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Iraq Starts Oil Exports From Kurdistan

Iraqi Oil Minister Husayn al-Shahristani faces mounting pressure to act quickly to increase sluggish oil output.
BAGHDAD (Reuters) -- Iraq has started exporting oil from its largely autonomous Kurdistan region for the first time, Iraq's Oil Ministry said, in an apparent breakthrough after years of deadlock over disputed Kurdish oil contracts.

Oil Ministry spokesman Assim Jihad said the ministry started shipping the crude from the Tawke field, in which Norway's DNO International has a concession, to the Turkish port of Ceyhan at an initial test rate of 10,000 barrels per day (bpd).

"We finished linking the pipelines from the Tawke oil field to the strategic Kirkuk-Ceyhan pipeline and have installed the meters. We started...pumping 10,000 barrels per day to boost exports to...Ceyhan," Oil Ministry spokesman Assim Jihad said.

News that exports had started, despite a row between Iraq's central government and the Kurdistan regional government (KRG) over oil contracts the KRG signed with foreign firms, caused DNO's shares to surge 4 percent before settling up 2.8 percent.

Oil Minister Husayn al-Shahristani has said those contracts are illegal. Baghdad also insists oil deals with foreign firms should be fixed-fee service contracts, not production sharing contracts of the type signed by the KRG.

"The pumping will continue at [this] rate...for some days to check the efficiency of the pipelines from Tawke to the network...then we will gradually increase the quantities," Jihad said. He did not say by how much.

On May 25, oil and gas company Addax Petroleum said it expected to start crude exports from its facility, which lies in the Taq Taq oil field in Kurdistan, on May 31.

But an oil-industry source, who declined to be named, told Reuters on May 27 that this might be delayed because Baghdad disapproved of the KRG's plans to ship some of the oil out by truck, instead of waiting for a pipeline to be hooked up.

'Double Standards'

Earlier this month, the Oil Ministry had said it would begin exporting oil from Kurdistan's Tawke and Taq Taq fields, but said it still rejects Kurdish deals with firms like Addax and DNO, which are developing the fields.

It is not yet clear how the firms will receive their cut of the exports, agreed in the production-sharing contracts if Baghdad does not recognize them. The KRG receives 17 percent of Iraq's total state oil revenues from the national budget.

When asked whether Baghdad would pay the companies' their dues, Jihad said simply: "The Iraqi Oil Ministry is committed to exporting the crude from Kurdistan, as it does from [other]...oil fields. All revenues will go to government coffers."

Analysts doubt the KRG would agree to stump up all of the cash for the companies' production share from its own budget.

"It seems like double standards," said John Hamilton, an analyst at U.K.-based "Gulf States Newsletter." "If you take what Shahristani says at face value, the KRG are handing over oil to Baghdad which it basically gets free of charge and all costs are taken out of the [Kurds'] 17 percent. That can't possibly work."

Hamilton said the Iraqi government would most likely pay the firms, but for political reasons could not admit that publicly.

Shahristani faces mounting pressure to act quickly to increase sluggish oil output, running at around 2.3-2.4 million bpd, and turn around an industry in dire need of investment after decades of sanctions, neglect, and war.

Iraq, which relies on oil sales for more than 95 percent of its state revenues, needs exports more than ever as it tries to stretch a budget undercut by lower oil prices.

The Kurdish government had earlier put the expected starting rate from the Tawke field at 60,000 bpd from June 1 through the pipeline, with another 40,000 bpd from Taq Taq soon afterwards.

Kurdish officials estimate there are oil reserves of at least 40-45 billion barrels of crude in the area now recognized as largely autonomous Kurdistan.

Kurdistan last week heralded an $8 billion plan to export natural gas to Europe via the Nabucco pipeline, but Shahristani rejected the deal because it was done without Baghdad's consent.