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OIL COLUMN – Kurdistan to ramp-up oil exports despite ongoing conflict

Published: 02:30 21 Jun 2014 EDT

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The ongoing conflict in Iraq could lead to less dependence on Baghdad by semi-autonomous region Kurdistan, which is planning a ramp-up in its oil exports.

So far Baghdad’s attempts to scupper export plans have failed and the ties between Kurdistan and Turkey have strengthened, as the latter has allowed oil exports through its pipeline.

The Kurdistan Regional Government (KRG) is already exporting 125,000 barrels per day through the Iraq-Turkey pipeline (ITP) and plans to increase that next month to between 200,000 and 250,000 barrels.

US broker Citi reckons Kurdistan is on track to reach its target of 400,000 barrels a day by the end of the year.

All of this also has a positive read-across for companies operating in the region, it adds.

Analyst Michael Alsford notes that as yet oil and gas operations in Kurdistan have been unaffected apart from some step up in security by some operators.

"Following the loading and sale of two oil cargoes from Ceyhan in Turkey, the KRG expects two further cargoes to be loaded this week, despite Baghdad filing for arbitration against Turkey to halt all oil exports from Kurdistan.

"While the duration and ultimate outcome of the conflict in Iraq remains uncertain, we believe that if the KRG is able to secure a stronger political position, it could lead to greater autonomy/ independence from Baghdad."

Alsford added that sustainability of oil exports from Kurdistan ultimately lay with either a permanent deal with Baghdad or establishing the Kurdish region as an independent sovereign state - both of which could occur soon.

Baghdad's weakened military and political position provides Kurds with further leverage on ongoing discussions on Kurdish exports," he said, adding this was further reinforced by territorial gains made by the Kurdish military on the oil city of Kirkuk in northern Iraq - a disputed area.

Citi reckons Genel Energy (LON:GENL), Afren (LON:AFR), both rated 'buy', and DNO ('neutral') are the most exposed to Kurdistan in its coverage.

DNO and Genel alone plan to expand the production capacity at the Tawke and Taq Taq fields to 200k b/d by the end of 2014, it said.

"Over the medium term, the KRG plans to build blending stations along the pipeline, one possibly in the Afren-operated Barda Rash block and another in the Gulf Keystone operated Shaikan block, as well as extra pumping capacity, which could increase pipeline capacity towards 1m b/d.

"In addition to the material increase in production capacity planned at Taq Taq and Tawke, we believe the delivery of sustainable oil exports through the KRG export pipeline will accelerate the declaration of commerciality at a number of additional developments over the next 12-18 months."

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