Kurdistan, the self-governing region of northern Iraq, is poised to realize a gusher in revenue from its oil fields. Estimated reserves of about 45 billion barrels of crude have piqued the interest of several of the world’s largest oil companies. Although getting crude out of the country has until now been a challenge, the opening of a pipeline into Turkey at the start of 2014 will make it significantly easier to get the oil to markets. “We’re looking at multibillion barrels,” says Dougie Youngson, an analyst at VSA Capital in London. “The operators are sitting on huge resources that they want to start commercializing.”
Once it gets going, the pipeline, built and owned by the Kurdistan Regional Government, could result in exports of about 400,000 barrels of oil annually, according to the government. The output will jump to 1 million barrels a year by 2015, and 2 million barrels by 2019, says Ashti Hawrami, Kurdistan’s minister of natural resources. Such estimates have prompted ExxonMobil (XOM), Total (TOT), Chevron (CVX), and Gazprom (GAZP:RU) to sign exploration agreements with the government. If it were a country, Kurdistan would rank 10th among the largest oil-holding sovereigns in the world. It produces about 200,000 barrels per day, with 50,000 of that exported to Turkey by truck. Southern Iraq’s oil fields pump out about 3 million barrels per day.
The substantial reserves will help meet increasing global demand at a time when three of the largest producers—Venezuela, Iran, and Saudi Arabia—are closed to many Western oil companies. “Iraq is the only country in the world where you can put a pipe in the ground and the oil starts flowing,” says Maria van der Hoeven, executive director of the International Energy Agency. “It’s the last easy oil.”
Kurdistan’s oil fields do have their political complications. Exxon and Total—both active in southern Iraq—face increased tensions with the central government in Baghdad given a long-standing dispute between Iraq and the Kurds over control of the northern oil fields and export revenue. In September, Hussain al-Shahristani, Iraq’s deputy prime minister for energy affairs, called Exxon’s intention to explore in the region a “serious error.”
But the upside of easy oil outweighs the risks of upsetting Baghdad, for large and smaller producers alike. “This is transformational for both Kurdistan and Genel,” says Tony Hayward, the former chief executive officer of BP (BP) who was appointed CEO of Genel in November 2011. The Turkish company is one of two foreign explorers, along with Norway’s DNO International (DNO:NO), operating in Kurdistan and trucking out its exports. The pipeline, Hayward says, will give Kurdistan greater control over its exports and access to more markets. “For us,” he adds, “not only will we get higher realizations, we’ll get much greater volumes. It allows us to unleash the capacity we already have and to build a lot more capacity.”