DNO sees ‘exciting’ opportunities for unblocking Kurdistan oil as dynamics shift

Oil producer DNO sees exciting potential for unblocking exports from Iraq's Kurdistan region and to invest elsewhere in the country, with the US government "pushing hard" for a pipeline reopening, executive chairman Bijan Mossavar-Rahmani has said.

It comes as Oslo-based DNO pursues a North Sea upstream purchase of Sval Energi aimed at reducing its reliance on northern Iraq, where it was responsible for 108,000 b/d of production in 2022 before a collapse in pipeline exports.

The main export pipeline from northern Iraq through Turkey to the Mediterranean has been closed since March 2023 in a legal dispute over -- among other things -- who has the right to sell oil produced in the Kurdistan region in northern Iraq.

Discussing first-quarter corporate results on May 15, DNO said it now receives just $35/b for its Kurdish crude, although payments are made in advance, avoiding the delays it has suffered in the past, including debts still outstanding from the pandemic period.

Mossavar-Rahmani said DNO wanted to invest more in its Tawke and Peshkabir fields in the Kurdistan region, and highlighted a number of ways in which the situation could improve. He pointedly noted that Norway had its own problems, describing the pace of projects there as slow and cumbersome, and saying DNO's Iraq know-how could be beneficial in Norway.

DNO could expand in Iraq to areas beyond the control of the regional authorities in Erbil as the export issue is resolved, Mossavar-Rahmani said. "I think there will be a different regime in terms of the use of the pipeline," he said, noting a number of factors, including elections approaching in November, the expiry of the contract governing the use of the pipeline to Turkey in 2026, and what he said was progress on legal recognition of production sharing contracts in Iraq.

"The US government is very involved in those discussions [between Erbil and Baghdad] and pushing hard for the pipeline to reopen," he told investors. "Some of the geopolitical issues will go away" as a result of the current pipeline contract ending next year, he said.

On the potential to broaden out its investment in Iraq, Mossavar-Rahmani said: "Kurdistan has been very good to us, there's a lot more to be found and produced in Kurdistan, but the mother lode, as they say -- the big oil and gas reserves -- are south of Kurdistan."

"We've been successful in the north, we know the culture, we know the geopolitics, we know the reservoirs, we know the challenges. I think we're very well placed to also go south."

Election approaching

Mossavar-Rahmani argued that the elections in November could help unblock the conflict between Baghdad and the Kurdistan Regional Government. "The interesting election for us is the one in Baghdad," he said. "That will affect the tone and tenor of the discussions between Erbil and Baghdad."

The outcome of the vote is highly uncertain—it took a year for Iraq to form a government after the last elections in 2021—but there are some expectations that Kurdish politicians could strengthen their hand with a more unified stance.

Analyst Shwan Zulal, managing director of Carduchi Consulting, played down the elections as being decisive for oil flows through Turkey, highlighting Iraq's prickly relations with Ankara and arguing that current Prime Minister Mohammed al-Sudani would be reluctant to make perceived concessions to Turkey.

However, a solution could still be imminent as Iraq feels freer to increase oil sales thanks to the decision of the OPEC+ producer group to ease its cuts, he said. Budgetary pressures could also change the dynamic, Zulal argued, saying oil prices in the low-$60 range were below Iraq's budgetary needs.

Being able to export 250,000 b/d of KRG crude through the pipeline to international markets would go a long way to covering Baghdad's salary payments to the KRG, Zulal added, estimating current monthly transfers to the region at around $500 million.

A deal could be achieved as soon as the next couple of months, he said. However, "Iraq wants to make sure that when it happens, it happens on Iraqi government terms," likely involving some changes in pipeline fees, Zulal said.

Alternative routes

Mossavar-Rahmani argued that in addition to seeking the reopening of the Iraq-Turkey pipeline, an expected improvement in ties between Erbil and Baghdad could also facilitate exports south to the Persian Gulf.

With sanctions regimes changing, there were other opportunities, including potential exports via Syria, or even Iran, depending on the outcome of recent political negotiations, he said.

"Now that the US is removing sanctions on Syria, perhaps some of the old Syrian pipelines to the Mediterranean, which weren't in use - some of them maybe in disrepair - will be repaired and oil can flow in that direction," he said.

"I see opportunities, both without these geopolitical fixes -- and I also see these geopolitical fixes happening very rapidly -- and that would be an opportunity," Mossavar-Rahmani said.

As yet, Syria's potential to repair aging oil infrastructure that might benefit Iraq remains uncertain. New Syrian President Ahmad al-Sharaa was not expected at an Arab League summit in Iraq over the weekend due to divisions over his past links to al-Qaida.

Zulal cautioned that the investment needed in Syrian pipelines would depend on the country being seen as politically stable, and risks to Syria's stability could increase rather than decrease as it receives greater financial inflows thanks to the easing of sanctions announced by the US in recent days.