Kurdistan’s oil sector may have crossed the tipping point with a wall of crude set to flow from the region, according to research house Edison.
Previously the objections to investing in Kurdistan centred on the political tensions between the Kurdistan Regional Government and the central Baghdad government.
But four of the top ten major oil companies are now active in the region and it will soon be easier to list the large companies not in Kurdistan, says Edison.
If you measure political risk by the positioning of the majors, it is now beyond the tipping point, it says.
There is a wall of oil coming and politics will have to bend to economics in the long term, it believes.
No one doubts the potential of the region with exploration success over 70 per cent. Current production capacity is 200,000 barrels per day (mmbd) and investments in Taq Taq and Tawke will increase this further.
Beyond this, Gulf Keystone’s (LON:GKP) Shaikan (13.7bn bbls OIP) will soon start extended well testing, as will discoveries Akri-Bijell, Atrush, Bina Bawi and Miran.
Recent discoveries have the potential to increase the production output to 2 mln barrels daily by 2019 according to the KRG (total current Iraqi production is c 3 mln).
Of the majors, Exxon, Chevron, Total and Gazprom have all recently signed deals with Kurdistan, while Statoil has publicly announced it is looking at the region.
The absentees among the giants are Sinopec, Petrochina, Shell, Petrobras and BP.
If a Chinese company enters, Edison believes Baghdad’s position against the KRG would become transparently untenable.
It argues anyway that a solution is now inevitable with the recent agreement between Turkey and KRG on oil exports the key.
The additional money that would accrue to Iraq from extra oil production in the mid-term would be significant and the technical challenges of adding capacity in Kurdistan are surmountable, the research house says.
However, even without a formal deal, Edison believes it is time for investors to flolow the lead of the majors and take another look at Kurdistan.
Aside from Gulf Keystone other medium-sized London-listed players in the region include Afren (LON:AFR), Petroceltic (LON:PCI), Genel (LON:GENL).