The outlook for Iraq’s Kurdistan oil production
- 24.09.2017
- Author:Dursun Yıldız
- (0) Comment
- 539
One Dud Oil Field Doesn't Set a Trend as Kurds Keep Drilling
By-
Output in Iraqi Kurdistan set to increase in 2017, Rystad says
-
Investor appetite to be tested as oil blocks offered this year
When one of the biggest crude producers in Iraqi Kurdistan downgraded reserves in March, doubts about the economic potential of the region -- a key player in the fight against Islamic State terrorism -- deepened. But evidence suggests it’s too soon to write off the emerging oil province.
The downgrade at Genel Energy Plc’s Taq Taq field, the second in little more than a year, sent its shares tumbling amid gathering anxiety over a region already struggling with weak crude prices and escalating costs to fight militants.
Yet that disappointment stands in contrast to improving prospects elsewhere in Kurdistan. DNO ASA, the area’s biggest publicly listed producer, this month doubledthe number of wells planned for 2017 at its Tawke field, while competitor WesternZagros Resources Ltd. increased reserve estimates in March.
“The Taq Taq story is very unfortunate, it has hurt us all,” said Simon Hatfield, chief executive officer of Calgary-based WesternZagros. “Everybody thinks: on top of above-ground risk, now there’s below-ground risk too. But it’s not the same everywhere in Kurdistan."
While drillers have been drawn to the northern Iraqi region by reserves that are cheap to pump, development remains in its early phases. Major projects didn’t begin until the 2000s, and the geology is still being studied; it can sometimes take decades for big producing regions like the Permian Basin or the Caspian Sea to reach full potential. Exploiting natural resources is important to the economy of Kurdistan, whose armed forces have led a crucial fight against Islamic State since 2014.
For a QuickTake explainer on the Kurdish oil industry, click here
Genel’s downgrade followed new data showing that the rocks couldn’t hold as much crude as expected. Yet oil and gas basins commonly display variations in distribution, and Taq Taq’s problems aren’t replicated throughout Kurdistan, according to Michael Knights, an analyst at the Washington Institute.
“The Taq Taq downgrade is clearly a blow but they’re increasing oil production in other places that will offset a lot of the declines,” Knights said in an interview, citing the forthcoming start of Abu Dhabi National Energy Co.’s Atrush field. Consultant Rystad Energy AS expects Kurdish oil production to increase more than 10 percent this year to 602,000 barrels a day.
At the start of the year, the region’s future looked brighter. Oil prices had partially recovered, the local government was paying producers more regularly, and the military campaign to chase Islamic State from Mosul was progressing.
Then on March 28, Genel made its announcement. Taq Taq, which had pumped more than 115,000 barrels a day in 2015, was now producing just 19,000. The shares sank as much as 25 percent that morning.
By this point, WesternZagros had already responded to mounting shareholder concern and media reports questioning the region’s prospects, explaining the geological differences between its field and Genel’s deposit, while also stressing Kurdistan’s enduring potential.
Indeed, no other Kurdish field has been downgraded on the magnitude of Taq Taq, according to Lynn Morris-Akinyemi, an analyst at Wood Mackenzie Ltd. “We can’t write off Kurdistan just on one field,” she said in an interview. “We need to see a clear pattern of this happening.”
Share Your Comments
Only members can comment, Click here to sign up for free right now