Afren has announced the acquisition of interests in two contiguous Production Sharing Contracts (“PSCs”) located in the Kurdistan region of Iraq. The Company has agreed to acquire an operated 60 per cent. participating interest in the Barda Rash PSC from Komet Group S.A. (“Komet”) and a non-operated 20 per cent. participating interest in the Ain Sifni PSC from the Kurdistan Regional Government (“KRG”).

Highlights

The Board of Afren believes that the Acquisition represents a highly complementary extension of the Company’s existing portfolio, and offers a combination of near term development upside, substantial low risk exploration potential and a strategic entry into the Kurdistan region of Iraq. In particular:

The Acquisition delivers independently certified 890 mmbbls net 2C resources and total net un-risked resources of 1,074 mmbbls

Total acquisition cost of approximately US$588.25 million (US$0.66 per 2C bbl) inclusive of approximately US$81.0 million back costs and US$14 million 2011 capex related to Ain Sifni

A clear forward plan to develop Barda Rash and appraise Ain Sifni

Progressive short term conversion of 2C resources into 2P reserves

Phased development initially focusing on light oil reservoirs expected to deliver 75,000 bopd net to Afren within 5 years from Barda Rash alone

§ Phase 1: 15,000 bopd (gross) by end 2012

§ Phase 2: 35,000 bopd (gross) by end 2013

§ Phase 3: 125,000 bopd (gross) by end 2017

Delivers low risk exploration upside to portfolio – 183 mmbbls net best estimate prospective resources

Active E&A drilling campaign 2011 – 2012

Complementary to Afren’s core strengths developed in Nigeria

Geologically de-risked

Fast track development solution

Low risk E&A upside

Afren strategically advantaged through historic relationships

Early mover advantage

Positive political trends should eliminate valuation discount

Team on the ground and in place to deliver work programme

Reinforced in-house technical capability to successfully develop fractured carbonate reservoirs

Petroceltic International, the Irish-based AIM and ESM listed oil and gas exploration and production company focused on North Africa, the Middle East and the Mediterranean, has announced that, in partnership with Hess Middle East New Ventures, a subsidiary of Hess Corporation, it has executed two Production Sharing Contracts (“PSCs”) with the Kurdistan Regional Government of Iraq (“KRG”). The PSCs are in respect of the Dinarta and Shakrok exploration blocks (“Dinarta” and “Shakrok”) in the central north of the Kurdistan Region of Iraq.

Dinarta

Dinarta is a highly prospective undrilled block in a proven but largely unexplored area along trend from existing discoveries in the Kurdistan Region of Iraq. The block, which covers an area of 1319 sq km, is located approximately 75 kms north of Erbil and along trend from the significant Shaikan, Atrush and Swara Tika oil discoveries.

The block itself contains a number of identified surface structures, the largest of which, the Chinara Anticline, is 25 kms along strike from the Swara Tika-1 well, currently reported to be testing a significant new oil discovery. The other structures on the block also have significant potential surface closure areas with multiple reservoir targets believed to be likely to be present in the Jurassic and Triassic strata preserved in this block. The resource potential of the identified structures is considered by Petroceltic to be very significant.

Shakrok

Shakrok is a highly prospective undrilled block in a proven but largely unexplored area along trend from existing discoveries in the Kurdistan Region of Iraq. The block, which covers an area of 418 sq km, is located approximately 50 kms north east of Erbil and is along trend from the nearby Taq Taq oil field and the recently announced Bina Bawi oil discovery.

The block itself contains significant surface anticlines, and, similar to Dinarta, multiple reservoir targets are believed to be likely to be present in the Jurassic and Triassic strata preserved in the block. The resource potential of the identified structures and the Shakrok Anticline in particular is considered by Petroceltic to be significant and in line with other discoveries that have recently been made in the region.

PSC Commitments and Work Programme

Each PSC has an initial 3 year exploration period during which the joint venture plans to acquire 2D seismic and drill a minimum of one exploration well. Based on the anticipated work programmes, Petroceltic’s total financial commitment during the first licence period is expected to be approximately $72 million, the majority of which will be incurred over the next 6 months. These amounts are inclusive of all signature and capacity building bonuses payable to the KRG under the terms of the PSC’s.

Petroceltic holds its 16% participating interest (20% paying interest) in the PSCs, through a wholly owned subsidiary, Petroceltic Kurdistan Limited (“PKL”). Both blocks will be operated by Hess and the KRG has a carried interest of 20% in each PSC through all phases of operations.

Commenting today, Brian O’Cathain, Chief Executive of Petroceltic, said:

“The signature of the Dinarta and Shakrok PSCs represents Petroceltic’s entry into an exciting new region and with an outstanding partner in Hess. These highly prospective blocks add further high impact exploration potential to our portfolio and complement our ongoing exploration and appraisal activities in Algeria and Italy.

