Revenue Agreement Finalized for Akkas Gas Project

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Researched by Industrial Info Resources India (Delhi, India)--The Akkas gas project in Iraq's western Anbar province has been plagued by delays following the awarding of exploration and production licenses in October 2010. Under the original plans, Korea Gas Corporation (SEO:036460) (Kogas) was to develop Akkas in partnership with KMG EG, the upstream subsidiary of Kazakhstan's national oil company KazMunayGas (Astana, Kazakhstan). However, a dispute over the terms of the development plan and fears of local opposition to the project resulted in the acrimonious exit of KMG EG from Akkas.

Kogas has signed a 20-year revenue with Iraq's Ministry of Oil. Under this agreement, Kogas will receive $5.50 per barrel of oil equivalent, or 156 cubic metres, of gas produced. Output is expected to peak at 11.3 million cubic meters per day within six years. At peak production, the project would therefore generate revenues of approximately $145.4 million a year for Kogas. The field holds estimated recoverable gas reserves of 159 billion cubic meters.

The general manager of Kogas' Iraq project group, Yoo Jeong-don, indicated that a final field development plan will be submitted to the Iraqi cabinet for approval within six months. Yoo added that the company may start developing the field from August 2012, after which the company may look for new partners for the project, if needed.

Following KMG EG's exit, Kogas' stake in the project rose from 37.5% to 75%, with state-run North Oil Company (Kirkuk, Iraq) holding the remaining 25% interest. Kogas then submitted its own independent development plan in May 2011, under which the company pledged to invest at least $2.66 billion in Akkas over a 20-year period.

This and other gas projects are expected to increase project is expected to enhance Iraq's current gas production of 1.56 billion cubic meters per year to 26.6 billion cubic meters by 2015 and 32.8 billion cubic meters by 2021. Production from other key fields such as Masuriyah and Siba will also contribute to the rise in output.

The long-awaited, $12 billion Basra Gas joint venture between Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands) and Iraq's state-run South Gas Company (Basra, Iraq) will also be fundamental to the transformation of Iraq's gas industry. According to Iraq's Ministry of Oil, the joint venture could produce between 25.8 billion cubic meters and 31 billion cubic meters by 2016-17. However, this may be a slightly optimistic, given that only 7.2 billion cubic meters of gas is currently flared from the Rumaila, Zubair and West Qurna-1 oil fields.

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