Rosneft's Kurdistan Bet Expands as Middle East Footprint Deepens

  • Russian company enters production sharing agreements in region
  • Producer signed crude-sales deal with Kurds in February

Rosneft Oil Co. PJSC signed more oil deals with Iraq’s Kurdish region as the state-owned Russian company expands its footprint in the Middle East.

Rosneft and the semi-autonomous Kurdistan Regional Government in Iraq will “develop cooperation in exploration and production,” after they “entered into a number of production sharing agreements,” the Russian company said in a statement on its website Friday. The deal builds on an agreement announced in February for Rosneft’s trading arm to buy Kurdish crude until 2019.

Rosneft is “widening its cooperation with Iraqi Kurdistan across the whole production chain,” Igor Sechin, Rosneft’s chief executive officer and a close adviser to Russian President Vladimir Putin, said in the statement. The agreements “set an example of well-weighed investments in one of the key Middle East regions.”

In the past year Rosneft has bought a 35 percent stake in a major gas project off Egypt and signed a crude-sales agreement with Libya’s national oil company, which has the potential to translate into exploration and production investments.

Rosneft and the KRG signed production sharing agreements with respect to five blocks that have “substantial geological potential,” according to the statement. As part of the cooperation, Rosneft will also get access to the region’s pipeline system that can currently handle 700,000 barrels a day, rising to 1 million by the end of this year.

The deal comes after Russia -- the world’s biggest energy exporter -- extended a pact with the Organization of Petroleum Exporting Countries last week to curb crude production for a further nine months from July in a bid to rebalance the market and boost oil prices. The nation has already forged a closer alliance with OPEC’s largest producer Saudi Arabia, which could include joint ventures on oil and natural gas projects. Iraq is the second-largest producer in the group.

Iraq’s Kurdistan basin has attracted international oil and gas companies because of its low operating costs. Yet those producers initially suffered erratic payments for exports from their financially strained host government amid a fierce battle led by local armed forces against Islamic State and a dispute with the federal government over revenue sharing. Those payments have become more regular in the past 18 months.

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