Rosneft enters Kurdistan

The Russian company will pay Erbil up to $400 million for the conclusion of the production sharing agreement. 
Rosneft agreed with the government of the Iraqi Kurdistan (an autonomous region of Iraq, recently voted for independence) to join the five production blocks on the basis of production sharing (PSA). The Russian oil company will pay the Kurdistan $ 400 million as a bonus for entry, of which $ 200 million can be compensated for by the extracted oil. It is planned to start production in 2021.

Rosneft and the government of Kurdistan have agreed on some conditions for developing five blocks on the territory of the autonomy, the Russian oil company said. The development will be carried out on the basis of production sharing, which will occur in proportion of 80% (Rosneft) by 20% (Kurdistan authorities). The payment for geological information and the bonus for entering the whole in all five sectors will amount to $ 400 million, of which Rosneft can be compensated half due to oil after the start of production. "The key terms of the agreements and the basic principles of product distribution are similar to the PSA in Iraqi Kurdistan, which are signed by other international oil and gas companies," Rosneft said.

As a rule, the PSA implies that the country's authorities provide the investor with a deposit and receive an input bonus. Then investor's own means conducts hydrocarbon exploration and production, and so creates infrastructure. D. The investor pays a certain tax (royalty) of the extracted product, it is not less than 7.5% of the production in Kurdistan. After the start of production, it is divided between the investor and the State in specified proportions (after royalty), the state due to its share of production compensates for the initial costs of the investor in the infrastructure, and after the end of the PSA, this infrastructure (pipelines, wells, roads and so on. etc.) becomes the property of the state.

It is planned that Rosneft intends to start geological prospecting in Kurdistan in 2018, having reached the industrial scale of production in 2021. The recoverable reserves of the blocks are estimated by the oil company at 670 million barrels. "The fact that the parties can start working together in Kurdistan," Rosneft "announced in early June 2017. Rosneft has long been interested in Iraq, but the first assets there were received only together with Bashneft. Cooperation with Iraqi Kurdistan became known in February (it was about oil purchases in the region), another major project in the future is the construction of a gas pipeline from the autonomous Iraqi Kurdistan through Turkey to Europe. The agreement on it can be signed before the end of the year. It is assumed that the pipe will provide the autonomy and export of 30 billion cubic meters per year. Prime Minister of Iraqi Kurdistan Nechirvan Barzani in June said that Rosneft's investments will amount to about $ 3 billion.

In Rosneft yesterday they refused to comment on the status of the agreements - whether they are legally binding. The announcement was followed by a referendum on independence in Iraqi Kurdistan, against which the government of Iraq opposes. The referendum was condemned by all world powers except Russia, and Turkey, through which (apart from southern Iraq) the export of Kurdish oil passes, threatened to stop deliveries. This week, Iraqi troops occupied the city of Kirkuk, controlled by Kurds, but formally not part of Iraqi Kurdistan. In Kurdistan, Gazprom Neft also operates, but its fields lie east of the conflict zone.