Kurdistan

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www.eic-consult.com

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Insight Report 2013

Contents
Page Overview and Executive Summary 1-6 Upstream 7-36 Pipelines and Exports 37-40 Dowstream and Power 41-43

Politics, Economics and Security 44-56 Projects Overview 57-58 References

Figures

Figure 1: Value of Projects in Kurdistan 2013 Figure 2: Number of Projects in Kurdistan by Sector 2013 Figure 3: Major Producing Fields in Kurdistan 2013 Figure 4: Oil and Gas Blocks in Kurdistan 2013 Figure 5: Significant Discoveries in Kurdistan as of 2013 Figure 6: Economic Fundamentals of Investments in Kurdistan 2013 Figure 7: Operational Activity in Oil and Gas Blocks in Kurdistan as of January 2013 Figure 8: KRG PSC Share of Profit Distribution Figure 9: Executive Powers of the Federal Government Figure 10: Foreign Investment in Kurdistan 2006-January 2012 Figure 11: Terrorist Attacks in Iraq by Governorate 2012 Figure 12: Advanced Upstream Projects in Kurdistan Figure 13: Midstream Projects in Kurdistan Figure 14: Downstream Projects in Kurdistan Figure 15: Power and Renewable Projects in Kurdistan

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1 1 7 8 10 21 22-28 30 36 46 55 57 58 58 58

Overview and Executive Summary

7,000 6,000 Value fo Projects ($Million) 5,000 4,000 3,000 2,000 1,000 0

Figure 1:Value of Projects in Kurdistan 2013 Source: EIC DataStream 2013

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Upstream 16 14 12 10 8 6 4 2 0 Upstream Number of Projects

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EIC CONSULT

The downstream sector in Kurdistan is small and projects are geared towards incremental expansion of existing facilities. Domestic demand for oil products still exceeds supply but this gap will narrow dramatically as active expansion projects come online over the next two years, leaving little scope for future investment in large scale downstream facilities beyond those already planned. Both downstream projects are at the EPC stage. The power sector is established and supply exceeds demand, allowing the region to export power to governorates in Iraq. Despite this there are ambitious plans to construct five new power plants in the region, though these proposals are still in the planning stage. According to EIC Datastream, as of January 2013 there are also three active power projects in the region. These projects involve expansion of capacity at existing plants and the construction of a power plant in Erbil. There was one feasibility stidy into renewable enrgy conducted in the Kurdistan recorded on EICDataStream. So far there has been no further project activity in that sector in the Kurdistan region.

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Midstream Downstream Power

Midstream

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Downstream Power

The energy sector in Kurdistan is currently focused on upstream exploration. According to EICDataStream as of January 2013 there were 14 upstream projects underway in the Kurdistan region. The majority of these are at the drilling and appraisal stage, though there are two projects at the front end engineering and design, (FEED), stage. Upstream activity is set to increase sharply as operations expand on Kurdistans 57 blocks. The midstream sector is also expanding with three active projects in the region. Operators with producing fields are looking for new ways to secure exports from the region and a trio of pipeline projects entered the engineering, procurement and construction, (EPC), stage in 2012. There may be further growth in midstream opportunities if Kurdistan can secure a market for gas exports as there is currently little gas export infrastructure in place in the region.

Figure 2: Number of Projects in Kurdistan by Sector 2013 Source: EIC DataStream 2013

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Upstream
Oil and Gas Blocks in Kurdistan
Block Number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Block Name Tawke Central Dahuk Sulevani Sindi Amedi Sarsang Ber Bahr Sheik Adhi Dohuk Al Qush Atrush Shaikan Ain Sifni Dinarta Akri Bjeel Rovi Sarta Barda Rush Baeshiqa Erbil Operator DNO Murphy Oil PetroQuest Energy Perenco HKN Genel Energy Gulf Keystone DNO Exxonmobil Taqa Gulf Keystone Hunt Oil Hess MOL

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4 1 2 3 8 9 57 6
Dahuk

5 10 11 12 15 17 19 20

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Ninawa Licenced area
Open area Oilfield used in refining Oil pipeline Gas pipeline Planned oil pipeline Planned gas pipeline Kurdistan boundary Metering station Oil refinery Planned oil refinery Power plant Planned power plant

Chevron Chevron Afren

ExxonMobil DNO

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Hawler Harir Oryx Petroleum Total Pirmam ExxonMobil ExxonMobil OPEN Betwata Choman Hindren OPEN Hess Shakrok Safeen Marathon Bina Bawi Shorish OMV/Genel OPEN

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25 26 27 28 29

other factors. An overview of every companys presence and operations in Kurdistan is provided below. Figure 6 shows current drilling activity, known reserve estimates, discoveries and well information, operational history and development plans for every block in the Kurdistan region.

