ACTIVITIES OF TAQ TAQ OPERATING CO. LTD (TTPOCO)

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 000666

SIPDIS

SIPDIS

E.O. 12958: DECL: 02/22/2017
TAGS: EPET ENRG EFIN IZ TU
SUBJECT: ACTIVITIES OF TAQ TAQ OPERATING CO. LTD (TTPOCO)
IN IRAQI KURDISTAN REGION

Classified By: RRT Erbil Leader James Yellin, reasons 1.4 (b) and (d)

This is an Iraqi Kurdistan Regional Reconstruction Team (RRT)
cable.


1. (C) SUMMARY. The General Manager of the oil company,
Mr. Leslie Blair, General Manager, told RRT Off that drilling
commenced in the Taq Taq field but production would not occur
for two and half years. Infrastructure needs and security
risks require Taq Taq Operating Co. Limited (TTPOCO) to build
a pipeline from Taq Taq to Turkey with financing from other
independent oil companies. The Government of Turkey has
insisted that the company use a pipeline - a requirement that
necessitates a tariff agreement approved by Iraqi central
government. Blair highlighted that Kurdistan Regional
Government (KRG) officials want to move ahead with
construction of the Kurdish pipeline and that TTPOCO signed a
Production Sharing Agreement (PSA) with the KRG that Prime
Minister Nechirvan Barzani personally and strongly intends to
uphold. END SUMMARY.

BACKGROUND


2. (C) On January 29, RRT Officer talked with Blair, General
Manager of Taq Taq Operating Co. Limited (TTPOCO),a company
registered in Erbil with offices in Ankara, Dubai, and Taq
Taq. The company is jointly owned by Genel Enerji A.S. and
Addax Petroleum International, Limited. Addax is a
wholly-owned subsidiary of Addax Petroleum, an independent
international oil and gas exploration and production company
operating in Africa and the Middle East. The company is
headquartered in Geneva and listed on the Toronto stock
exchange. Genel is a Turkish registered company owned by
Cukurova Group, a Turkish industrial and commercial
conglomerate with investments in numerous sectors. Genel and
Addax established TTPOCO to carry out the petroleum
operations in Taq Taq.


3. (C) In 2004, Genel and the KRG entered into a PSA to
carry out petroleum operations in the Taq Taq field. The PSA
was revised in 2005 to include exploration acreage of the Kew
Chirmila prospect. Blair emphasized that Prime Minister
Nechirvan Barzani showed a personal interest in resigning the
agreement in November 2006.


4. (C) Taq Taq development field is about 50 kilometers
northwest from Kirkuk in Erbil Province. Kew Chirmila is 20
kilometers south of Taq Taq. The city of Taq Taq was
previously administered by Sulaimaniyah Province although
located in the Koisnjaq District of Erbil Province. In
October 2006, Taq Taq officially became part of the Erbil
Province, however, it remains on the budget of Sulaimaniyah
Province. Taq Taq also remains politically under the control
of the Patriotic Union of Kurdistan (PUK) party. In
contrast, Erbil Province is controlled by the Kurdistan
Democratic Party (KDP).

TAQ TAQ WELLS, ERBIL PROVINCE


5. (C) Blair said TTPOCO has started drilling in the Taq
Taq structure but production will begin in two and half
years. He indicated that little refining will be necessary
for the high-quality Taq Taq crude oil which is at 47 degrees
API, he added. (Note: American Petroleum Institute Gravity is
a measuring scale expressing the gravity or density of liquid
petroleum products. It is calibrated in terms of degrees.)

PIPELINE CONSTRUCTION


6. (C) Blair noted his company agreed to build a pipeline
extending from Taq Taq to Turkey. A pipeline operating
through the Kurdistan region would ensure local control over
and safe delivery of the oil, he added. Blair underscored
that the KRG strongly solicited construction of the new
pipeline by TTPOCO. He also specified that to build the new
Kurdish pipeline, other independent oil companies must
contribute financially to cover an estimated cost of 500
million dollars.


7. (C) Blair stressed that use of the Kurdish pipeline to
Turkey requires a tariff agreement with the Turkish
government which will only accept the Iraqi central
government as the signing authority for the tariff agreement.
Blair added that for the Turkish government to grant an
export license, the Iraqi central government would also have
to approve.

COMMUNITY DEVELOPMENT


8. (C) Blair told RRT Off that TTPOCO invests in community

BAGHDAD 00000666 002 OF 002


relations through a variety of measures that benefit the
local population. Its programs include safety and
environmental awareness training for local staff, planting
walnut and olive trees, and providing basic medical services.
He added the company also built a kindergarten school valued
at 250,000 dollars. Blair stressed that local support is
crucial to ensuring a successful long-term investment. The
profit-generating activity of the company must positively
impact the lives of the residents, he explained, so they
buy-into its presence and want to see it succeed.

POLITICAL RISKS


9. (C) Blair told RRT Off that his company is not interested
in Kirkuk or the northern pipeline from Baiji to Ceylan. He
said the risk of a Turkish invasion into the Kurdistan region
was reduced by the Turkish fear of not getting European Union
membership. He also put forward the idea that the Turks want
to preserve their strong commercial relations with the KRG.

10 (C) As a relatively minor oil company, Blair emphasized
that TTPOCO was able to take the risk associated with signing
a PSA directly with the KRG. It also agreed to cover
additional infrastructure costs, the building of a refinery
and the purchase a drilling rig because he expects revenues
generated by future discoveries to exceed such costs.
Regarding the five to ten-year development plan of TTPOCO, he
estimated that it would cost three billion dollars.

BIOGRAPHICAL NOTE AND COMMENT


11. (C) Blair is a Scottish born and educated businessman
with nearly three decades in the hydrocarbon sector. He
previously worked in Nigeria, Vietnam, India, and Spain.


12. (C) As with Det Norske Oljeselskap (Reftel),TTPOCO is a
minor petroleum company who decided to take an aggressive
stance on oil exploration in the Iraqi Kurdistan Region
despite a less than fully developed national legal and
regulatory framework. Blair appeared confident the KRG has
the political will and means to ensure the terms of the PSA
will be honored.


13. (C) In a time of pressure on the PUK and Sulaimaniyah
government to deliver essential services, the prospect of oil
revenues generated by the Taq Taq field in Erbil Province is
attractive. Erbil Province will get its revenue share once
the finance ministries are merged and the local government
law is passed. The current situation could help provide
momentum to complete these processes.
KHALILZAD