Oil find in northern Iraq

Tamsin Carlisle

• Last Updated: May 06. 2009 10:57PM UAE / May 6. 2009 6:57PM GMT

Heritage Oil’s Miran West oil find is the largest to date in the semi-autonomous Kurdish region, and highlights the potential for further big discoveries in underexplored parts of Iraq. Ed Kashi / Corbis

A tiny Canadian oil company has struck a giant oilfield in the Kurdistan region of northern Iraq that may contain up to 3 billion barrels of recoverable crude.

Heritage Oil’s Miran West oil find is the largest to date in the semi-autonomous Kurdish region, and highlights the potential for further big discoveries in underexplored parts of Iraq, which already has the world’s third-largest proved oil reserves.

It could also turn a spotlight on Baghdad’s long-running conflict with regional authorities over oil jurisdiction.

“This is extremely important,” said Samuel Ciszuk, the Middle East energy analyst for IHS Global Insight, the international consulting firm. “It really confirms a lot of the hopes that Iraq and Kurdistan have had, and it comes at an important time.”

Despite its huge oil reserves, Iraq has been struggling to stem declining output from its big southern oilfields, resulting from problems with worn-out infrastructure and a legacy of poor production practices that may have damaged the reservoirs.

At the same time, its oil ministry faces a host of political and legal hurdles as it tries to lure foreign firms to the country to help boost oil production and exports – Baghdad’s main source of revenue for rebuilding an economy ravaged by war and misrule.

Heritage estimated that the Miran West structure contained between 2.3 billion and 4.2 billion barrels of oil in the ground, of which between 50 per cent to 70 per cent may be recoverable.

The reservoir, located in a fractured limestone rock formation, would be technically straightforward to develop, said Paul Atherton, the company’s chief financial officer. It contained medium-heavy crude with a low sulphur content, Mr Atherton added.

Heritage and its partner Genel Enerji, a unit of the Turkish industrial conglomerate Cukorova Group, plan to fast track development of the oilfield, with limited production to start by the end of this year. The oil would initially be transported by lorry.

According to Mr Atherton, the companies have sufficient financial and technical resources to proceed with the development and are not seeking additional partners.

“We look forward to the Miran field exporting oil later this year,” said Ashti Hawrami, the minister of natural resources of the Kurdistan Regional Government (KRG).

News of the discovery sent Heritage’s stock rising on the London Stock Exchange by more than 26 per cent yesterday to 506 pence (Dh28.03), a new 52-week high.

But the company’s prospects for exporting oil from Iraq are highly uncertain because Iraq’s central government regards its production-sharing contract with the KRG as illegal.

The federal and regional governments have been arguing for years about the degree of freedom Kurdistan should have to develop its oil resources, and the terms under which foreign oil companies should be allowed to participate in oil projects in Iraq, with the central government opposing the production-sharing deals that western oil companies favour.

The bitter dispute has stalled the passage of a new Iraqi federal oil law to replace the law enacted by the regime of the late Iraqi dictator Saddam Hussain. It has also encompassed a broader political dispute concerning jurisdiction over the northern Iraqi city of Kirkuk and the nearby Kirkuk oilfield, the biggest source of pipeline exports from Iraq.

That dispute is “the main powder keg in Iraq”, threatening further disruptions to fragile regional security, Mr Ciszuk said.

Yesterday, bomb blasts cut oil flow through two small pipelines in the Kirkuk area that feed the main export line carrying northern Iraqi crude to the Turkish port of Ceyhan.

The Iraqi oil ministry did not respond yesterday to an e-mailed request for comment on the Kurdish proposal to export Miran crude.

Mr Atherton also declined to comment on political issues related to oil exports, saying these were matters to be resolved by the governments.

The Iraqi oil ministry has threatened to bar foreign oil companies that sign deals with the KRG from participating in oil developments in the rest of Iraq. It recently made good on that threat when it declined to pre-qualify Korean firms from bidding in the country’s second oil licensing round.

While the size of Kurdistan’s oil prize remained in doubt, major oil producers steered clear of the region, leaving it open for exploration by small companies such as Heritage.

The Canadian firm is involved in high-risk exploration and early-stage development ventures in a number of countries, including Uganda, where it found commercial volumes of oil last year.

Its production revenues are not yet sufficient to offset capital investment, resulting in a US$41.3 million (Dh151.6m) net loss last year.



tcarlisle@thenational.ae