Iraq's Kurdish government has signed two oil deals with Canada's Talisman Energy as meetings begin in Baghdad over controversial oil issues.
Calgary-based Talisman now has a 40 percent interest in the project operated by WesternZagros, the subsidiary spun off from Marathon.
The production sharing contracts the Kurdistan Regional Government has signed with dozens of international oil firms allow the government to designate a "third party interest" in the project. WesternZagros maintains 40 percent and the KRG 20 percent interest.
Talisman also has signed a two-year service agreement to conduct seismic testing of exploration block K39, with an option to sign a production sharing contract.
The KRG has signed contracts with more than 20 international oil companies as part of its push to explore and develop its prospective oil sector. The northern region was largely neglected by Saddam Hussein, but the KRG deals have resulted in about 10,000 barrels per day of oil production currently.
The moves, however, are considered unilateral and illegal by the Iraqi oil minister and others in the federal government, adding to the disputes between the two governments. Iraq's Oil Ministry claims sole right to sign oil deals, says all but the four earliest KRG deals are illegitimate, and threatens to confiscate any oil produced. It's already blacklisted companies that signed with the KRG from bidding on future oil development deals in the rest of Iraq.
KRG Prime Minister Nechirvan Barzani is leading a delegation to Baghdad now, meeting with a federal government team led by Iraqi Prime Minister Nouri al-Maliki. The agenda includes the draft national oil law, which has been sidelined by disputes over control of the Iraqi oil development strategy.
The KRG contends provinces or regions with oil reserves have the right to decide development, but wide opposition favors maintaining central government control.
"The aim is to push for the creation of a hydrocarbon law which includes an efficient free-market approach, enhancing the private sector, encouraging foreign investment, and securing transparency as its main principles," Falah Mustafa Bakir, head of KRG foreign relations, said in a statement.
There are still disputes as to how much, if at all, to reverse the nationalization of Iraq's oil sector and what role the international oil industry will be allowed to play. Iraq has increased oil production to 2.5 million barrels per day, a half million more than the post-2003 average, and has sent more than 2 million bpd to the global market, according to May averages. Iraq's oil unions, along with a cross-section of Iraqi civil and political society, are urging reinvestment in the once prominent domestic oil sector. Sanctions, Saddam Hussein's misuse and decades of war wore down the Iraqi oil establishment.
The Baghdad talks also will include funding for the Peshmerga, the KRG security forces, and the future of disputed territories, which include oil-rich Kirkuk. The central government also accuses the KRG of signing production sharing contracts that extend into the disputed territories.
Talisman said it will spend $80 million on the WesternZagros project for past costs and a commitment for three wells in the future. It also estimates $10 million to $15 million to explore the K39 block. The production sharing contract option would give it a 60 percent interest.
The company will also pay $220 million in what the KRG is calling "corporate social responsibility." Its investment is aimed at the communities where the oil work is to be carried out. The KRG typically has been mum on details of the so-called signing bonuses and other extra payments. It says it will detail all of the extra payments from its oil deals in coming months.