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INTERVIEW-Iraq's Kurdistan Poised For Bumper Gas Growth
(Reuters) - Iraq's Kurdistan is poised for a major increase in gas output following the settlement of a court case with developers who are now looking to unlock the full potential of the region's large resources, investor Dana Gas told Reuters.
The semi-autonomous region settled a case with the Pearl Consortium last week by paying $1 billion to its members - Dana, Dana's biggest shareholder Crescent Petroleum, Austria's OMV , Hungary's MOL and Germany's RWE.
The consortium has a 10-year-old deal with Kurdistan's government to develop the Khor Mor and Chemchemal fields - one of the largest gas deposits in Iraq, with reserves of 17 trillion cubic feet - enough to supply the whole of Europe for one year - and estimated resources of as much as 75 trillion.
Pearl had been claiming against the government of Kurdistan for underpaying for gas liquids production, as well as delays to field development, but reached the settlement after the long-running case in London.
Majid Jafar, managing director of the board of UAE-based Dana Gas, told Reuters the consortium would more than double its output levels from the fields as part of the settlement.
Production will be raised from the current 330 million cubic feet a day to 800 million, or 8 billion cubic metres a year, he said in an interview. That volume would be enough to supply the annual gas needs of a country the size of Austria.
That increase, to be completed within two years, could be just the beginning, according to Jafar, who is also the chief executive of Crescent Petroleum.
"This is only the next phase. These fields could potentially produce several times more," he said.
He said with the addition of new blocks and with fresh exploration, reserves could rise 3-5 times from the current 17 trillion cubic feet, while production could rise as high as 5-6 billion cubic feet a day.
"We have the obligation to maximise the value of resources for Kurdistan and Iraq. We first and foremost need to meet local demand. But there are enough reserves for exports as well," he added.
Of the production increase of around 500 million cubic feet (mcf) a day, some 250 mcf a day will go to the domestic market, while a further 250 mcf a day could be sent for exports or domestic markets or both.
'CONTRACTS ARE SOLID'
The settlement came as further evidence of Kurdistan putting its finances in order ahead of the referendum this month seeking independence from Baghdad.
The region, which has been battling Islamic State and a budget crisis caused by lower oil prices, has been surviving over the past two years thanks to oil sales independent from Baghdad. It has been also considering starting gas exports.
Kurdistan has been long considered by European gas companies as a potential source for gas supplies to Europe via Turkey. Such supplies could help the continent reduce its reliance on Russian gas.
The Pearl Consortium has invested $1.26 billion in Khor Mor and Chemchemal since signing the deal with the Kurdistan Regional Government (KRG) in 2007. Under the settlement, Kurdistan paid $400 million towards further development of the fields and allocated two more blocks to the consortium.
"The settlement demonstrated two things: first - the KRG has a publicly stated goal of clearing debts with upstream investors. And second - the contracts are solid and are respected, both of which are important for investors," said Jafar.
He said he believed the Pearl consortium was strong and was in a good financial shape after the settlement to fund expansion.
"Companies came and went in the Kurdistan region including some of the majors but it is a core group of the early pioneers who are driving the production and growth today," Jafar said.
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