BMI View : Total's second farm-in to a Kurdish oil block is likely to leave Baghdad seething. The major now faces the very real possibility of losing its 18.75% stake in the southern Halfaya oilfield. While that would clearly be a blow, the gamble for Total is that new Kurdish licences will prove to be far more fruitful. Given recent exploration successes and the KRG's preferential licensing terms, that looks a decent bet.
Iraq's semi-autonomous region of Kurdistan continues to be the focus of intense industry activity despite repeated warnings from Baghdad that oil contracts agreed with the Kurdish Regional Government (KRG) are illegal. The warnings seem to be falling on deaf ears as economic imperatives continue to trump political risks.
In the latest development, oil major Total acquired a 20% interest in the Taza exploration block from Canada's ShaMaran Petroleum for US$48mn. Papua New Guinea's Oil Search will retain operatorship of the licence and its 60% stake, with the regional government holding the remaining 20%.
The deal flies in the face of repeated warnings from Baghdad following Total's farm-in to two Marathon Oil blocks in July 2012 ( see our online service, August 1, 'Total Jumps On Kurdish Bandwagon'). Indeed, local media subsequently reported that the central government issued the French major an ultimatum following that deal, insisting Total cancel the farm-in or face losing its 18.75% stake in the Halfaya oilfield.
|Big Guns Roll In|
This second deal means that Total is now sailing very close to the wind. Indeed, its share in Halfaya could be even more vulnerable than ExxonMobil's West Qurna stake as the US major is the operator, making a recall of its licence slightly more impractical for Baghdad.
Total may be clinging to hopes that the relationship between Erbil and the central government will improve. There have been some encouraging signs. Earlier this month the KRG announced the resumption of shipments to southern Iraq following a long-standing payment dispute with Baghdad. Oil is now flowing again at a rate of approximately 116,000 barrels a day (b/d). However, the diplomatic respite could prove short-lived as Erbil has warned that it will turn off the taps once more if the central government does not meet the KRG's demands.
As a result, Total and Exxon must face the uneasy reality that the two governments are likely to remain at loggerheads, putting both companies' southern Iraqi interests at risk. The gamble for both is that, over the long term, new Kurdish licences will prove to be far more fruitful than existing southern assets. Given recent exploration successes and the KRG's preferential licensing terms, that looks a decent bet.