Sisyphus in Kurdistan

Author Toby Shelley

In Greek mythology, King Sisyphus was condemned by the gods to eternally push a boulder up a mountain only for it to roll to the bottom.

In Greek mythology, King Sisyphus was condemned by the gods to eternally push a boulder up a mountain only for it to roll to the bottom.

Turkey-based, London-listed Genel Energy’s efforts in Iraqi Kurdistan have an air of the myth about them.

The company has developed the Taq Taq field and been a major partner in the Tawke field in territory controlled by the semi-autonomous Kurdistan Regional Government (KRG). As the KRG and the federal government in Baghdad rowed over budgetary payments, along with other producers, Genel was forced to limit production and sell in the local market. Then, some relief was provided by truck sales through Turkey. Some 12pc of Genel’s 69,000 b/d of oil equivalent (boe/d) was exported this way.

A breakthrough came last summer when the KRG took advantage of Iraq’s descent back into sectarian bloodletting to connive with Turkey to start marketing crude it controls and export it through the Iraq-Turkey pipeline to Ceyhan. By September, KRG exports from Tawke and Taq Taq were running at around 180,000 b/d. By the end of last year, the KRG claimed to be exporting 350,000-400,000 b/d.

But, as Baghdad and the KRG were still at loggerheads, producers were not being paid for exports and KRG marketing was hampered by threats of legal action against buyers and any companies collaborating in the sales. The arrival of a new oil minister in Baghdad has held out real hopes of relief. He negotiated a deal with the KRG that included payments to the regional government, which then made partial payments to producers. At the end of December, Genel was still owed $230mn but “remains confident” of receiving further monies.

But the Olympian gods were only teasing. Just as KRG exports started, crude prices began to tumble and the deal with Baghdad was announced just days after Opec’s decision not to cut its agreed output level prompted a further downward spiral.

The average realisation for crude produced by Genel in 2014 was $73/bl, 11pc up on 2013. But today the company slashed 2015 capex forecasts by 70pc, said it would axe jobs as part of a drive to cut admin costs by 40pc, and downgraded its assumption for Brent in 2015 to $50/bl from $80/bl.

It maintains that its KRG production is resilient even if low prices are sustained and it is carrying on with field capacity expansions and future projects.

Chief executive Tony Hayward was right when he said, as he has over the years, that KRG oil (and gas) would find its way to the market. That contention remains correct and hanging on to the belief is surely the only way of avoiding another Classical curse: “Those who the gods would destroy, first they drive mad”.

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