While significant discoveries have already been made, the Kurdistan Region of Iraq remains, a vastly under explored area with huge potential. Our exploration activities in the region are already progressing and we plan to open an office in Erbil in the coming months.

We have worked closely with the KRG and our co-venturer Hess to conclude these agreements, and are now delighted to have signed the PSCs. We are committed to continuing to work closely with the KRG to maximize the value of these blocks for both the Government and people of the Kurdistan Region of Iraq, and our shareholders.“

ShaMaran Petroleum has announced that its wholly owned subsidiary ShaMaran Petroleum BV (“ShaMaran BV”) has exercised its option under an Option Agreement signed in July 2009 with the Kurdistan Regional Government (KRG), to enter into a Production Sharing Contract (PSC) in respect of the Taza Block (formerly Block K42) in the Kurdistan Region of Iraq, and that this has now been approved.

ShaMaran BV holds a 20% working interest in the PSC, and OSIL is the operator with a 60% working interest, while the KRG holds a 20% working interest, with costs carried by ShaMaran BV and OSIL.

The 511 square kilometres Taza Block lies between the Pulkhana Block to the southwest and the Kormor block operated by Dana Gas to the northeast. Under the Option Agreement, the Joint Venture acquired 232 line-kilometres of 2D seismic data in 2010, which identified a significant four-way dip closed structure. This closure lies on structural trend with the giant producing Jambur field to the northwest, with reported reserves of over 1 billion barrels of oil, and the recently announced Western Zagros Sarqala oil discovery to the southeast, with reported test rates of over 9,000 barrels of oil per day from the Jeribe formation. The Jeribe will be one of the main targets for the upcoming exploration well on the identified prospect which is expected to be drilled in 2012.

Pradeep Kabra, President and CEO of ShaMaran, commented:

“We are very pleased to have signed the Taza Block PSC. Taza is very prospective block in the prolific petroleum province of the Kurdistan Region of Iraq. We look forward to continuing our partnership with Oil Search in the exploration of this exciting block.“

By David Rosenberg, for The Media Line. Reproduced with permission by Iraq Business News.

It was just another day in Iraq on July 15.

In the city of Kerbaba; two car bombs killed a total of seven people and wounded 19. An American solider was killed in Baghdad while in another part of the capital an Iraqi policeman was injured by a sticky bomb placed under a vehicle. More bombs wounded soldiers in Samarra and in Mosul.

But July 15 also saw the grand re-opening Baghdad’s renowned Al-Rasheed Hotel after a $65 million renovation. Britain’s Harlow International undertook the construction work while Holland’s Kempinski Hotel group will manage it.

“The rebuilding of infrastructure, including palaces and airports, is evidence of the ability of Iraqis to achieve what they want,” Foreign Minister Hoshyar Zebari said at the ribbon-cutting ceremony.

Even as Iraq suffers an upsurge of violence – June alone saw 155 civilians killed in attacks, the most since January – foreign investors are flocking to the country. Dunia Frontier Consultants, a Washington DC-based consulting firm, estimates that foreigners were responsible for $45.6 billion in investments, service contracts and other business in Iraq in the first half of the year. That was double the amount the same time in 2010.

Where others see carnage, chaos and corruption, investors see a potentially oil-rich economy whose population of some 30 million is desperate for housing, roads, consumer products and services.

“What you have is a country that produces oil, which makes it very attractive for the hydrocarbon industry to invest there. It’s a country with a very large population,” Daniel Broby, chief investment officer at London’s Silk Invest, told The Media Line. “The middle class suffered a lot of problems but they are educated and there is a lot of home ownership, so banking and telecommunications industries are very attractive for foreign investment.”

Driven by high energy prices, Iraq’s economy will grow 12.5% this year, according to the International Monetary Fund. Iraq’s Oil Ministry said in June alone petroleum brought in $7.17 billion as exports averaged 2.273 million barrels a day at an average price of more than $105 a barrel.

With the government’s coffers swelling, Planning Minister Ali Al-Shukri told Reuters on Monday Iraq is looking to raise its 2012 investment budget by 50% to as much as 60 trillion Iraqi dinars ($51 billion).

The following article was published in the latest edition of Inside Iraqi Politics, and it is reproduced here with the publisher’s permission. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Full Text of Inside Iraqi Politics Issue No. 19 (PDF)

The government’s aggressive energy policy and its electricity push in particular have stood in contrast to broader policy stagnation, yet there are concerns that inadequacy of the banking sector in providing finance will stymie it. There are also increasing indications that Maliki’s China trip this past week, finance problems with a previously-arranged Korean deal, and his June 2 raid of the country’s only internationally-respected financial institution may be interrelated.

