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Oil explorer WesternZagros heads for
Kurdistan tie-up
24.5.2012
By Peg Mackey - Reuters |
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Nechirvan Barzani, prime minister of Kurdistan
Regional Government, speaks during the first
International Energy Arena Erbil, in the Kurdish
regional capital Erbil, on May 20, 2012. Photo: AFP/SAFIN
HAMED)
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May 24, 2012
LONDON, — WesternZagros is about to join
forces with a large European oil company in Iraqi
Kurdistan, the company's chief executive said,
enhancing the Canadian explorer's ability to expand
production and reserves in the year ahead.
Simon Hatfield, speaking to Reuters on Wednesday,
said WesternZagros's giant Garmian block was part of
a major Kurdish oil play by the European company,
which he declined to identify.
Industry sources say the company is most likely
Total . The French oil major has said it is
considering possible investment in the
semi-autonomous region, after ExxonMobil signed up
for six exploration blocks late last year.
"Our Garmian block would be the single biggest
piece," Hatfield said. "We're relying on getting
about $55 million in back costs from the large
European partner we're about to get, which will give
the company funding through next year."
A new Kurdish deal with Total would fan the flames
between Erbil and Baghdad, locked in a long-running
feud over oil and land. Total, like Exxon, is also
developing a major oilfield in southern Iraq.
Baghdad says any contract signed by Arbil is
illegal.
The assets of Kurdistan-focused WesternZagros - the
Garmian and Kurdamir blocks near the border with
Iran - could potentially contain reserves of 5
billion barrels.
It holds a 40 percent stake in each block's
production sharing contract and operates Garmian.
Erbil now holds the remainder and has been
negotiating with the European party for the past six
months over a 40 percent stake, said Hatfield.
The veteran oil explorer expects the deal to be
finalised in the next month for Garmian, which
potentially holds recoverable oil reserves of 1.7
billion barrels and is producing up to 6,000 barrels
per day (bpd) from the Sarqala-1 well.
Shares of Calgary-based WesternZagros were trading
at 88 Canadian cents, down 3.3 percent. The stock
has risen from 67 cents at the end of 2011.
The unidentified European major will eventually take
over as operator, Hatfield said.
"They had their lawyers in Calgary last week doing
their final legal due diligence with our lawyers,"
he said. "But ours is not the only deal this company
is looking at - that's why it's taking so long."
As many as six blocks could be included in the
package the European major wants to present to its
executive committee.
"It's a big company and they want a material
position," said the chief executive. "There's not a
lot left, so they've got to piece it together."
On the ground in the northern region since 2004,
WesternZagros says the neighbouring Kurdamir block
potentially contains recoverable oil reserves of 1.5
billion barrels.
"We were part of the early movers in Kurdistan and
now it's a very crowded space," said Hatfield.
As a result, there's a high price to pay for entry.
Arbil is asking for a bonus of close to $100 million
for Garmian, plus a percentage - believed to be
around 20 percent - of the European company's profit
oil allocation that will be dedicated to
infrastructure development.
KURDISH PROMISE
Until the end of last year, Kurdistan had been a
no-go area for oil majors with mega-contracts to
develop Iraq's supergiant southern oilfields who
feared the wrath of Baghdad.
But Kurdistan's potential and attractive contracts
are coming up in boardroom discussions as the
central government's oil programme gets bogged down
in red tape and infrastructure bottlenecks.
"There are a number of other large European
companies looking very hard at Kurdistan - they're
all a little bit late," said Hatfield.
"Like ExxonMobil, they all held off now they're
seeing the contracts in the rest of Iraq are not
working out that well and the contracts in Kurdistan
are actually working out quite well - although the
export issue has to be resolved."
An intense wrangle between Iraq's central government
and the Kurdish region over export rights for
Kurdish oil has kept many of the world's top players
away from the region.
Hatfield said WesternZagros, which has a market
capitalisation of $330 million, would push ahead
with development regardless.
"Either this gets resolved the way it should - the
federal petroleum law gets passed and the Kurdish
region gets open access to exports through the
federal system. Or the Kurds will go alone with the
support of Turkey," he said.
For now, the company has had no issues with payment
for its sales of Sarqala crude, which netted $12.9
million last year. And a $25.9 million target for
the first quarter of this year was met.
"We have had no issues meeting the targets and no
issues selling our oil on the domestic market," said
Hatfield. The company sells the light crude on
monthly contracts and gets paid in advance by the
local refineries.
"We monitor where our oil goes and it goes to local
topping plant in Kurdistan where they take off the
light ends - and that's worked very smoothly," he
said.
Iraq's Deputy Prime Minister for Energy Hussain al-Shahristani
has said most of the oil produced in Kurdistan is
being smuggled across borders, mainly to Iran,www.ekurd.net
instead of fulfilling its export obligations.
Hatfield said the company was looking to further
develop its Kurdish assets and was not looking be
bought out. The Abu Dhabi National Energy Co bought
a 19.9 percent stake in the explorer late last year.
"We're funded to carry on. We believe the next few
wells we're going to drill will not only
dramatically increase production, but dramatically
increase the proven reserves that we have," he said.
"Now is not the time to sell the company."
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