#Kurdistan is doing very (#oil) well, thank you #MasterEnergy @BloombergMrkts

With the new pipeline, oil production should grow to 1MM bopd in 2015

Tony Hayward Gets His Life Back as Kurdish Pipeline Opens

Photographer: Sebastian Meyer/Bloomberg Markets

A rig drills into Kurdistan’s rich Taq Taq field, where production is
expected to increase as more and more oil flows through the new

Erbil, the regional capital of Iraqi Kurdistan, has all the trappings
of an oil boomtown. It bristles with construction cranes. Land Cruisers
and Range Rovers with tinted windows ply the busy streets. Oil workers
and briefcase-bearing foreigners crowd into the Divan Erbil Hotel’s
piano bar.

At the foot of the 8,000-year-old Citadel — which
claims to be the oldest continuously inhabited town in the world —
currency traders in the central market swap dollars, euros and Turkish
liras for Iraqi dinars out of glass boxes on the sidewalk. Shoppers
flock to Erbil’s Family Mall, which features stores such as French
hypermarket operator Carrefour SA (CA) and Spanish clothing chain Mango.

the opening of a new oil pipeline this year, the boom is getting a
boost, Bloomberg Markets magazine will report in its June issue. Crude
that used to be transported by truck across the rugged, mountainous
terrain of the three northern provinces known as Iraqi Kurdistan began
flowing in stages through the pipeline in January.

The conduit,
built by the Kurdistan Regional Government, or KRG, runs about 400
kilometers (250 miles) from Khurmala, southwest of Erbil, to the Turkish
border, where it connects with an existing link to the Mediterranean
port of Ceyhan. Oil that sells for about $70 a barrel domestically could
fetch $100 or so in world markets.

Soaring GDP

The KRG said in October that an
average output of 400,000 barrels a day in 2014 could jump to 1 million
barrels by 2015 and twice that much by 2019. For 5.2 million Kurds in an
area roughly the size of Switzerland, the influx of foreign investment
and rising oil-related income promises an improving standard of living
as the rest of the country remains mired in sectarian violence.

KRG’s Ministry of Planning forecasts that the economy will grow 8
percent a year through 2016. Since the KRG began selling oil contracts
to foreign investors in 2007, per capita gross domestic product in
Kurdistan has soared; it hit $5,600 in 2012, up from $800 10 years ago.

The boom has also benefited oil exploration companies,
especially those that placed early bets. Beginning with the 1980 to 1988
War, the development of natural resources across all of Iraq, including
the north, was virtually on hold for more than two decades.

Fractious Leadership

because a series of full-blown conflicts and internecine clashes
preoccupied first Saddam Hussein and then the fractious leadership in
Baghdad that followed his ouster by U.S. and U.K. coalition forces in

Since then, almost daily clashes in the south have pitted the
Shiite majority that dominates Iraq politically today against the Sunni
minority that held sway under Hussein. In the north, the population is
overwhelmingly Sunni and relatively free of sectarian strife. In fact
sheets for foreign investors, the KRG says that no coalition soldiers
have been killed and no foreigners kidnapped in Iraqi Kurdistan.

Todd Kozel, chief executive officer of Hamilton, Bermuda–based Gulf Keystone Petroleum (GKP) Ltd., came to Iraqi Kurdistan three years after the 2003 invasion.

“If you were an oilman in 2006, with oil in your blood, you
just had to be here,” he says, sipping Johnnie Walker Black Label at the

Highly Rewarded

Pittsburgh-born Kozel, 47,
says he saw opportunity in a land where high risk would be highly
rewarded. And it was. Since Gulf Keystone discovered oil at Iraqi
Kurdistan’s Shaikan field in 2009, its market value has grown to about 1
billion pounds ($1.66 billion) from about 50 million pounds.