The government framed Maliki’s three-day state visit to China beginning July 18 entirely around economic development and mutual commercial interests. While petroleum supply to China was predictably a major topic, the subtext, discussed more gently, was Iraq’s need for finance. As economic analyst Sadiq al-Rikabi noted, as quoted in the UAE-based al-Ittihad, Iraqi banks lack the liquidity to finance projects, and this despite the enormous sums which the government has received, not only from oil revenue but also the $250 billion Iraq Development Fund Iraq took control of in June. In the past, the government has often grandly announced investment projects only to have them dissipate for a variety of reasons; this pattern may be continuing.

Government spokesman Ali al-Dabagh implied this in comments to AP on July 18, saying “We are asking the China side to make a fund, for the reconstruction, and to guarantee and assure the investment in Iraq for the Chinese companies.” The AP comments did not reference the faltering Korean agreement or Iraq’s banking problems.

In this context we may return to Maliki’s June 2 raid on the Trade Bank of Iraq (TBI) and the flight of its director, Hussein al-Uzri, from the country. Remember that Uzri claimed that Maliki started by demanding that TBI finance the Korean electricity deals, which he said he refused to do without a government guarantee. Maliki accused Uzri of stealing millions of dollars from TBI, which is the only bank in Iraq capable of accessing credit lines from international banks. (See IIP No. 18 for background.)

Hamdiya al-Jaf, whom Maliki appointed to replace Uzri, said in a widely-cited July 18 interview with Reuters “we have proved to the world that the TBI has not changed concerning its work and its banking activities.” She added that TBI [Reuters paraphrase] “operates independently and is monitored by the Central Bank of Iraq [CBI] and the Bureau of Supreme Audit like any other Iraqi bank,” and the “investigation of alleged financial violations had not been completed.”

Jaf’s claims may be true, but anyone concerned about the politicalization of TBI’s decision-making may want to ask for direct proof of this investigation. Our search of Iraqi and pan-Arabic news sources found numerous news outlets quoting Jaf’s remarks to Reuters, yet we found not a single news report citing an independent authority confirming even the existence of an investigation. We also performed searches of the Arabic websites of the CBI, the audit bureau and the justice ministry and found nothing referencing an investigation. So when sources say that “the Iraqi government” has accused Uzri of theft, this is based solely on statements from individuals tied to Maliki. While it is possible that there is an investigation which has not been reported openly, given the vital role of TBI to Iraq’s financing needs, the lack of transparency should raise questions.

On Wednesday 7th September, the Middle East Association will be holding a Business Briefing on ‘The Future of Renewables in the Middle East and North Africa’ at Bury House, the third event of our Energy Series. This briefing will give expert analysis on the opportunities, risks and challenges of this important emerging energy sector, as well as the extent to which this oil and gas rich region is ready to embrace a renewable energy-focused future.

The Middle East and North African states have the potential to become some of the key suppliers of renewable energy in the world. Major areas of interest and development to date include solar energy and wind power. The government of the United Arab Emirates has been making particular efforts with the development of Masdar City—intended to be the world’s first city to be powered by entirely renewable sources.

UK companies are also making major strides in this sector. In the UK alone, there are over a thousand registered companies working on renewable energy technologies, and many are looking to export their expertise abroad.

This business briefing will offer attendees presentations from industry experts and academics, a Q&A session, and a networking reception. More details will follow in coming weeks but we advise early registration due to the popularity of our energy events series.

Confirmed speakers so far include:

• Kevin Sara, Founder and Managing Director, Nur Energie
• Dr Michael Mason, Editor, Renewable Energy in the Middle East and Senior Lecturer in Environmental Geography, LSE

The event will start with registration at 17.00, and presentations will begin from 17.30. We will conclude with a networking reception from 19.00. To attend please return the registration form attached to Jacqui Marshall at the MEA (jacqui@the-mea.co.uk). In accordance with MEA policy, ALL events must be paid for in advance.

Please click here to download details and application form.

By T. Keyzom Ngodup, co-founder and Executive Director at Ideas sYnergy, an Iraq based private sector development consulting company.

A New Iraq or Perspective Updated: First Mover Advantage?

Sipping my iced coffee at Costa, a coffee shop in Erbil, I (and everyone else at the coffee house) noticed with insouciance a group of young American soldiers walk in for some caffeine and presumably an outing.  The sighting of American soldiers (dressed in uniform) is rare in Northern Iraq, and especially in Erbil, putatively safe and referred to as the gateway to Iraq.  I pondered on this seemingly mundane event and it occurred to me that this may be my first ‘encounter’ with Americans in Erbil since Ideas sYnergy’s establishment in early 2011.

