* Initial export rate at 10,000 bpd, to increase in days
* Not clear how oil companies will be paid
* Oil minister under pressure to boost production
(Adds ministry on contracts, DNO share price, background)
By Ahmed Rasheed
BAGHDAD, May 27 (Reuters) - Iraq started exporting oil from its largely autonomous Kurdistan region for the first time on Wednesday, Iraq's Oil Ministry said, in an apparent breakthrough after years of deadlock over disputed Kurdish oil contracts.
Oil Ministry spokesman Assim Jihad said the ministry started
shipping the crude from the Tawke field, in which Norway's DNO
International "We finished linking the pipelines from the Tawke oilfield
to the strategic Kirkuk-Ceyhan pipeline and have installed the
meters. We started ... pumping 10,000 barrels per day to boost
exports to ... Ceyhan," Oil Ministry spokesman Assim Jihad said. News that exports had started, despite a row between Iraq's
central government and the Kurdish Regional Government (KRG)
over oil contracts the KRG signed with foreign firms, caused
DNO's shares to surge 4 percent before settling up 2.8 percent. Oil Minister Hussain al-Shahristani has said those contracts
are illegal. Baghdad also insists oil deals with foreign firms
should be fixed-fee service contracts, not production sharing
contracts of the type signed by the KRG. "The pumping will continue at (this) rate ... for some days
to check the efficiency of the pipelines from Tawke to the
network ... then we will gradually increase the quantities,"
Jihad said. He did not say by how much. On Monday, oil and gas company Addax Petroleum said it
expected to start crude exports from its facility, which lies in
the Taq Taq oilfield in Kurdistan, on Sunday. But an oil industry source, who declined to be named, told
Reuters on Wednesday that this might be delayed because Baghdad
disapproved of the KRG's plans to ship some of the oil out by
truck, instead of waiting for a pipeline to be hooked up. "DOUBLE STANDARDS" Earlier this month the Oil Ministry had said it would begin
exporting oil from Kurdistan's Tawke and Taq Taq fields, but
said it still rejects Kurdish deals with firms like Addax and
DNO, which are developing the fields. It is not yet clear how the firms will receive their cut of
the exports, agreed in the production sharing contracts, if
Baghdad does not recognise them. The KRG receives 17 percent of
Iraq's total state oil revenues from the national budget. When asked whether Baghdad would pay the companies' their
dues, Jihad said simply: "The Iraqi oil ministry is committed to
exporting the crude from Kurdistan, as it does from (other) ...
oilfields. All revenues will go to government coffers." Analysts doubt the KRG would agree to stump up all of the
cash for the companies' production share from its own budget. "It seems like double standards," said John Hamilton, an
analyst at UK-based Gulf States Newsletter. "If you take what
Shahristani says at face value, the KRG are handing over oil to
Baghdad which it basically gets free of charge and all costs are
taken out of the (Kurds') 17 percent. That can't possibly work." Hamilton said the Iraqi government would most likely pay the
firms, but for political reasons could not admit that publicly. Shahristani faces mounting pressure to act quickly to
increase sluggish oil output, running at around 2.3-2.4 million
bpd, and turn around an industry in dire need of investment
after decades of sanctions, neglect and war. Iraq, which relies on oil sales for more than 95 percent of
its state revenues, needs exports more than ever as it tries to
stretch a budget undercut by lower oil prices. The Kurdish government had earlier put the expected starting
rate from the Tawke field at 60,000 bpd from June 1 through the
pipeline, with another 40,000 bpd from Taq Taq soon afterwards. Kurdish officials estimate there are oil reserves of at
least 40-45 billion barrels of crude in the area now recognised
as largely autonomous Kurdistan. Kurdistan last week heralded an $8 billion plan to export
natural gas to Europe via the Nabucco pipeline, but Shahristani
rejected the deal because it was done without Baghdad's consent.
(Additional reporting by Aseel Kami and Tim Cocks in Baghdad
and Terje Solsvik in Oslo; Writing by Tim Cocks; editing by
James Jukwey)