Blogs & Comment

Interest in Addax and Kurdish oil heating up.

A bidding war seems to be forming up over small Canadian-registered oil producer Addax Petroleum (TSX: AXC), a mid-tier independent oil producer headquartered in Geneva that has recently begun exporting oil from the northern Kurdish region of Iraq.
The company has pioneered a business model that sees it operating in many of the worlds most volatile areas (much of its production comes from Nigeria), but it is attracting new attention for its Iraqi operations, which represents some of the first new oil to come out of the country in the wake of the U.S. invasion.
Addax entered the northern Kurdish area of Iraq through a joint venutre with Genel Enerji, a Turkish company that secured a drilling license from the Kurdistan Regional Government (KRG) earlier this decade. (The KRG is the governing body in the three northernmost provinces of Iraq that are home to the Iraqi Kurds, an ethnic group of mainly Sunni Muslims.)
The Genel/Addax JV, T.T. Op. Co, has been working a patch of highly fractured sandstone known as Taq Taq in Sulaimaniyah province, about 45 minutes outside of Erbil, the ancient city that is the nascent capital of what is now called Kurdistan by locals.
I traveled to Taq Taq late last year (and we will publish a feature on Addax in an upcoming issue of Canadian Business). At the time the company was sinking a series of test wells to see what was down there. The answer it turns out is a lot. All of the test wells the company sunk through the winter came back well above 10,000 barrels a day, while one, Taq Taq 10 came in at an amazing 40,000 barrels a day.
That is an amazing amount to come up from a standard conventional onshore oil well at this point in the history of the oil age, and when I was there one of the roughnecks with experience in the now depleting North Sea was telling the young guys on the crew to enjoy it. You dont see it like this anymore, he said.
The company eventually expects to produce 180,000 barrels a day from Taq Taq. To put that number in perspective, the average oilsands mine gives up about 100,000 a day, but only by using many large trucks, expensive upgraders and lots of labour. Addax will produce that amount with a couple roughnecks, one drilling rig and a whole bunch of natural pressure from newly tapped rich reservoirs of high-quality crude.
But while it appears Addax is sitting on a goldmine, it is also sitting in limbo.
The companys contract is with the KRG, not the central government in Baghdad, and that has been a bit of a gamble, one tied intimately to the nation’s complex politics.
The Kurds were lumped in with the Shia and Sunni Arabs of the south, back when Iraq was created by the western powers in the early ’20s. Since then they have been fighting for whatever bits of autonomy they can carve out in the north. ( Here isa recently declassified U.S. State Department document describing an early meeting between U.S. representatives and legendary Kurd leader Mustafa Barzani).
Considering 95% of Iraqi government revenue comes from oil, maintaining control over the development of the oil in the north is key to preserving Kurd’s autonomy, so it is no surprise they went ahead and signed their own oil deals.
But the KRG contracts angered the central Shia-based government of Nouri al-Maliki in Baghdad, which quickly declared them (and the Addax contract) illegal in 2008. The claim of the central (Shia) government was that only contracts signed through the central Iraqi oil ministry could be considered legitimate.
The ensuing dispute held up progress on Taq Taq and another field, Tawke, that is being developed by Oslo-based DNO International ASA. But a couple of weeks ago some kind of deal was reached, and exports from Taq Taq and Tawke went ahead on June 1.
It wasnt long after the oil began to flow that interest in the companies developing in these fields took off. Another player in northern Iraq, Heritage Oil (also registered in Canada), announced it was making a bid for Genel Enerji, the Turkish company that is in Taq Taq with Addax, while Sinopec, the big Chinese refiner and the Korea National Oil Company, are reportedly preparing bids for Addax.
Addax rose 6.2 per cent on the TSX yesterday as Kurdistan took a big step toward its future as a 21st century Islamic Texas.
Massoud Barzani, the leader of one of the two factions that make up the KRG, speaking at the ceremony marking the opening up of the spigots, was quoted by an Al-Jazeera correspondent as saying that, “It is a historic date, a giant stepWe are proud of this success, and this achievement will serve the interests of all Iraqis, especially the Kurds.”
Why the decision by Baghdad to let the exports go ahead now (even though the exports will happen outside of Baghdads direct control)? That’s hard to say from here in North America. But the Al-Jazeera correspondent suggested the central government has quietly given the go-ahead for the exports out of a need for cold hard cash.
The Kurds have always said they would forward whatever royalties are due Baghdad from any exports they make. Considering total Kurdish exports could eventually reach 250,000 barrels of oil a day, thats a lot of money for Baghdad, which is struggling to get oil production in the south off the ground.