By Rob Foulkes
Critical Resource’s new Flashpoint series provides a digestible insight into resource projects currently hitting the headlines.
The heatmap illustrates the social, political and environmental pressures facing a project’s ‘license to operate’, highlighting key stakeholders and the issues that concern them most. It takes the perspective of the company and flags the main potential threats to value or to reputation; a dollar sign indicates where a particular stakeholder group poses the greatest financial risks to the project.
The first in the series, this Flashpoint looks at Heritage Oil’s recent discovery in Iraq’s Kurdish region.
LicenseSecure™ Heat Map for Heritage Oil in Kurdistan¹
Risk to project reputation or value from stakeholders by issue
Why is this project in the news?
- Heritage Oil – one of a handful of adventurous oil firms investing in Iraq’s Kurdish region – announced in May a huge discovery of up to 4.2 billion barrels in the Miran West field. Soon after, the firm revealed plans to merge with Genel Energy of Turkey, which also has oil interests in Kurdistan, to create a ‘regional giant’.
- Politicians in Baghdad and the Kurdistan Regional Government (KRG) also recently came to an informal agreement to patch up a long-running dispute over the oil sector, allowing Heritage and other companies in Kurdistan to access a crucial export pipeline. Dozens of other foreign oil firms are now itching for their own stake in Kurdistan’s reserves.
How secure is Heritage’s ‘License to Operate’²?
- The current political arrangements surrounding Heritage’s project – as for other oil projects in Kurdistan – appear precarious, in spite of the recent compromise. Arguing that oil should be managed nationally, Iraq’s oil ministry has repeatedly asserted that deals between international firms and the KRG are illegal.
- The dispute is part of broader tensions between Baghdad and the Kurds over regional sovereignty (especially regarding the city of Kirkuk) and control of the oil industry and its revenues, and many analysts see this as a growing threat to Iraq’s stability. US forces are now pulling out of Iraq, potentially further weakening security.
Should such tensions escalate, the central government could return to its original argument that the Kurdistan government lacks the authority to make oil deals; equally, the agreement over revenue sharing that has helped Heritage to export its oil may collapse.
What can Heritage do?
- Heritage appears politically well connected, has secured the support of the KRG and is entrenching its presence in Kurdistan through the Genel merger. The company appears committed to responsible business conduct which should help protect its relations with the local population.
- Heritage may need to find additional ways to foster good relations between the KRG and Baghdad, and also to broaden its base of support so that, should the political situation change, dislodging it will not be easy. Its managers also need simply to cross their fingers that Baghdad and the KRG keep their fragile truce alive.
¹ This simplified version of a ‘heat map’ is one element of LicenseSecure™, a model developed by Critical Resource to help companies responsibly strengthen the ‘license to operate’ (i.e. local, national and international stakeholder support) for resource projects. This particular ‘heat map’ is based on outside-in analysis – Heritage is not a current client of Critical Resource. A full LicenseSecure™ study involves in depth, on-the-ground research, and analyses company policies and activities as well as external factors. www.c-resource.com.
² Declaration of interest: Critical Resource has provided information to Heritage on LicenseSecure™.