KURDISTAN REGIONAL GOVERNMENT SIGNS NEW PRODUCTION SHARING

UNCLAS SECTION 01 OF 02 BAGHDAD 003298 SIPDIS SIPDIS SENSITIVE STATE FOR NEA-I, EEB for GALLOGLY DOE FOR JAMES HART E.O. 12958: N/A TAGS: EPET ENRG ECON IZ SUBJECT: KURDISTAN REGIONAL GOVERNMENT SIGNS NEW PRODUCTION SHARING AGREEMENTS SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET This is a Regional Reconstruction Team (RRT) Cable. ¶1. (U) SUMMARY: The Kurdistan Regional Government (KRG) Ministry for Natural Resources announced that the Regional Oil and Gas Council executed four new production sharing agreements (PSAs) and endorsed two new refinery projects in the Iraqi Kurdistan Region. The combined initial exploration investment on the upstream projects is reported to be approximately 500 million USD. Estimated investment on the two new refinery projects will be around $300 million. END SUMMARY ¶2. (U) In an announcement posted on KRG official website, (www.krg.org/articles),the KRG Minister for Natural Resources, Dr Ashti Hawrami, announced that the KRG Regional Oil and Gas Council approved four new production sharing contracts (PSCs),one with a Canadian company, one with a French company, and two with unidentified international oil companies. The Council also approved two new refinery projects in the Kurdistan Region. -------------- New upstream projects -------------- ¶3. (U) The combined initial exploration investment on the upstream projects is reported to be approximately 500 million USD. The Ministry for Natural Resources executed two of the approved PSAs for oil and gas exploration and development in the Kurdistan Region. If there are commercial discoveries, the Ministry claims that the return/profit will be 85 percent to Iraq and approximately 15 percent to the contractors. -- Award of the Miran Block (1,015 square kilometers) in Sulaimanyiah Province to Heritage Energy Middle East Limited, a wholly owned subsidiary of Canadian listed oil company Heritage Oil and Gas. The Miran Block is a low to medium exploration risk area. -- Award of the Sindi/Amedi Block (2,358 square kilometers) along the Iraq/Turkish border to Perenco Kurdistan Limited, a wholly owned subsidiary of Perenco S.A., the privately held French oil exploration and production company. The Sindi/Amedi Block is a high exploration risk area. ¶4. (SBU) The KRG announcement added that the signing of the two other PSAs was with "experienced international companies" and that they would be executed soon. According to a local industry source, Reliance of India is likely to be one of the two. ¶5. (U) For all four PSAs announced on October 2, the KRG has up to a 25% participation interest and the right to assign up to another 25% to qualified Iraqi and international companies to further develop the local economy. ¶6. (U) The commercial provisions of these contracts, the Hunt Oil deal of August 2007, and contracts signed prior to the Kurdistan Region Oil and Gas law will reportedly conform to the terms published by the KRG on its website on 29 June. All contracts issued by the KRG will conform to the PSA model contract as published on June 29. -------------- Downstream projects -------------- ¶7. (U) The KRG announcement says the estimated investment on the two new refinery projects will be around 300 million USD. The KRG Minister of Natural Resources said local refining capacity will help the Kurdistan Region and the rest of Iraq fight black market imports and move from "wasteful fuel subsidies of the federal government, and the corruption and crime that goes with them". The two projects are: -- Miran area Refinery: Heritage has also entered into an agreement with the KRG to establish a 50/50 joint-venture company to build, own, and operate the refinery. The refinery will produce 20,000 barrels per day and is locatd in the Taq Taq / Miran area. It will be completed within two years. www.heritageoilcorp.com. -- Taq Taq Refinery: the Taq Taq field oil project operators, Genel/Addas, will fully fund, commission and construct the refinery along with other unnamed local and international investors. The refinery is expected to produce another 20,000 barrels per day and will be completed within eighteen months. BAGHDAD 00003298 002 OF 002 -------------- COMMITMENT TO REVENUE SHARING -------------- ¶8. (U) Dr. Ashti Hawrami reiterated that the revenues from commercial discoveries and refinery petroleum products in the Kurdistan Region PSCs will benefit all the Iraqi people. The KRG is in continuing negotiations with a number of international oil companies, downstream operators and local companies for further upstream and downstream projects. ¶9. (SBU) COMMENT: The KRG announcement concluded that the KRG is "open for business" and indicates continued pursuit of investment in its oil sector by international firms. These recently announced agreements are clearly within the de jure regional boundaries of the KRG. While it is agreeing to share revenues and offer itself as a model for investment in the rest of the country, the KRG is indicating that it will forge ahead without passage of the national hydrocarbon legislation. However, the parenthetical afterthought in the press release, that the KRG wants the Council of Representatives to pass the national hydrocarbon framework legislation and the revenue sharing law, could mean the KRG has already leased all the acreage it wanted to in the short term. If so, it will be difficult for Shahristani and Maliki to swallow passage of the laws now. But they should seize the moment if the KRG is ready to pass the February 23 version of the framework law and June version of the revenue sharing law, and we could at least start moving elsewhere. END COMMENT.