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Cablegate: Kurdistan Regional Government Signs New Production Sharing

VZCZCXRO4910
OO RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3298/01 2760322
ZNR UUUUU ZZH
O 030322Z OCT 07
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3675
INFO RUCNRAQ/IRAQ COLLECTIVE
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 BAGHDAD 003298

SIPDIS

SIPDIS
SENSITIVE

STATE FOR NEA-I, EEB for GALLOGLY
DOE FOR JAMES HART

E.O. 12958: N/A
TAGS: EPET ENRG ECON IZ
SUBJECT: KURDISTAN REGIONAL GOVERNMENT SIGNS NEW PRODUCTION SHARING
AGREEMENTS

SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET

This is a Regional Reconstruction Team (RRT) Cable.

1. (U) SUMMARY: The Kurdistan Regional Government (KRG) Ministry
for Natural Resources announced that the Regional Oil and Gas
Council executed four new production sharing agreements (PSAs) and
endorsed two new refinery projects in the Iraqi Kurdistan Region.
The combined initial exploration investment on the upstream projects
is reported to be approximately 500 million USD. Estimated
investment on the two new refinery projects will be around $300
million. END SUMMARY

2. (U) In an announcement posted on KRG official website,
(www.krg.org/articles), the KRG Minister for Natural Resources, Dr
Ashti Hawrami, announced that the KRG Regional Oil and Gas Council
approved four new production sharing contracts (PSCs), one with a
Canadian company, one with a French company, and two with
unidentified international oil companies. The Council also approved
two new refinery projects in the Kurdistan Region.

---------------------
New upstream projects
---------------------

3. (U) The combined initial exploration investment on the upstream
projects is reported to be approximately 500 million USD. The
Ministry for Natural Resources executed two of the approved PSAs for
oil and gas exploration and development in the Kurdistan Region. If
there are commercial discoveries, the Ministry claims that the
return/profit will be 85 percent to Iraq and approximately 15
percent to the contractors.

-- Award of the Miran Block (1,015 square kilometers) in
Sulaimanyiah Province to Heritage Energy Middle East Limited, a
wholly owned subsidiary of Canadian listed oil company Heritage Oil
and Gas. The Miran Block is a low to medium exploration risk area.


-- Award of the Sindi/Amedi Block (2,358 square kilometers) along
the Iraq/Turkish border to Perenco Kurdistan Limited, a wholly owned
subsidiary of Perenco S.A., the privately held French oil
exploration and production company. The Sindi/Amedi Block is a high
exploration risk area.

4. (SBU) The KRG announcement added that the signing of the two
other PSAs was with "experienced international companies" and that
they would be executed soon. According to a local industry source,
Reliance of India is likely to be one of the two.

5. (U) For all four PSAs announced on October 2, the KRG has up to
a 25% participation interest and the right to assign up to another
25% to qualified Iraqi and international companies to further
develop the local economy.

6. (U) The commercial provisions of these contracts, the Hunt Oil
deal of August 2007, and contracts signed prior to the Kurdistan
Region Oil and Gas law will reportedly conform to the terms
published by the KRG on its website on 29 June. All contracts
issued by the KRG will conform to the PSA model contract as
published on June 29.

-------------------
Downstream projects
-------------------

7. (U) The KRG announcement says the estimated investment on the
two new refinery projects will be around 300 million USD. The KRG
Minister of Natural Resources said local refining capacity will help
the Kurdistan Region and the rest of Iraq fight black market imports
and move from "wasteful fuel subsidies of the federal government,
and the corruption and crime that goes with them". The two projects
are:

-- Miran area Refinery: Heritage has also entered into an agreement
with the KRG to establish a 50/50 joint-venture company to build,
own, and operate the refinery. The refinery will produce 20,000
barrels per day and is locatd in the Taq Taq / Miran area. It will
be completed within two years. www.heritageoilcorp.com.

-- Taq Taq Refinery: the Taq Taq field oil project operators,
Genel/Addas, will fully fund, commission and construct the refinery
along with other unnamed local and international investors. The
refinery is expected to produce another 20,000 barrels per day and
will be completed within eighteen months.


BAGHDAD 00003298 002 OF 002


-----------------------------
COMMITMENT TO REVENUE SHARING
-----------------------------

8. (U) Dr. Ashti Hawrami reiterated that the revenues from
commercial discoveries and refinery petroleum products in the
Kurdistan Region PSCs will benefit all the Iraqi people. The KRG is
in continuing negotiations with a number of international oil
companies, downstream operators and local companies for further
upstream and downstream projects.

9. (SBU) COMMENT: The KRG announcement concluded that the KRG is
"open for business" and indicates continued pursuit of investment in
its oil sector by international firms. These recently announced
agreements are clearly within the de jure regional boundaries of the
KRG. While it is agreeing to share revenues and offer itself as a
model for investment in the rest of the country, the KRG is
indicating that it will forge ahead without passage of the national
hydrocarbon legislation. However, the parenthetical afterthought
in the press release, that the KRG wants the Council of
Representatives to pass the national hydrocarbon framework
legislation and the revenue sharing law, could mean the KRG has
already leased all the acreage it wanted to in the short term. If
so, it will be difficult for Shahristani and Maliki to swallow
passage of the laws now. But they should seize the moment if the
KRG is ready to pass the February 23 version of the framework law
and June version of the revenue sharing law, and we could at least
start moving elsewhere. END COMMENT.

© Scoop Media

 
 
 
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