By Shwan Zulal
Gulf Keystone Petroleum (GKP) one of the successful oil companies operating in Kurdistan Region has given update on its operation this week. The company said that Kurdistan Regional Government, Ministry of Natural Resources, asked GKP to make preparation to export up to 5,000 bopd from Shaikan block, and GKP are making all the legal arrangement to start production pending the final approval by KRG. The facility is capable of producing nearer to 22000 bopd, but caution from KRG has been exercised as to the political implications and logistics of transportation. It will not be a surprise if the production is increased in the coming months, once KRG has measured Baghdad's reaction and overcome the logistical challenges.
GKP said that technical limitations prevented it from measuring the rate of oil flow; nevertheless, they are optimistic and believe that they are on the right track. GKP is going to undertake a flow test at its Sheikh Adi-1 following the promising results from Shaikan-2. Extensive test will be carried out on the Jurassic section of the Sheikh Adi-1 after drilling is complete. Shekhan-4 spud is good news for the company and it says that they will spud by end of May. John Gerstenlauer, GKP Chief Operating Officer is upbeat about the progress and said: "We will soon have four exploration appraisal wells underway in Kurdistan with further wells expected to spud before the end of the summer... steady progress in the Shaikan-2 and Sheikh Adi-1 drilling is highly encouraging...Kurdistan Regional Government confirming release of the first oil export payment to the KRG as an extremely positive development... ."
Meanwhile, SEY (Sterling Energy), has given an update about their operation in Sangaw North block in Kurdistan which they have 53.33% working interest. "The Sangaw North-1 well has been drilled to a total depth of 4,190 metres, within the Triassic Kurra Chine formation. Wireline logs have been run across the open hole section and are currently being interpreted." The testing has been still conducted by wirer logging, which indicates that the difficulties remain, nevertheless the company has said they have elected with their partners to carry out a flow test across the open hole section. This is estimated to take in the region of 3 weeks and an indication that the company is optimistic about the prospects of the well as they are prepared to bear the cost of the test and not abandoning the well.
Angus MacAskill, SEY's Chief Executive said: "We are pleased to have reached the planned well depth in this very challenging drilling environment and look forward to the outcome from the ongoing programme of data acquisition."
The problems SEY and other partners have been facing and GKP success highlights the fact that there are plenty of oil and gas reserves in Kurdistan although it is not without its riddles. Oil exploration remain lucrative in a largely unexplored Kurdistan Region but it is proving to be a long-term game rather than a short-term money making exercise for the parties involved.
The export will be good news for the GKP and the region. Shekhan block on its own is capable of producing much more oil in the due course. Once the drilling programs progresses, the size of reserves will become clearer. It is needless to say that GKP has so far discovered the largest amount of oil in Kurdistan since exploration companies started drilling. Nevertheless, investors concerns remains over the logistics of exporting the oil as well as the uncertainty of Iraq's Oil and Gas Law.
The latest development in Kurdistan oil exploration does highlight the need for the proposed pipelines connecting to Nabucco pipelines and accelerated program of improving the infrastructure in Kurdistan. If KRG wants to become a big player in the oil market, it needs to invest more in the infrastructure and seeped up the current project.
While good news of exporting oil being reported, Hussein Shahristani, Iraqi deputy Prime minister for Oil, in an interview with Rudaw, dismisses the notion of Kurdistan Region being allowed to connect to Nabucco pipelines running through turkey and start exporting oil. Shahristani told Rudaw “Only the federal government can export oil and it’s same for gas. Turkey or the EU countries will not buy gas if it doesn’t have the federal government’s approval.”
This remarks made by Shahristani has brought the future of Kurdish oil export into focus. It is clear that the current Iraqi government still opposes the independence of Kurdistan Region's oil policy and does not recognise the contracts signed. Nevertheless; the reality on the ground is different and the Kurdish government would not easily back down from its position.
This standoff between KRG and Shahristani over the future of oil exports will play out in the coming months leading to the enactment of oil and gas legislation. Moreover, KRG's relation with Turkey has been at its best ever and it is becoming more likely that Turkey may allow Kurdish Oil to flow through Turkey; therefore, the next Turkish parliamentary elections in June would also have its significance as to what extent KRG can maintain the cordial Turkish-Kurdish relations.