Two European energy firms said they would invest up to $8 billion in a project in the northern Iraqi region of Kurdistan, in a push to make the country a major exporter of natural gas to Europe.
The plan by OMV AG of Austria and Hungary's MOL Nyrt. was intended in part to boost the troubled Nabucco pipeline project to bring natural gas from Central Asia and the Middle East to Europe, which could lessen the continent's reliance on gas imports from Russia.
"This could really kickstart Nabucco," said Badr Jafar, executive director of Crescent Petroleum, one of OMV and MOL's two partners in the Kurdistan gas project. "The main problem was finding a secure, viable, long-term gas supply for the pipeline. That was the rationale for this partnership."
On Friday, Italy's ENI SpA and OAO Gazprom, Russia's state-run gas export monopoly, agreed to double the capacity of a new gas pipeline from Russia into the heart of Europe that will bypass Ukraine -- a project that is widely seen as a rival to Nabucco.
The Kurdistan deal reflects the desire of energy companies large and small to gain access to Iraq's untapped reserves of low-cost oil and gas. Royal Dutch Shell PLC and Exxon Mobil Corp. are among a clutch of oil majors expected to bid for oil service contracts in Iraq next month -- the first such licensing round since the end of the U.S.-led war that began in 2003. With Iraq facing a big budget deficit and oil prices that have slumped since hitting highs of $145 a barrel last summer, Iraq is eager to bring in foreign oil companies to boost production.
While oil is the biggest draw -- Iraq sits on the world's third-largest crude reserves after Saudi Arabia and Iran -- the country's gas resources have aroused interest. In September, Shell announced a multibillion-dollar natural-gas joint venture with the Iraqi government in the oil-rich southern province of Basra. The fuel is currently being flared because of a lack of adequate infrastructure.
OMV and MOL already have a presence in Kurdistan, where they are among a number of smaller oil companies that have signed production-sharing agreements with the Kurdistan Regional Government. Earlier this month the KRG gave them the go-ahead to export oil they produce in the region by pipeline to Turkey.
Larger companies such as BP PLC and Shell have avoided investing in Kurdistan, for fear of antagonizing the central government in Baghdad, which has denounced the Kurdistan Regional Government's deals as illegal.
Mr. Jafar said the partners didn't envisage any problems with Baghdad, saying they were "absolutely convinced of the legal, moral and technical correctness of our investments in northern Iraq."
Under the deal signed Sunday, OMV and MOL will form a partnership with Dana Gas PJSC and Crescent Petroleum, both of which are based in the United Arab Emirates. They will each acquire a 10% stake in Pearl Petroleum, a holding company for Dana and Crescent's assets in Kurdistan. OMV will pay $350 million for its stake, and Crescent and Dana Gas will each take a 3% stake in MOL.
Dana and Crescent have already invested more than $600 million over the last two years in developing the Khor Mor gas field in Kurdistan and building pipelines to carry the gas to nearby power plants. According to the agreement, the partners would now invest up to $8 billion over seven years to develop the Kurdistan assets, including the partnership's other field, Chemchemal, and build an export pipeline.