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