DNO’s Iraqi Kurdistan crude output continues to recover

Market: Crude oil
19/12/23

Norway-based independent DNO said crude oil production from its Tawke licence in Iraqi Kurdistan is continuing to recover, following the total shut-in of production from the semi-autonomous region in the second quarter because of the closure in late March of the export pipeline to Turkey.

DNO said today that production from its Tawke licence, which comprises the Tawke and Peshkabir fields, has averaged 90,000 b/d in December so far, up from an average of 26,000 b/d in the third quarter. DNO said the increase means production at the licence is on course to average 65,000 b/d in the fourth quarter.

DNO holds a 75pc operating stake in the licence, with partner UK-listed Genel Energy holding the remaining 25pc.

The sustained ramp up since the third quarter has lifted output to less than 20,000 b/d below 2022 production, which DNO put at 107,000 b/d. Peshkabir delivered 62,000 b/d of this production, and Tawke 45,000 b/d.

With the Iraq-Turkey pipeline [ITP] pipeline still closed, like other foreign operators in the region, DNO and Genel have been directing much of their production to the local market at significant price discounts.

DNO said today its share of the production from Tawke is being sold to local buyers at prices in "in the low to mid-$30s per barrel", but highlighted significant savings when it comes to its production operations that have helped soften the financial impact of the export shut-in.

"These are resilient fields and DNO is a resilient company," the company's executive chairman Bijan Mossavar-Rahmani said. "Even with local sales prices as low as half of those realised from export sales through Turkey, strong production generates material free cash flow for DNO."

The closure of the export pipeline to Turkey in March has removed in the region of 470,000 b/d of Iraqi Kirkuk blend crude from international markets, 400,000 b/d of which was controlled by the Kurdistan Regional Government (KRG). The rest was controlled by the federal government in Baghdad.

Turkey ordered the closure of the pipeline after an international arbitration ruling said it had breached a bilateral agreement with Iraq by allowing Kurdish crude to be exported without Baghdad's consent.

Talks about how and when to restart pipeline flows have been underway since June, but progress has been slow.

Turkey said in October that the pipeline was technically ready to operate. But a dispute between Baghdad and the KRG has prevented a restart, with differences over existing contracts held by foreign oil companies operating in the Kurdistan region ꟷ specifically around payments to the companies ꟷ proving a key hurdle.

Iraqi prime minister Mohammed Shia al-Sudani suggested last week that Baghdad would make changes to its federal budget law in an attempt to help bridge the gap and overcome that hurdle. But questions remain still as to whether that will be enough.

For its part, Mossavar-Rahmani said DNO "remains confident" that the current stalemate "will be resolved" and underlined the company's commitment to "growing our business in Kurdistan as we have over the past two decades."

By Nader Itayim

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