VZCZCXRO4910
OO RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3298/01 2760322
ZNR UUUUU ZZH
O 030322Z OCT 07
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3675
INFO RUCNRAQ/IRAQ COLLECTIVE
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 BAGHDAD 003298 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE FOR NEA-I, EEB for GALLOGLY 
DOE FOR JAMES HART 
 
E.O. 12958: N/A 
TAGS: EPET ENRG ECON IZ
SUBJECT: KURDISTAN REGIONAL GOVERNMENT SIGNS NEW PRODUCTION SHARING 
AGREEMENTS 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET 
 
This is a Regional Reconstruction Team (RRT) Cable. 
 
¶1.  (U) SUMMARY: The Kurdistan Regional Government (KRG) Ministry 
for Natural Resources announced that the Regional Oil and Gas 
Council executed four new production sharing agreements (PSAs) and 
endorsed two new refinery projects in the Iraqi Kurdistan Region. 
The combined initial exploration investment on the upstream projects 
is reported to be approximately 500 million USD.  Estimated 
investment on the two new refinery projects will be around $300 
million.  END SUMMARY 
 
¶2.  (U) In an announcement posted on KRG official website, 
(www.krg.org/articles), the KRG Minister for Natural Resources, Dr 
Ashti Hawrami, announced that the KRG Regional Oil and Gas Council 
approved four new production sharing contracts (PSCs), one with a 
Canadian company, one with a French company, and two with 
unidentified international oil companies.  The Council also approved 
two new refinery projects in the Kurdistan Region. 
 
--------------------- 
New upstream projects 
--------------------- 
 
¶3.  (U) The combined initial exploration investment on the upstream 
projects is reported to be approximately 500 million USD.  The 
Ministry for Natural Resources executed two of the approved PSAs for 
oil and gas exploration and development in the Kurdistan Region.  If 
there are commercial discoveries, the Ministry claims that the 
return/profit will be 85 percent to Iraq and approximately 15 
percent to the contractors. 
 
-- Award of the Miran Block (1,015 square kilometers) in 
Sulaimanyiah Province to Heritage Energy Middle East Limited, a 
wholly owned subsidiary of Canadian listed oil company Heritage Oil 
and Gas.  The Miran Block is a low to medium exploration risk area. 
 
 
-- Award of the Sindi/Amedi Block (2,358 square kilometers) along 
the Iraq/Turkish border to Perenco Kurdistan Limited, a wholly owned 
subsidiary of Perenco S.A., the privately held French oil 
exploration and production company.  The Sindi/Amedi Block is a high 
exploration risk area. 
 
¶4.  (SBU) The KRG announcement added that the signing of the two 
other PSAs was with "experienced international companies" and that 
they would be executed soon.  According to a local industry source, 
Reliance of India is likely to be one of the two. 
 
¶5.  (U) For all four PSAs announced on October 2, the KRG has up to 
a 25% participation interest and the right to assign up to another 
25% to qualified Iraqi and international companies to further 
develop the local economy. 
 
¶6.  (U) The commercial provisions of these contracts, the Hunt Oil 
deal of August 2007, and contracts signed prior to the Kurdistan 
Region Oil and Gas law will reportedly conform to the terms 
published by the KRG on its website on 29 June.  All contracts 
issued by the KRG will conform to the PSA model contract as 
published on June 29. 
 
------------------- 
Downstream projects 
------------------- 
 
¶7.  (U) The KRG announcement says the estimated investment on the 
two new refinery projects will be around 300 million USD.  The KRG 
Minister of Natural Resources said local refining capacity will help 
the Kurdistan Region and the rest of Iraq fight black market imports 
and move from "wasteful fuel subsidies of the federal government, 
and the corruption and crime that goes with them".  The two projects 
are: 
 
--  Miran area Refinery: Heritage has also entered into an agreement 
with the KRG to establish a 50/50 joint-venture company  to build, 
own, and operate the refinery.  The refinery will produce 20,000 
barrels per day and is locatd in the Taq Taq / Miran area.  It will 
be completed within two years.  www.heritageoilcorp.com. 
 
-- Taq Taq Refinery: the Taq Taq field oil project operators, 
Genel/Addas, will fully fund, commission and construct the refinery 
along with other unnamed local and international investors.  The 
refinery is expected to produce another 20,000 barrels per day and 
will be completed within eighteen months. 
 
 
BAGHDAD 00003298  002 OF 002 
 
 
----------------------------- 
COMMITMENT TO REVENUE SHARING 
----------------------------- 
 
¶8.  (U) Dr. Ashti Hawrami reiterated that the revenues from 
commercial discoveries and refinery petroleum products in the 
Kurdistan Region PSCs will benefit all the Iraqi people.  The KRG is 
in continuing negotiations with a number of international oil 
companies, downstream operators and local companies for further 
upstream and downstream projects. 
 
¶9. (SBU) COMMENT: The KRG announcement concluded that the KRG is 
"open for business" and indicates continued pursuit of investment in 
its oil sector by international firms.  These recently announced 
agreements are clearly within the de jure regional boundaries of the 
KRG.  While it is agreeing to share revenues and offer itself as a 
model for investment in the rest of the country, the KRG is 
indicating that it will forge ahead without passage of the national 
hydrocarbon legislation.   However, the parenthetical afterthought 
in the press release, that the KRG wants the Council of 
Representatives to pass the national hydrocarbon framework 
legislation and the revenue sharing law, could mean the KRG has 
already leased all the acreage it wanted to in the short term.  If 
so, it will be difficult for Shahristani and Maliki to swallow 
passage of the laws now.  But they should seize the moment if the 
KRG is ready to pass the February 23 version of the framework law 
and June version of the revenue sharing law, and we could at least 
start moving elsewhere.  END COMMENT.