Kurdistan 2013

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IRAQ

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Figure 4: Oil and Gas Blocks in Kurdistan 2013 Companies in Kurdistan Integrated Super Majors and Major National Oil Companies in Kurdistan ExxonMobil ExxonMobil currently holds six PSCs in the Kurdistan region, Al-Qush, Baeshiqua, Betwata, Arbat East, Pirmam and Qara Hanjoor. Exploration drilling is due to begin in Al-Qush and Baeshiqa in Q2 2012 while the remainder of the blocks have been undergoing 2D seismic acquisition since 2012. Interest is high in the Al-Qush block as it lies adjacent to the substantial Shaikan discovery made by Gulf Keystone. The Baeshiqa block may also hold high resource potential as it is located south of the Barda Rash field where Afren has made a discovery of over 1.2 billion bbl. In December 2012 ExxonMobil relinquished a seventh block it had acquired, Penjwin on the

EIC CONSULT

Upstream
output from its existing producing assets in Kurdistan. In order to monetize its assets and sustain its current investment levels Genel require adequate export outlets and relatively consistent payments for its oil. The company has been instrumental in pushing for the construction of new pipeline infrastructure in the Kurdistan region and contracted the Kar Group to build a pipeline linking the Taq Taq field to the Ceyhan pipeline. A new pipeline to link the Kurdistan region directly to Turkey, without connecting it to any federal infrastructure is also being pursued by Genel. Such a pipeline would provide Genel and other producers in the region a reliable means with sufficient capacity to handle their output. It would also place control over exports and revenue from the sales of exports into the hands of the KRG rather than the federal government. An independent pipeline from Kurdistan would prevent the federal government from withholding payments for oil exports as transactions could be conducted directly with buyers in Turkey, making the funds from sales more likely to reach operators. Genels pipeline project has many supporters in the KRG, but for these reasons also faces stiff opposition from the Iraqi federal government who have threatened to sue Genel for exporting oil independently of federal oversight already. Although no legal action had been launched officially by January 2013, the threat remains and would surely be implemented should Genel successfully construct a pipeline and export oil independently of federal oversight. General Exploration Partners (Shamaran Petroleum) entirely focused in Kurdistan. The Shaikan field is now estimated to hold over 13 billion bbl of oil making it the largest discovery in the history of the Kurdistan region. The Shaikan discovery was one of the key drivers of major new investment in Kurdistan as it confirmed the potential for world class discoveries in the region. Gulf Keystone are aiming to raise production to 20,000 bbl/d in February 2013 and a further 20,000 bbl/d by July 2013. Ultimately the company is targeting 400,000 bbl/d of production from the field. Gulf Keystone has the financial resources to sustain development of the field and will look to retain ownership of Shaikan, however if payments for oil exports are not forthcoming for a sustained period of time the company will be under increasing pressure to sell assets to raise funds to fund its development program. Gulf Keystone also operates the Sheik Adhi block adjacent to the Shaikan block. A discovery was made in Sheik Adhi in November 2012 when exploration well Sheik Adhi two achieved stable flow rates over 4,000 bbl/d during testing. The Sheik Adhi discovery looks to be on trend with the Shaikan field and reserve estimates for the Sheik Adhi block are set to rise as exploration progresses. Gulf Keystone also has a 40% interest in Genel Energys Ber Bahr block and 20% interest in Akri Bjeel operated by MOL. The companys extensive asset base provides Gulf Keystone with a strong position in the Kurdistan region. In total, (including its investments in other blocks where it does not operate), Gulf Keystone has mean in place oil reserves of around 19 billion bbl of oil in the Kurdistan region as even blocks where the company holds just a financial interest hold high prospects for substantial discoveries. Gulf Keystone is concentrating on raising production at the Shaikan field and plans to drill two development wells in 2013. At the same time exploration activity in other blocks where the company has an interest is being sustained. Another issue for Gulf Keystone is how they can secure oil exports given the federal dispute with the KRG and limited export infrastructure in the region. A pipeline linking Shaikan to the Turkish border is in the preliminary stages. Hess American major Hess is operator of the Dinarta and Shakrok blocks in Kurdistan. Hess completed 2D seismic acquisition in 2012 with Shakrok 1 exploration well due to be drilled in Q3 2013. The Dinarta 1 exploration well is due to be drilled in Q4 2013 on the

Genel are pursuing a new pipeline to link the Kurdistan region directly to Turkey, without connecting it to any federal infrastructure.

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The Shaikan field is now estimated to hold over 13 billion bbl of oil making it the largest discovery in the history of the Kurdistan region.
EIC CONSULT

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Gulf Keystone Petroleum

A wholly owned subsidiary of Shamaran Petroleum, General Exploration partners was originally a joint venture between Shamaran and Aspect Energy which signed a PSC for the Atrush block. In December 2012 Aspect Energy divested its interest in General Exploration partners leaving Shamaran as the sole interest holder. Shamaran decided to sell 53.2% of its interest in Atrush to Taqa, leaving Shamaran with a 20% remaining interest in the block via its subsidiary General Exploration Partners.

Gulf Keystone are a UK based company who operate the Shaikan block where a major oil discovery was made in 2009. Gulf Keystone is a small independent exploration company whose current operations are

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