Work progressed on Subba and Luhais. There was a hiatus while payment was received for work done and acceptable Letters of Credit put in place for future payments. Inflation, design changes and delays meant that any profit was likely to be small, so Petrel negotiated with Makman to obtain an exit payment of US$7 million plus a 10 per cent profit interest while remaining operator of record. The project is now 94% completed and will soon operate as a 200,000 plus barrel a day oil producer. In one of the most unstable and dangerous areas on Earth a state of the art world class project has been delivered. No one was killed, international suppliers have been paid and the Iraqi people will shortly have additional exports of over US$700 million each year.
But Iraq was proving an impossible location in which to obtain oil concessions so Petrel sought to leverage its Iraq experience by exploring in Jordan.
The Jordanian experience was good, but costly and ultimately unsuccessful. We got licences, we did the necessary work, we identified targets but drilling was going to be expensive and was deemed too risky. We were unable to joint venture the project so we dropped it.
We next sought to build on our international contacts.
Ghana is the hottest hydrocarbon exploration area on earth. Recent giant offshore discoveries are drawing Ghana to the first rank of oil producers. Petrel, with two associate companies and a local partner, applied for, and obtained, a concession, Tano 2A close to the big Kosmos/Tullow discoveries. Cabinet and parliament approval is taking a long time, understandable when you realise that the legislators have to learn about and understand the effects and impact of oil wealth. The curse of resources is well known.
In a return to our roots we have applied for blocks in the current Irish offshore licencing round. Irish offshore exploration has not been successful to date with five small discoveries from over 200 wells drilled. But technology improves and oil prices are high. Petrel has for many years maintained a significant library of Irish offshore seismic and well log data. This database has been analysed and new data added. Our team have put together applications for a couple of blocks. No awards have been made to date.
Why oil and why Iraq?
Growing world demand particularly in the large emerging markets is expected to grow to 120 million barrels a day by 2020. Current capacity cannot meet that demand. Finding new supplies is becoming more difficult and expensive. The vast new discoveries offshore West Africa are in ultra deep waters and will require hundreds of billions to develop. The even bigger discoveries offshore Brazil, at total depths approaching 10 kilometres, will require as yet undeveloped engineering technology and vast sums of capital.
Contrast this with Iraq. Over 70 discovered undeveloped oil fields with known resources of over 150 billion barrels and potential to go to 300 billion matching the Saudi Arabian reserve figures. Capital and operating costs will be the lowest in the world. Cash operating costs could be under US$2 a barrel. Technical, management and geological skills are in country. The infrastructure is good when compared to offshore Africa and Brazil. Iraq is simply the world's best hydrocarbon province. We have been there for twelve years, we have maintained an office in Baghdad, we have experienced staff. All we need is the opportunity.
Petrel has prepared and submitted a detailed proposal to participate in the Fourth Licencing Round. The focus is on oil prone acreage becoming available from January 2012.