x Abu Dhabi, UAEMonday 22 January 2018

OMV starts to pump oil in Kurdish area of Iraq

OMV starts production in Iraqi Kurdistan.

The Austrian energy group OMV's refinery is pictured at dawn in Schwechat.. Heinz-Peter Bader / Reuters
The Austrian energy group OMV's refinery is pictured at dawn in Schwechat.. Heinz-Peter Bader / Reuters

OMV, the Austrian oil company part-owned by Abu Dhabi, has started pumping oil in the Kurdish region of Iraq.

Production of a test well at the Bina Bawi field in the autonomous region has begun at an initial 5,000 barrels per day (bpd), the company announced yesterday.

"OMV sees the Kurdistan region of Iraq as an important area for growth," said Jaap Huijskes, the member of the board responsible for exploration and production. "The progress of the development of Bina Bawi [is an] important milestone to further expand our business in this region."

Output at the field is expected to double to 10,000 bpd once a further two wells become operational, the company said. It will submit a detailed field development plan to the Kurdish Regional Government (KRG) in the third quarter of this year.

OMV shares production rights to the Bina Bawi field with Genel Energy and the KRG. OMV already produces natural gas in Kurdish Iraq as part of a joint venture that includes the Sharjah-based Dana Gas.

Abu Dhabi's International Petroleum Investment Company (Ipic), a government controlled investor, holds a 24.9 per cent stake in OMV. The Austrian company's ties with the emirate are strengthened by a joint investment with Ipic in the chemicals company Borealis. Together with the Abu Dhabi National Oil Company (Adnoc), Borealis operates the Borouge polymers producer in Ruwais.

The KRG is regarded as one of the last oil frontier regions. Initially the preserve of smaller players such as OMV and Genel, the region's vast and relatively easily extractable oil reserves have prompted a string of oil majors to secure acreage in Kurdish Iraq.

But the region's promise of easy oil is diminished by a long-standing dispute between the KRG in Erbil and Iraq's central government, and Baghdad has withheld the bulk of payments owed to international oil companies in Iraq's Kurdish region as a result.

The central government opposes an independent Kurdish oil policy, and considers production deals with Erbil illegal. It has blacklisted the companies active in Kurdish Iraq from tender rounds elsewhere in Iraq.

The stand-off could force a Kurdish climbdown, which would leave contracts signed with Erbil invalid. In spite of this risk, the oil majors ExxonMobil, Chevron and Total have stuck deal with the Kurds, risking expulsion from projects in southern Iraq's super major fields.

The technical service agreements offered by Baghdad have brought international oil companies little financial reward, and a revision of national production targets further diminish their appeal.

The KRG is currently working on an energy deal with Turkey that would lead to oil and gas pipelines that would allow the Kurds to export independently of Iraq's export infrastructure, so safeguarding the position of producers in the region.

The Turkish energy minister Taner Yildiz told Reuters yesterday that Turkey would play an active role in any arrangement in Iraq under which crude oil export revenues were shared between the central government and the northern Iraqi Kurdistan region.

"There is nothing on this issue that would unsettle the Iraqi central government," Mr Yildiz said. "Turkey would play an active role in giving the 17 per cent to northern Iraq and 83 per cent to the Iraqi central government."

OMV's share price rose by as much as 1.31 per cent on yesterday's announcement. The company's fortunes were boosted last year by resurgent production in Libya, as the energy sector in the country recovered from the civil war faster than expected. Full-year revenues rose by a quarter to €42.6 billion (Dh200.57bn) as overall production increased by 5 per cent.

The company aims to shed €1bn in refining and chemicals assets and focus on upstream activity including a newly acquired gasfield in Norway.

Ipic has no plans to raise its stake in the company, OMV's chief executive Gerhard Roiss told the press last July.