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Yesterday Chevron announced that it will buy a majority stake in two exploration blocks in the Kurdistan region of Iraq from the Indian firm, Reliance Industries. Chevron follows ExxonMobil who have also invested in Kurdistani oil potential, and signal the increasingly attractive opportunities that Kurdistan offers.
Ashti Hawrami, the Kurdistan Regional Government’s (KRG) oil minister, has been attempting to attract international oil companies to the area ever since the fall of Saddam Hussein in 2003.
The potential reserves in Northern Iraq look promising, with Alex Munton, an analyst at Wood Mackenzie in Edinburgh, telling the New York Times that an estimated eight billion barrels of recoverable oil and gas have been found since 2005.
The main risk dissuading companies to invest in oil exploration projects in the area is the fact that Baghdad believes any oil and gas projects need their approval. This has led to complications with exporting the oil out of Kurdistan. The only ways to move oil out of the region are via truck to Turkey, or through an Iraqi owned pipeline.
Baghdad and the KRG have been unable to agree terms for the use of the pipeline and therefore exports have been stopped for the past few months. Companies extracting oil in Kurdistan must currently sell their product within the country at only $60 a barrel, far lower than the global market price.
Companies are being attracted to do business with the KRG due to the favourable terms that they offer. Under the profit sharing contracts Kurdistan offers oil companies $3 to $5 dollars a barrel, compared to the miserly <$1 offered by Baghdad.
Chevron has paid around $200-$300 million for 80% stakes in two exploration blocks which span 490 square miles to the north of Erbil.
By. Charles Kennedy of Oilprice.com
Charles is a writer for Oilprice.com