Todd Kozel, the CEO of Gulf Keystone Petroleum, placed an early bet on Kurdistan's oil riches, arriving in the north three years after the 2003 invasion of Iraq. Photography: Courtesy of Gulf Keystone Petroleum

Kozel, the CEO of Gulf Keystone Petroleum, placed an early bet on
Kurdistan’s oil riches, arriving in the north three years after the 2003
invasion of Iraq. Photography: Courtesy of Gulf Keystone Petroleum

The first foreign exploration firm to come to Kurdistan — in 2004 — was Oslo-based DNO International ASA. (DNO)
Chairman Bijan Mossavar-Rahmani says in his London office that DNO
plans to increase output from its Tawke field to about 200,000 barrels a
day this year from about 125,000 in 2013, showing how companies will
hike production when their oil can be sold at higher world-market

Former BP Plc (BP/)
CEO Tony Hayward came to Kurdistan after the 2010 Deepwater Horizon oil
rig explosion in the Gulf of Mexico cost him his job as BP’s chief
executive — in part because of a string of public relations fiascoes
that included his saying “I would like my life back” to a group of
reporters while touring an oil-slicked beach in Louisiana.

Photographed in London, Tony Hayward, the CEO who left the oil giant BP after the 2010 Deepwater Horizon rig explosion in the Gulf of Mexico, joined forces a year later with British financier Nathaniel Rothschild to acquire a Turkish firm already operating in Kurdistan. Photographer: Daniel Stier/Bloomberg Markets

in London, Tony Hayward, the CEO who left the oil giant BP after the
2010 Deepwater Horizon rig explosion in the Gulf of Mexico, joined
forces a year later with British financier Nathaniel Rothschild to
acquire a Turkish firm already operating in Kurdistan. Photographer:
Daniel Stier/Bloomberg Markets 

In 2011, Hayward joined forces with British financier Nathaniel
Rothschild to acquire a Turkish firm already operating in Kurdistan.
The firm, renamed Genel Energy Plc (GENL),
says it’s poised to raise production at Taq Taq and other fields to
70,000 barrels a day this year from 44,000 in 2013. On May 8, Hayward
was named chairman of Glencore Xstrata Plc (GLEN), the mining company that is also one of the world’s biggest crude traders.

‘Frontier Types’

Since 2011, four big oil companies — Chevron Corp., Exxon Mobil Corp., Hess Corp. and Total SA (FP)
— have followed 30 or so smaller players into Iraqi Kurdistan and
signed exploration deals. Hayward, whose career straddles oil majors and
minors, says the pattern is a familiar one.

“There are lots of
entrants early on, the real frontier types,” Hayward says in his London
office. “Then the big guys arrive, and there’s consolidation. If you’re a
little guy, you have to get there early.”

The oil boom is
transforming a part of Iraq that ethnic Kurds throughout the South
Caucasus and Middle East consider their homeland. Unlike Kurdish
enclaves in Iran, Turkey, Syria and Armenia, Iraqi Kurdistan is self-ruled, having gained autonomous status in a 1970 agreement with the central government in Baghdad.

Changing Relations

it defers to the government on most external affairs such as treaties
and membership in international organizations, the KRG has its own
parliament, issues its own visas and has its own army, the Peshmerga,
meaning “those who confront death” in Kurdish.

Oil is also
changing relations between Iraqi Kurdistan and the central government in
Baghdad. They’ve been tense for decades — never more so than in the
closing days of the war with Iran, when Hussein’s forces launched a
chemical attack on the Kurdish city of Halabja, killing as many as 5,000
people in retaliation for collusion between Kurdish and Iranian

In 1991, at the end of the first Gulf War, the U.S.
and its allies established a safe haven in Iraqi Kurdistan enforced by a
no-fly zone. While the no-fly zone effectively created a buffer between
the Kurds and their masters in Baghdad, accelerating economic
development in the north, the north-south dispute over oil carried on.

State Oil Marketing Organization maintains that it has exclusive rights
to the sale of Iraqi Kurdistan’s oil, whether it flows through the new
pipeline or through pipelines outside of Iraqi Kurdistan.

Unanswered Questions

December, the KRG agreed to work with the central government in Baghdad
in determining how to distribute revenue from Kurdistan oil exports,
though a lot of questions remain unanswered, according to Sanford C.
Bernstein & Co. in a note published on April 29.

“The resource base is too big for a solution not to be found,” analysts led by Hong Kong–based Neil Beveridge wrote.

new pipeline, fully in KRG territory, should make it easier for
Kurdistan to overcome central government resistance and get its oil to
market, says Gareth Stansfield, a senior associate at the Royal United Services Institute, a London-based research organization.

the Kurds are able to pump the amounts of oil they’re promising, then
this is a fundamental geopolitical game changer,” Stansfield says. “It
gives the Kurds economic independence from Baghdad.”

