Baghdad faces Kurdish oil sovereignty issues

26 May 2006

A Turkish/Canadian joint venture of Genel Enerji and Addax Petroleum has announced that it has started drilling in the Taq Taq field in the north. The project, which follows a 25-year product sharing agreement (PSA) signed by the JV and the Kurdistan Regional Government (KRG) in 2004, is the latest exploration agreement between the KRG and international oil firms.

The JV has established the Taq Taq Operating Company and completed in April 2D seismic data acquisition on the field. The company says the first of three wells will be drilled to a depth of about 2,250 metres over the coming two months. The field could have reserves of 1,200 million barrels.

Norway's DNO was the first company to begin exploration in the Kurdish north earlier in the year, a move that has raised questions over the legitimacy of oil contracts signed between the KRG and international firms.

A number of other firms including Heritage Erbil and Australia's Woodside Petroleum are also negotiating PSAs.

The draft constitution, which was approved through a referendum on 15 October, states that the Oil Ministry in Baghdad has overall responsibility for managing oil reserves, although it must distribute revenues in a fair manner in proportion to the population distribution throughout the country.

Although the agreement was signed without the federal government's approval, it is unclear whether clauses within the constitution allow drilling rights for specific projects negotiated by the KRG before the new government was in place.

The situation has been compounded further by the ongoing political paralysis in Baghdad and the decision by the KRG to appoint its own oil minister. Seperyas Hurani was nominated in mid-April to head a newly-created Kurdish Ministry of Natural Resources.

The ministry will be given the right to negotiate deals with international firms in new oil and natural gas fields.

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