Speech at Houston Oil and Gas Summit

Dear Friends,
Please find below my remarks at an Oil and Gas summit hosted by New Fields in Houston Texas in May. My apologies for putting this up late, but given yesterdays historic developments, (Kurdistan exporting oil for the first time in history) the contents of the speech remain relevant...

Speech as given by Qubad J. Talabany,
May 14, 2009,
New Fields Oil and Gas Summit
Houston, Texas


Good morning distinguished guest, ladies and gentlemen I’d like to thank New Fields for having me and bringing me to the Lone Star State. As a Kurd, I am delighted to be in Texas, Kurds and Texans share much in common. President George W. Bush once said, “The Kurds are just like Texans. They’re both very proud, tough fighters and have a strong distrust of the federal government!”

The timing of this conference is near perfect: In less than two weeks, crude oil exports shall commence officially on 1 June 2009 from the Tawke Field in Iraqi Kurdistan, at an initial rate of around 60,000 barrels per day. This will be the first new oil to be exported from Iraq since operation Iraqi Freedom. It is also the first of Kurdistan’s newly discovered oil fields to produce and begin flowing through the pipeline to Turkey -- out on the market while returning dollars to the federal treasury in Iraq.

I’d like to take this opportunity to congratulate DNO, who has a representative in this room, and TTOPCO, for leading the way in the development of Kurdistan’s emerging oil sector and reaching a point where they are ready to export from fields they have been developing.

We are very, very proud of this and other achievements we in the Kurdistan Region have made in regards to both oil and gas exploration and to the developments of new fields.

These 60,000 new barrels per day follows the completion of all the metering instrumentation and the tie-in of the field pipeline with the Iraq-Turkey export pipeline at the border town of Fishkhabur. In addition, during the coming month of June, an additional 40,000 barrels per day of light crude oil shall commence (by trucking) from the Taq-Taq field to the newly installed temporary facilities located in South-West Erbil. From there onwards it will be transported through the existing pipeline networks to the Iraq-Turkey export pipeline.

This will be a temporary measure and will continue until a field pipeline is laid between the Taq-Taq field and the Khurmala Station.

Once the Taq-Taq pipeline is laid and further upgrades are made to the Tawke pipeline, the combined exports from these two fields will reach 250,000 barrels per day, with the average API gravity of around 39 degrees.

This historic achievement, accomplished in record time, is just one of the KRG’s contributions to raising oil production and increasing revenue for the benefit of the whole country.

We wish to acknowledge and thank officials of the North Oil Company in Kirkuk for their technical support during the last year to facilitate the tie-in with the export pipeline. As many in this room know, the KRG has been diligent in working with firms from around the world to create win-win-win situations: oil revenues for the national treasury, equitable distribution of those revenues to all citizens of Iraq and profits for those with the fortitude and vision to come to Iraqi Kurdistan and invest in the future.

Of course, not everyone sees it that way. And that is the frustrating part.

Some have criticized the KRG for leading the way and trying to boost oil production. Some have even gone so far as to criticize our contractual models. I am sure however, that those most vocal in criticizing the KRG for entering into Production Sharing Contracts (PSC’s) with International Oil Companies have a skewed view of what the PSC model is actually all about. Some, we fear, wrongly associate the modern PSC’s with the bad concession agreements of the 1930’s and 40’s. To clarify, under our PSC model, Iraq will not be losing sovereignty or control over any of its resources. The contractor takes all the risk, yet the nation reaps around 90 percent of the profits. Furthermore, the PSC model actually incentivizes the contractor to do the best job possible to optimize oil production and thereby maximizing oil production, rather than the Service Contract whereby it matters not to the contractor whether or not the field is fully optimized, as the contractor will get his fee.

In setting up our PSC’s, we examined PSC’s from over 15 countries: from Algeria to Indonesia; and from Vietnam to the North Sea. We looked at the best practices, and formulated our Regions Oil and Gas law and contracts to minimize conflicts between the contractor and the government. Furthermore, we publicized our draft law for international scrutiny. After guidance and interaction from leaders in the oil and gas industry, we modified our draft law and eventually put it before our Regional Parliament, where after 8 intense sessions of parliament specific to the oil and gas law, the parliament of the Kurdistan Region unanimously passed the Regions oil and gas law.

The tragedy for Iraq right now is that according to the U.S. Energy Information Administration (EIA), "Iraq holds more than 112 billion barrels of oil - the world's second largest proven reserves. Iraq also contains 110 trillion cubic feet of natural gas, and is a focal point for regional and international security issues."

Oil is Iraq’s economy. Yet there has been no serious exploration, or development, in Iraq beyond Kurdistan and certainly no new production.

