* Genel, Afren slash reserves estimates in key fields
* Wells hit water, revealing complex rock geology
* Kurdistan region already facing political, security
turmoil
By Ron Bousso
LONDON, March 10 (Reuters) - A string of downgrades to Iraqi
Kurdistan's oil reserves is a fresh blow to the autonomous
region's fledgling oil industry already crippled by conflict,
political strife and low crude prices.
The revisions - resulting from a closer inspection of
oilfields after drillers hit more water than expected - take the
shine off one of the world's largest oil and gas reserves, which
had drawn investors such as Exxon Mobil (NYSE:XOM) XOM.N .
A further loss of faith in the region's oil bonanza also
pressures the debt-ridden Kurdistan Regional Government (KRG),
which has struggled to ramp up production and exports due to
pipeline outages and conflict with Islamic State militants.
"The recent reserve downgrades are another blow to optimism
about Kurdish oil production," said Richard Mallinson,
geopolitical analyst at consultancy Energy Aspects.
"While there are substantial amounts of oil in this
underexplored province, companies are finding it is not as easy
to find or produce in the quantities initially expected."
Among the handful of producers still operating in the
region, three have in recent months reviewed their estimates of
proven oil reserves or reduced output due to geological
problems.
Several fields in different areas have, nevertheless, been
unaffected by the revisions. For example, Shaikan, operated by
Gulf Keystone GKP.L in the north of the region, saw its
reserves upgraded last year to 639 million barrels (mmbbls).
The region still boasts one of the world's lowest production
costs, at around $20 a barrel.
Genel Energy GENL.L lost more than a third of its market
value last month after the London-listed company halved the
reserves estimate for Kurdistan's largest operational field, Taq
Taq, to 356 mmbbls and wrote down its value by $1
billion.
The revision means more than half of the
80,000-barrels-per-day field's reserves have been produced.
Genel also operates a second field, Tawke, whose reserves were
little changed at 631 mmbbls.
Water levels in the six-year-old Taq Taq started rising
rapidly in the second half of last year, prompting a study by
consultancy McDaniel & Associates that revealed the porosity of
the rock - the ability to access oil - was overstated, leading
to the revision, Genel said.
Tony Hayward, Genel's chief executive and a former boss of
BP BP.L , said in an analyst call that the downgrade was
"clearly very disappointing for ourselves and the Kurdistan
Regional Government".
MORE BAD NEWS
The downgrade is a blow to Genel's and other producers'
hopes for the region.
"If you take a long-term view, you can look through politics
and geopolitical risks," BMO Capital Markets analyst Brendan
Warn said.
"But if you haven't got good geology and the oil is not so
easily produced, you are much less attractive and no longer a
major's acquisition story."
The relatively low cost of producing oil in the region and
Genel's plans to unlock gas reserves there still made the firm a
compelling investment, Genel said.
For the KRG, whose revenue depends on oil, the revisions are
more bad news. The region is struggling to pay field operators
due to a dispute over oil revenues with the central government
in Baghdad and the need to fund its fight against Islamic State.
The KRG started repaying oil companies earlier this year but
still owes them billions of dollars.
Before Genel, Afren Plc AFRE.L wiped the entire proven and
probable reserves of 190 mmbbls from its Barda Rash field in
western Kurdistan after also hitting more water than expected in
wells.
Oryx Petroleum OXC.TO shut two wells in the Demir Dagh
field after hitting water, raising suspicions of similar
geological problems elsewhere. It also revised lower its proven
reserves in the Hawler licence area by 21 percent to 215 mmbbls.
Chevron (NYSE:CVX) CVX.N , the second-largest U.S. oil company after
Exxon Mobil, relinquished at the end of 2015 its interest in the
Rovi block north of Erbil but continues to test wells in the
Sarta area.