Through my last couple months in this city as an independent expatriate (as in not living within a walled community/compound with security protocols), I have come across a range of foreign entrepreneurs who have gone ‘local’: Lebanese, Turkish, Italians, Germans, French and British, some restaurateurs, others event managers, traders, company owners etc however I have yet to meet an American who lives and conducts business outside the walls of compounds.  This is not to say there aren’t any, but rather to point to its’ low probability.  In the same vein, recent article pointed out that U.S. companies have been slow to get in on the investment opportunities in Iraq, even lagging behind countries that opposed the war in 2003, such as France. According to the article, U.S. companies tend to be more risk averse than their European counterparts, despite continuous urgings by the U.S. Chamber of Commerce.  The media in the U.S. contributes to this quagmire.  An Iraqi friend living in the U.S. expressed his surprise at a recent National Public Radio (NPR) feature on Iraq’s Kurdistan, to the extent he felt the region under discussion was perhaps wrongly referred to as KRG.

U.S. businesses are asked to shed their heterodox ideas of Iraq and capitalize on the investment opportunities created through its’ government’s blood and treasure. Iraq Insights’ June Issue reported that U.S. commercial activity is touted to increase after the conclusion of the Business Forum: Promoting Economic Opportunities in Iraq held in Washington, D.C. And indeed U.S. commercial interest is growing: Iraq’s commercial attaché office in Washington received 2,251 applications to do business in Iraq in the first half of this year, compared with 1,369 in the same period last year.  Although U.S. commercial activity in Iraq ranked fifth at $1,997 million in 2010 (compared to Turkey’s $14,883 and France’s $4,243) as per a report by Dunia Frontiers, independent American expatriates conducting business in Iraq complain of their government’s lack of support, even of the simplest nature such as business introductions and linkages.  For U.S. businesses to capitalize on opportunities in Iraq, and partake in Iraq’s economic growth as a business partner, its government will have to do much more (the upcoming August issue of Iraq Insights, a flagship monthly publication of Ideas sYnergy, will compare investment promotion strategies of foreign governments in Iraq) .  The recent opening of U.S. Chamber of Commerce in Basra, and soon in Erbil is a welcome respite.

T. Keyzom Ngodup is co-founder and Executive Director at Ideas sYnergy, an Iraq based development consulting company committed to economic and social development through market-based solutions that help build and scale innovative businesses for sustainable and inclusive private sector development.

There was a reduction in overall levels of violence in Iraq last week, making it the quietest week in the country since February. Baghdad actually had the quietest week so far in 2011, which is promising, except that the authorities have warned that the lull is likely to be temporary. It may be the case that militant groups are consolidating their resources ahead of a renewal of violence over the coming weeks, although the onset of Ramadan around 31 July is likely to alter ongoing trends in the country. Conditions remained hostile in the northern cities of Kirkuk and Mosul, while the south of the country has seen a slight uptick in attacks last week. These predominantly targeted the US military, although a senior Shi’ah religious figure was also targeted in a shooting attack.

North

Iranian troops continue to shell isolated parts of the Qandil mountains in an attempt to target Kurdish separatist rebels in the area. Military operations against Kurdish rebels are likely more intense at present because both sides will want to gain ground ahead of Ramadan. The holy month often sees separatist groups such as the PKK offer an amnesty, so fighting may reduce once again from 1 August. Otherwise the wider Kurdistan region remains largely stable. The military operations are having a minimal impact on the majority of travel and business activity in the area.

Centre

The centre of Iraq was comparatively quiet last week, although Babil province has seen a slight rise in violence over the past month and security measures were increased in Diyala province amid an increase in bomb attacks (and attempted attacks) in the area. Baghdad had its quietest week this year, although instead of taking credit the authorities have warned that militants are simply preparing themselves for another set of attacks, perhaps over the coming weeks, or more likely after the holy month of Ramadan.

South

The south of the country has seen a higher than normal number of incidents over recent weeks, posing a concern for the many businesses looking to establish a presence in the oil-rich region. However, most of the attacks have targeted the US military rather than civilian or commercial interests. Militants are likely keen on pressuring Washington into abiding by the current Status Of Forces Agreement withdrawal deadline of 31 December 2011. However, a senior religious figure was also targeted in a shooting attack in Zubayr on 22 July. He survived the attack but the incident highlights the fact that political movements in the south are far from homogenous and that there is still the risk of political divisions evolving into violent confrontation in the coming months.

John Drake is a senior risk consultant with AKE, a British private security firm working in Iraq from before 2003. Further details on the company can be found here while AKE’s intelligence and political risk website Global IntAKE can be accessed here.

You can obtain a free trial of AKE’s intelligence reports here.
You can also follow John Drake on twitter here.