‘Wasting Time’

Iraqi Kurds want more than that: Almost 60 percent of those surveyed
supported statehood in a 2012 poll by the Kurdistan Institute for
Political Issues.

“We’re wasting our time trying to deal with
Baghdad,” says Davan Yahya Khalil, a Kurdish writer who grew up in an
internment camp when Hussein was in power. “It’s better to call for
independence today.”

Iraq ranks fifth in the world in proven oil
reserves — 150 billion barrels, according to the BP Statistical Review
of World Energy 2013. The KRG says Kurdistan alone — comprising less
than a 10th of Iraqi territory — holds 45 billion barrels. If the
autonomous region were a country, its reserves would rank it 10th in the
world, after Libya, according to BP.

While oil production has
soared in the north, slower output in the war-torn south has kept
Iraq-wide production low: Only in recent months has output reached 1979
levels of 3.62 million barrels a day, according to OPEC.

Complex Bureaucracy

hassles of dealing with Prime Minister Nouri al-Maliki’s Baghdad
government compound sluggish production in the south, says Paolo
Scaroni, CEO of Eni SpA, Italy’s biggest oil company. Eni is one of several large companies, including BP and Royal Dutch Shell Plc (RDSA), operating in the south.

“We’re suffering from a lot of complex bureaucracy,” Scaroni says.

had planned to invest $7 billion this year in developing its oil
business in the south; it will end up spending only $3 billion, he says.

In the north, it’s a different story. Genel has been shipping
crude to Turkey by truck, with 700 tankers rolling out of its Taq Taq
field every day. With the new pipeline expected to be fully up and
running later this year, the company says it’s poised to take advantage
of the new transportation capability by increasing production.

KRG’s Ministry of Natural Resources says its goal is to transport
300,000 barrels a day by the end of the year via the pipeline, shifting a
sizable portion of exports away from tanker transport, not to mention
pipelines controlled by the government in Baghdad.

‘Safe, Secure’

who visited southern Iraq as the head of BP from 2007 to 2010, says he
was impressed by the contrast between Erbil and Baghdad when he first
traveled to the north in 2011.

“The thing that really struck me
was the amount of development that was taking place,” Hayward says of
Erbil. “It felt safe, secure and prosperous.”

Oil is also helping to change the relationship between Turkey and Iraqi Kurdistan.

in the 1980s, the Kurdistan Workers’ Party, known by its Kurdish
acronym, PKK, began an armed struggle against the Turkish government.
Turkey was wary of Iraqi Kurdistan as a staging area for PKK
paramilitaries seeking to establish an independent Kurdish nation in and
around northern Iraq.

Genocidal Attacks

In 2003,
Turkey, though a NATO member, refused to allow U.S. troops to invade
Iraq from the north through Turkish territory partly out of concern the
invasion would, in toppling Hussein and a regime that had oppressed the
Kurds, promote Kurdish independence movements. The PKK and the Turkish
government agreed to a cease-fire in March 2013, easing tensions.

“Turkey’s been a big help,” Gulf Keystone’s Kozel says. “All our drilling rigs come through there.”

Kurds — fearing their enemies, distrustful of neighboring governments,
victims of Hussein’s genocidal attacks — are used to doing whatever
they can to determine their destiny, Hayward says.

“It’s clear
as the Kurds get more and more production and infrastructure, they’re
just going to do their own thing,” he says. “As they like to say, ‘We
have no friends but the mountains.’”

Kurdistan has made Kozel a
wealthy man. Gulf Keystone, which operates almost exclusively in Iraqi
Kurdistan, has paid him a base salary of $675,000 since 2008, with
varying bonuses. By 2011, his total compensation had soared to $22.2
million, according to company reports.

‘Biggest Risk’

in the Divan’s piano bar on a February evening, Kozel, who started his
first oil company when he was 21, reflects on how far he and Gulf
Keystone have come.

“Our biggest risk when we entered here in
2006 was logistics,” he says. “We imported literally every single thing
we needed — equipment, people, products.”

He says it wasn’t a gamble everybody was willing to take.

“I guess I was just a bit less risk averse than most,” he says.

same could be said for other investors who came early to this corner of
Iraq — and whose bets on Kurdistan are also paying off.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net

To contact the editors responsible for this story: Stryker McGuire at smcguire12@bloomberg.net Jonathan Neumann

Tony Hayward Gets His Life Back as Kurdish Pipeline Opens – Bloomberg


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