Kuwait Energy Eyes Strong Ties With Baghdad

Kuwait Energy says it is firmly fixed on pumping gas and finding oil in southern Iraq and will not risk aggravating Baghdad by seeking contentious deals with the northern autonomous region of Kurdistan.

Sara Akbar, chief executive of Kuwait Energy, says strong ties with Baghdad are core to its strategic investment in southern Iraq.

“It’s very simple. From the beginning, our ambition was to be able to develop gas in Iraq and to export some of that gas to Kuwait,” she said in an interview.

Oil majors Exxon Mobil and Total, at work on giant projects in the south, have upset the central government by signing exploration contracts with the Kurdistan Regional Government (KRG) – deals Baghdad regards as illegal.

The contracts have increased tension between the central government and the Kurds in a long-running dispute over oil, territory and political autonomy.

The export of Iraq’s gas is still sensitive because, nearly a decade after the U.S.-led invasion, Baghdad still can supply only a few hours of power each day.

“The time is not right now (for exporting gas to Kuwait), because Iraq needs gas for itself,” Akbar said.

“In the future, we hope to be able to do so. And for that, we need our relationship to strengthen and develop with Baghdad. And that will achieve our objective rather than working against them and being in Kurdistan.”

OPEC member Iraq is expected to be the world’s biggest source of new energy supplies over the next few years. It plans to open up more rounds of auctions for oil and gas blocks.

And Akbar said Kuwait Energy, which already has an oil exploration block, will go after more rights to look for gas.

Iraq played a fleeting role as gas exporter to Kuwait from the mid-1980s until it invaded its neighbour in 1990. The retreating Iraqi army set fire to Kuwaiti oil wells, and Akbar, a petroleum engineer, joined the firefighting squads to put out the flames.

More than two decades on, the two countries are moving to deepen ties across the energy sector. Kuwait Energy made a big push during Iraq’s third licensing round in 2010, banding together with Turkish state-owned oil company TPAO to win a contract to develop the southern Siba gas field, near the Kuwaiti border.

It also secured a stake in a gas field project at Mansuriyah in the restive Diyala province near Iran, where TPAO is operator.

For its part, Iraq hopes eventually to restart exports to Kuwait, which is now buying gas from multinationals, and the non-associated Siba gas field in Basra province could provide a new opportunity.

“From an economic point of view, it’s a very logical project that will tie the two countries together,” said Akbar, who spent a decade working in the oilfields of Kuwait.

Production from Siba and Mansuriyah is on track to start up in the first half of 2014. The company plans “heavy expenditure for Iraq this year and next”, she said.

About $400 million will be spent over the next two years to drill wells and build pipelines and surface facilities at the gas fields.

A further $125 million is targeted for fast track exploration at Block 9, which Kuwait Energy snared in last year’s fourth licensing round. Dragon Oil PLC is its minority partner in the promising southern oil block, which straddles the border with Iran.

As Iraq’s diplomatic ties soured with Turkey, it asked Kuwait Energy to acquire the shares in Block 9 from TPAO, which the cabinet decided to expel.

Baghdad has been angered by Ankara’s moves to forge closer ties with the KRG, including serving as an outlet for Kurdish oil exports.

The KRG offers foreign investors production-sharing deals that allow them to profit jointly from output. Iraq has offered less attractive service contracts in which companies are paid a fee.

Akbar said she did not expect Baghdad to force TPAO out of fields such as Mansuriyah and Siba where it’s already at work.

“I don’t think the existing projects will be affected,” she said. “We hope for things to work out between the two parties and for TPAO to be able to come back to the block and expand their operations in Iraq.”

Just seven years old, home-grown Kuwait Energy, based in Kuwait City, has already established a presence in the Middle East and North Africa.

Its core producing assets are in Egypt, while it has exploration blocks in Yemen that show potential and has taken new blocks in Afghanistan with TPAO, Dragon Oil and the Afghan Ghazanfer group.

“We are from the region. We know how to navigate our way through the uncertainty and the risky times,” Akbar said.

The path may yet lead Kuwait Energy to Libya.

“We decided to go there and establish ourselves, develop relationships, study the fields and do whatever is necessary so when the country is ready – we are ready as well,” the chief executive said.