Several companies are bullish on Iraqi Kurdistan, but they’ll have to get past Baghdad first.

Oil-rich Kurdistan is never short of adventure for petroleum explorers and wannabe producers, who have been gathering for the last five or so years in this challenging autonomous northern Iraqi region, an ancient, massive tribal territory that reaches into parts of Turkey, Syria, and Iran.

If Kurdish geography is not confusing enough, try following the fiery, ongoing tussles between Iraq’s official central government in Baghdad and the relatively young Kurdistan Regional Government (KRG) concerning where players get to operate.

Iraqi Kurdistan’s recent oil discoveries present a complicated situation as well.

Current best estimates place approximately 45 Bbbl of crude oil under the bleak, rocky expanses of the region.

By anybody’s measure, this presents great oil-to-money conversion potential – but just who will cash in, how, and when are major questions among relevant players region-wide.

The Financial Times introduced the autonomous region’s resource situation in a Dec. 10, 2012, special report that included an interview with Richard Lowe, Gulf Keystone’s drilling manager. “Richard Lowe faces a dilemma most oilmen can only dream about: What on earth is he to do with 14 billion barrels of crude?” the paper noted. “Mr. Lowe’s company, a small London-listed explorer … found the oil in question in Shaikan, in Iraqi Kurdistan, in 2009. It was one of the world’s largest onshore discoveries in more than 20 years. Stretching for miles under a ridge of brown, rugged hills near the Turkish border, Shaikan is huge. Yet its sheer size is problematic.”

As Lowe said in the article, “The big question is – where do you start? The field is almost too big.”

Shaikan is only one mammoth oil field that makes the political and business chaos over Iraqi Kurdistan’s 21st century oil rush worthwhile to giants like ExxonMobil, Chevron, Total, and a host of other majors and independents. Products range from very light Saudi and other sweet crudes to super-sour, sulfur-filled crude, which is now proving to be plentiful in Kurdistan and surrounding areas.

One unwanted surprise in many Kurdish finds is that the crude oil is full of highly poisonous sulfur dioxide. This generally means difficult production and later refining challenges as well as a likely future as low-end products such as asphalt and bunker fuel.

Awaiting a decision

Iraqi Kurdistan has yet to acquire a boomtown look or feel, even for ExxonMobil. The oil giant got humbled by Baghdad’s central government, which last week made it even clearer that it wants dibs on the supermajor to play in official south Iraqi oilfield territory.

The recent incentive for ExxonMobil, which since 2011 has been straddling big oil blocks on both sides of the regional border, involved central Iraq’s prime minister, Nuri al-Malaki, calling a meeting with ExxonMobil CEO Rex Tillerson.

According to regional and international wire service reports, Malaki was said to have dangled incentives for the US oil giant to remain in the West Qurna 1 oil field in Iraq’s southland territory, which sits under central Iraqi purview.

Last year ExxonMobil signed up for six prime oil exploration blocks with the Kurdistan regional government. This escalated longstanding friction between the northern Kurdish zone and the traditional Iraqi southern territory. The Baghdad-led central Iraqi government maintains that only it has the authority to grant oil contacts and control crude exports.

A final decision is expected soon, according to reports from the office of Iraqi Oil Minister Abdul Kareem Luaibi last weekend. As of press time ExxonMobil had no comment on the pending decision.

ExxonMobil’s securing the Kurdish blocks in 2011 paved the way for Chevron, Total, and Gazprom Neft to venture into the disputed Kurdistan area. For instance, three of ExxonMobil’s blocks are located in oil-rich zones over which both Baghdad and the Kurds claim jurisdiction, with the central Iraqi army and Kurdish troops poised there to keep the drama high for some time to come.

Barbara Saunders, Special to E&P