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What violence in Iraqi Kurdistan oilfields
means for Canada
14.5.2007
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May
14, 2007
On April 9, a little piece of history was made
in the northern Iraqi province of Kurdistan -- home
to about 40 billion barrels of recoverable oil
reserves.
A truck-bomb exploded in the street outside the
Kurdistan regional government's Ministry of Interior
building in the capital Irbil, killing 14 people and
injuring 87 others.
The incident is noteworthy, given that in an overall
Iraqi scenario of relentless sectarian violence and
a growing "infiltration" by al-Qaeda, Kurdistan has
held out as a haven of peace and tranquility. A
prime reason for this is the strict security conduct
and drill enforced by the regional government's
firebrand 'Pashmerga' -- meaning literally those who
face death.
There is also another reason and closer to home --
two Calgary-based oil companies, Addax Petroleum and
Western Oil Sands Inc., have interests in oilfields
in Kurdistan.
"This is the first terrorist attack in Kurdistan
since 2005," Kurdish Regional Government
spokesperson Khaled Salih said. "We condemn the
dastardly act and remain steadfast in our resolve to
protect the people of Kurdistan. Our security forces
are determined that peace and stability will be
maintained."
The statements were not empty rhetoric. Addressing
security concerns is of strategic importance to
Kurdistan, which has set an ambitious target of
reaching oil production capacity of one million
barrels per day over the coming years. Output at
present is negligible.
Also on April 9, U.S-based IHS Inc. unveiled full
details of Iraq Atlas -- the first and only detailed
analysis of oil reserves, production and upstream
opportunities in the Middle Eastern state. The study
-- which came in the wake of a year-long
fact-finding mission by geologists and petroleum
engineers covering 435 undrilled prospects and
non-commercial discoveries and 81 producing fields
and commercial discoveries -- concluded Iraq has
(conventional) reserves of up to 116 billion barrels
-- third in the world after Saudi Arabia and Iran.
That equation could easily change. According to the
Atlas, if discoveries in Iraq's Western province are
an indication, the pecking order may well be
reversed -- Baghdad with potential oil reserves of
215 billion barrels, could race ahead of Canada at
193 billion.
"We estimate that there could potentially be another
100 billion barrels in the Western Desert areas,"
said Mohamed Zine, IHS regional manager for the
Middle East. "It (the desert) is widely regarded as
being substantially underexplored, with only one
commercial discovery largely because Iraq has had a
surplus of oil to date and little incentive for
exploration."
Admitting violence coupled with the policies of
(former Iraqi president) Saddam Hussein have played
a significant role in the way of Baghdad increasing
oil production, former Iraqi Oil Minister Issam
Chalabi commented it has been more of a Hobson's
choice.
"For the rest of the world, oil and politics go
hand-in-hand, but for us in Iraq, oil, politics and
violence seems to be the order of the day," he said
from Jordan, where he is working as an independent
oil industry consultant. "The two Gulf wars and the
resultant continuing violence took a heavy toll on
our fields and crippled oil production
infrastructure. And now, it is the ongoing rage
between Baghdad and Irbil over oil ownership rights
that has taken centre-stage."
At a time when the global oil demand is growing at
an annual rate of 1.2 per cent, according to the
Paris-based International Energy Agency, the outcome
has brought little cheer to the the world's leading
crude oil producers.
"Prior to our war with Iran in 1980, we had a
production capacity of 3.6 million bpd. That was
reduced to 3.2 million before the first Gulf War in
1990 and to 2.7 million barrels per day before the
start of the most recent conflict," Chalabi said.
Iraq's current production capacity is two million
bpd, with most of the oil coming from the Basra
region in the south.
Kam Fard, president of Calgary-based Groundstar
Resources, felt that despite hurdles Iraq still
holds significant prospects.
"The past decades of war and isolation present a
tremendous investment opportunity," he said. "Only
20 per cent of Iraq has been explored. Given the
right fiscal and legal frame work, along with
security, I believe several Canadian companies will
venture into Iraq."
Groundstar has recently formed a consortium with a
Canadian E & P company, with current market
capitalization in excess of $4 billion, to
aggressively pursue development prospects in
Kurdistan.
"Several exploration and development opportunities
have been identified and we already have a technical
and logistical team in Calgary that has considerable
experience in Iraq," Fard said. He did not divulge
the name of his consortium partner.
"What Canadian companies can bring to the table will
be a no nonsense and practical way of doing
business. We are hopeful of signing an agreement in
Kurdistan," he said.
The effort will be worth the while, as predicted by
IHS.
"With a stable political and civil environment, Iraq
has the potential to produce four million bpd in the
near term, if necessary investments are made in
repairing and modernizing facilities, and up to six
million," Zine said. He felt low production costs of
about $2 per barrel and the lure of big oil will be
too attractive for international oil companies to
avoid.
Added to it are the prospects of five undeveloped
fields in southern Iraq -- Bin Umar, Majnoon,
Nasiriyah, West Qurna and Ratawi -- that have the
potential to pump three million bpd. Iraq's expected
output of six million bpd will be rivaled only by
Canada, besides Saudi Arabia. The prospects of both
Baghdad/Kurdistan and Athabasca emerging as two new
centres of oil production, after Dhahran in Saudi
Arabia by 2015, has its own home-grown challenges.
For Alberta, maintaining oil prices of above $40 per
barrel and finding a larger share of its oilsands
output in the U.S., the opening up of a new market
in Asia and tackling provincial royalty regimes will
be major issues going forward. For Baghdad the
spotlight will be on containing violence.
"Political stability has to come first and the way
to that will be to go through the instability now,"
said Vincent Lauerman, president of Geopolitics
Central. "The quickest way for Iraq to increase
production will be to break up the federal
structure."
He suggested Shias ought to take control of the
oil-producing areas of Basrah and Baghdad; the
Central and Western provinces should be handed over
to the Sunnis and the north remain with the Kurds.
U.S. political and energy policies in the Middle
East will dictate Iraq's future and that may take a
while. But, in the meantime, global energy security
issues will ensure a healthy flow of foreign direct
investments into Alberta's oilsands.
"Security of stable supplies will assume greater
proportions as we move ahead. Iraq and the malaise
there will provide an opportunity for Canada (led by
Alberta) and other OECD producers to enjoy a boom.
The major wildcard is the Sunni- Shiite violence
spreading throughout the region and oil production
stagnating, or worse, in the Middle East," Lauerman
said.
Canada com
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