IRAQI OIL MINISTER STRIKES A DEAL ON KRG OIL

C O N F I D E N T I A L BAGHDAD 003729 SIPDIS DOE FOR PERSON E.O. 12958: DECL: 11/25/2018 TAGS: EPET ENRG PGOV EINV EFIN IZ SUBJECT: IRAQI OIL MINISTER STRIKES A DEAL ON KRG OIL REF: BAGHDAD 3309 Classified By: Economic Counselor Michael Dodman, reasons 1.4(b,d) ¶1. (C) Summary: Iraqi and KRG officials have reached a preliminary deal that will allow the first oil from KRG fields to be exported. Critical details, including final agreement on revenue sharing, apparently remain to be finalized. The deal does not cover the broader question of the hydrocarbons legislation, which is the subject of on-going senior level talks. Export of oil from the KRG fields could generate much needed earnings to support the 2009 budget. End summary. ¶2. (SBU) Minister of Oil Husayn al-Shahristani made a one-day trip November 24 to Erbil for meetings with Kurdistan Regional Government (KRG) officials. Shahristani met with KRG Prime Minister Nechirvan Barzani, KRG Deputy Prime Minister Omar Fatah, and KRG Minister of Natural Resources Ashti Hawrami. Based on numerous sources, we understand that Shahristani and KRG officials reached agreement in principle on two projects: permitting oil exports from the KRG's Taq Taq and Tawke (also known as Zakho) fields, which could produce 100,000-200,000 barrels per day (bbl/d) when they come onstream and, secondly, to determine the distribution of output from the Khurmala dome structure of Kirkuk oil field. In public statements, both Barzani and Shahristani stressed that Iraqi oil "is the property of all Iraqis." ¶3. (SBU) In an undoubtedly related development, a Taq Taq Operating Company (TTOC) official told UPI that the Ministry of Oil (MoO) had authorized both TTOC and Norway's DNO to tie-in to the Iraq northern pipeline. (Note: An MoO official privately stressed to us that MoO had not dealt directly with any company but that the agreement was between MoO and KRG.) UPI's source said TTOC has between 30,000-40,000 "daily initial production capacity" and that TTOC is working to construct the pipeline to tie Taq Taq to the Kirkuk main export pipeline. TTOC is a joint venture between Turkey's Genel Enerji and Canada's Addax Petroleum. While TTOC has to cover some distance to connect to the northern pipeline, DNO's Tawke field nearly abuts it and the 42-kilometer, 12-inch pipeline connection between the field's central processing facilities to the tie-in point with the northern pipeline is completed. Tawke has the potential to produce 50,000 bbl/d. Field production was temporarily suspended in September. ¶4. (C) RRT Erbil's sources said Khurmala Dome, located in Erbil Province, has the potential to produce 100,000 bbl/d. The KRG wants 70,000 bbl/d to flow directly to the Khabat refinery in Erbil Province and 30,000 barrels to the Kirkuk refinery, while MoO wants all of the oil to go first to the Kirkuk refinery, with a share then piped onward to Khabat. (Note: Khabat refinery has not yet been constructed.) We received a separate report that Shahristani and KRG officials had agreed in principle to construct a pipeline to the Khurmala Dome, but that disagreement remained over where the pipeline would go. ¶5. (C) Comment: Shahristani's trip is the most public development in quiet negotiations over the past two months to develop an arrangement to allow export of oil from KRG fields. As world oil prices fall and output from existing Iraqi oil fields decline, pressure has been growing to find a way to bring the KRG product to export market, despite continuing disagreements between the GOI and KRG on the legality of KRG tenders and the details of a future hydrocarbons law. In reftel, Shahristani had told us that he drew a distinction between the four production sharing Qdrew a distinction between the four production sharing agreements that the KRG had concluded before a draft hydrocarbons law was drafted - which includes Tawke and Taq Taq - and later tenders. Shahristani insisted that the GOI would only remit the standard 17% share of petroleum revenues to KRG for sale of any output from the KRG fields, and we understand that he took this same position in talks with the KRG, but that the critical question of revenue has not yet been finally resolved. This latest deal, however, does not seem to presage any breakthrough on the stalemate over hydrocarbons legislation, which continues to be the topic of negotiation among top GOI and KRG officials. CROCKER