South Korea says oil deals reached with Iraq's Kurds

Media reports from Seoul say a Korea National Oil Corp.-led consortium has signed oil contracts with Iraq's Kurdistan Regional Government.

The contracts were not verified by the KRG, which typically issues announcements when oil contracts are signed.

It has signed more than 20 production-sharing contracts since 2004, despite criticism from the central government in Baghdad, which claims regional and other local governments have no right to sign deals in the oil and gas sector. SK Energy, South Korea's largest refiner and partner in a 2007 oil exploration and development deal signed between KRG and a KNOC-led consortium, was cut off from oil supplies by Baghdad in retaliation.

The Yonhap News Agency reports KNOC will have direct or buy-in rights to eight oil exploration blocks in the three northern Iraq provinces that constitute the KRG. South Korea will direct $2.1 billion in construction and development projects as part of the deal -- $600 million first and the rest when oil starts flowing from the investments, which is more than three years away.

The contract is the result of a memorandum of understanding reached in June, Yonhap reports, and could be traced to reports in February that the sides had reached an agreement on terms.

Often the KRG will settle on terms with a lead development firm, but delay announcing until third-party companies or other lower-level details are finalized, KRG Natural Resources Minister Ashti Hawrami explained to United Press International during a June interview in his Erbil office.

Business Intelligence-Middle East reports KNOC will be the lead company in the exploration and production of oil in the Qush Tappa and Sangaw South blocks and will buy into six other blocks needing third parties.

Iraq has 115 billion barrels of proven oil reserves and estimates of more than double to be discovered. Little of it has been found in the provinces controlled by the KRG due to underinvestment in Kurdish territories by Saddam Hussein.

Since his overthrow, the country has faced an internal debate over whether the oil strategy should be centrally controlled, as well as whether foreign oil companies should be allowed in.

These disputes have stalled new legislation governing the oil sector, prompting the KRG to pass a regional oil law and the federal Oil Ministry to begin offering oil and gas fields to international bidding.

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Ben Lando, UPI Energy Editor

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(e-mail: blando@upi.com)