The untapped potential is mind-boggling: While its proven oil reserves of 112 billion barrels ranks Iraq second in the world behind Saudi Arabia, EIA estimates that up to 90-percent of the county remains unexplored due to years of wars and sanctions. Unexplored regions of Iraq could yield close to an additional 100 billion barrels. Iraq's oil production costs are among the lowest in the world. However, only about 2,000 wells have been drilled in Iraq, compared to several hundred thousand wells in Texas alone.

Hovering over all of that bad news is the shadow of grim internal Iraqi politics. As discussed earlier, the nation has yet to formalize an agreement on a national hydrocarbons and revenue sharing laws, two crucial pieces of legislation that would ignite oil and gas development as well as bring back into Iraq into the 21st century.

As Dr. Bahr-Al-Uloum spoke at length about the Hydrocarbons law, I will focus more on the necessity to pass a revenue sharing law.

We believe that fair and transparent revenue sharing is an absolute necessity to bind all of Iraq’s diverse ethnicities and sects together in a new country.

We have pledged, and demonstrated our promise to share revenues with the rest of Iraq. In fact, we have agreed that revenues gleaned from oil exported from Kurdistan will be returned the national treasury, but we ask that the disbursements of these revenues to the regions and provinces have necessary and transparent oversight to ensure equitable and timely distribution.

We have a diverse land, and a federal Constitution. Yet some in Iraq find it hard to acknowledge that centralized planning has failed us. Why should Iraq, continue pursuing policies of centralization that only generates further inefficiency and corruption, while potentially paving the way for another dictator to emerge with absolute power?

It has been this centralized system that has totally mismanaged the oil sector in Iraq.

Despite years of rebuilding, and investments of billions of dollars, petroleum production continues to decline and fall short of targets. The story of Iraqi petroleum remains one of great promises unfulfilled. The Iraqi oil industry has not even come close to matching its 1980 peak of exporting 3.5 million barrels a day.

Just to look at Iraq today, one would never know that it's an oil giant. Instead, it is a country nearly paralyzed by an energy crisis. Everywhere, drivers sit in endless lines of cars to buy gasoline. Electricity comes and goes. Homes lack fuel for cooking. Refineries operate at less than 30% of capacity. All of this, in a country that is possibly the only one in the world that is capable of flooding the world with cheap oil.

Quite frankly, it is unacceptable. When oil prices reached historical highs last year, Iraq was unable to capitalize. Oil does not do us any good sitting in the ground. There has to be a better way.

Iraq’s leaders must overcome the nostalgic nationalist sentiments of the past, and look to the future. We must incorporate modern practices, new technologies and partner with industry leaders from countries like the United States. We must work to boost production, and disperse revenues gleaned from the sale of Iraq’s oil, equitable, and transparently to all of Iraq’s citizens. That after all, is what Iraq’s Constitution calls for.

The future of Iraq however, will rest on how our Constitution is obeyed.

The Iraqi Constitution is the law of the land. We Kurds respect it and embrace it and follow it. We expect – and perhaps we politely insist – that others in our country respect it, embrace it and follow it. Not just when it is convenient to follow it, but always. In fact, a true test of any democracy is following its Constitution and laws when it is not always so convenient.

The Iraqi Constitution must be the unifying force for our new nation but the document is only as good as the institutions of state that exist to uphold those ideals.

The Constitution, while far from perfect, is the only national compact Iraq has. Our Constitution, like Americas, is full of holes and is open for interpretation. It allows for amendments to be made. But it is still the only law of the land, and it must be respected.

But while Iraq has a Constitution we still lack a shared vision of what Iraq is and how it should be governed. There exist today two fundamentally opposed views about the way forward. 1) Where Iraq will be governed by a strong central authority in Baghdad, 2) Where power is substantially devolved to the regions and provinces as outlined in the Constitution.

Needless to say, the leadership in Kurdistan, the Texans of Iraq, has long supported federalism, as the way forward.

We understand that democracy is an evolutionary process, both in Iraq and elsewhere.

The concepts of democracy, pluralism and devolving power are new for many in our part of the world. Power was wielded against most of us for so long, that we are fearful of letting anyone else have it. We think our best interests are in holding all power, when in reality our strength – and our brilliance – will emerge from a sharing of power with mutual respect and mutual vision. In the end, just as in the United States, our Iraqi Constitution must prevail.
Again, I want to thank you for having me here today.
I want to invite you to Kurdistan, come see the potential for yourselves. Come visit the real green zone It’s actually green as well. The potential for greater cooperation with Iraqi Kurdistan for the benefit of everyone is limited only by the imagination.

Thank you very much and best wishes to you all.

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