognize production-sharing agreements, which give investors a share of any oil they may produce, whereas Iraq’s Oil Ministry offers only fee-based service contracts. This has attracted interest from investors such as Norway’s Statoil ASA (STL) that are unhappy with the central government’s contract terms for exploration and production.

Exxon Mobil Corp., Chevron Corp. and Total SA (FP) are flouting warnings by the government against seeking separate deals with the Kurds, whom Iraq’s Oil Ministry accuses of “smuggling” oil from the country.

Chevron, the second-largest U.S. energy company, said July 19 it will buy a majority stake in two Kurdish blocks. The Oil Ministry responded five days later by barring Chevron from doing business in the rest of Iraq. Similarly, the ministry punished Exxon for investing in the Kurdish region by excluding it from an energy-licensing round in May.

Separate deals between the Kurds and foreign investors are “illegal and illegitimate,” and Chevron “should feel ashamed about what it did,” the ministry said July 24 in an e-mailed statement. “These agreements grant the oil companies a large share of crude production and are thus a squandering of the national wealth.”

Shipping Crude

The Kurdish pipeline project resembles one that enables the United Arab Emirates to circumvent politically inspired shutdowns of oil exports. The U.A.E., also a member state of the Organization of Petroleum Exporting Countries, began shipping crude on July 16 through a pipeline from Abu Dhabi to the Indian Ocean port of Fujairah, bypassing the Strait of Hormuz, the transit corridor Iran threatened to shut earlier this year in response to sanctions on its nuclear program.

DNO International ASA (DNO) is among companies pumping crude at Kurdish fields that have one main export route, the central government’s pipeline from the city of Kirkuk in northern Iraq to the Mediterranean port of Ceyhan, Turkey. A dispute over oil contracts and revenue-sharing prompted Kurdish authorities to halt flows into this network on April 1. Producers now must sell their oil locally or send small loads by truck into Turkey.

Kar Group expects to complete the Kurdish pipeline’s first section, linking the fields of Taq Taq and Khurmala, by the end of the year, the company’s project manager Besoon Jalizada said in a telephone interview on July 17. Kurdish authorities will probably seek bids for construction of the remaining part of the system, from Khurmala to the Turkish border, he said.

Pipeline Capacity

The first phase will have a capacity of about 200,000 barrels a day, a Genel official said on July 23, declining to be identified because the pipeline is being built and financed by Kurdish authorities and not Genel.

The pipeline plan “seems quite provocative,” Ivor Pether, a fund manager at Royal London Asset Management which oversees $60 billion of securities, said in a June 26 e-mail. “The risk is obviously that it may take a long time to agree how to divide the oil revenues, or even that the relationship between Kurdistan and Baghdad breaks down.”

The Kurds are seeking closer cooperation with Turkey amid a political impasse in Baghdad, where opposition groups accuse Prime Minister Nouri al-Maliki of abusing power. Al-Maliki and other Iraqi leaders have said they worry that the planned pipeline may make the Kurds economically self-sufficient and embolden them to seek independence.

Iraq has faced a series of violent attacks since the pullout of U.S. troops in December, including the killing of 115 people in a wave of nationwide bombings claimed by an Al-Qaeda affiliate group on July 25.

Turkey’s Role

Turkey, with its own restive Kurdish minority, is ready to work with Iraq’s Kurds on the construction of oil and natural- gas pipelines provided the central government in Baghdad agrees, Turkish Energy Minister Taner Yildiz said in an interview in Ankara on July 5.

At the same time, he said, the Turkish and Iraqi governments have committed to repair a link to Kirkuk from Basra in southern Iraq to help boost the amount of oil sent into Turkey through the established Kirkuk-to-Ceyhan network.

“The question of how far the Turks are prepared to allow the Kurdistan Regional Government to go in independent oil exports is still open,” Robin Mills, an analyst at Dubai-based Manaar Energy Consulting and Project Management, said today in an e-mailed comment.

Genel’s Hayward said he’s not surprised that Exxon, Chevron, Total or Eni SpA would be interested in Kurdistan.

“This only serves to reaffirm our long-held belief in the enormous opportunities that exist,” he said.

To contact the reporters on this story: Nayla Razzouk in Dubai at nrazzouk2@bloomberg.net; Brian Swint in London at bswint@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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