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By John Lee.

Petrel Resources, the AIM-listed, Irish hydrocarbon exploration company with activities in Iraq, Ghana and Offshore Ireland, today announced its interim results for the six months ending 30 June 2012:

Operational Highlights:

• New management team appointed in Iraq. They have clarified Petrel's relationship with the authorities and are pursuing existing and new opportunities.
• The Ghanaian authorities have been provided with evidence of Petrel's financial and technical ability to conduct the required work programme on Tano 2A Block.
• Exploration in Ghana, elsewhere in Africa and in South America, has confirmed the value of the Tano Basin acreage.
• New exploration data support Petrel's view that the extensive oil shows and seeps on the Tano shoreline are sourced from the prolific Cenomanian-Turonian source sequences of the deeper Tano Basin.
• Petrel is progressing it's Irish Offshore Option Blocks in the northern and eastern sections of Porcupine Basin. Several new targets have been identified.

Chairman, John Teeling said:

"Petrel is well financed for all current needs with over US$4m cash. The board is committed to our activities in Iraq and Ghana offers significant upside to the company. The Irish offshore, where Petrel began in the early 1980's has once again become an attractive target. We have a strong expert team, we have good ground and we hope to interest multinational parties to explore with us. The mix of projects, all high risk, offers significant potential."

Iraq

Petrel has had a presence in Iraq since 1999. In 2002 an agreement was reached with the Oil Ministry in Baghdad on an exploration contract over 10,000 sq km in the Western Desert. In 2005 Petrel was awarded a contract to develop the surface facilities for a large oilfield development in the Subba and Luhais area. We were asked to take a local Kurdish partner, Makman, in a joint venture.

After protracted discussions Petrel exited the contract leaving Makman the sole operator.

Between 2009 and 2011 Petrel applied to be considered for new oil field licences being offered. We expected to qualify and did not. Following a review of our position in Iraq we appointed a new management team with the brief to clarify our standing in the country, in order to highlight our interest in the exploration ground and to seek out new opportunities.

Though working only for a short time the team has made significant progress. The first objective was to clarify the position of Petrel with the national authorities in relation to existing and historic projects in which Petrel has or had an interest. This is done.

The second objective is to work with national and regional authorities in Iraq to identify projects in which Petrel can be involved. This work is ongoing.

(Source: Petrel Resources)

By John Lee.

Shares in Petrel Resources (AIM: PET) have rallied more than 25% since the company issued an update on the Company's position in Iraq.

In mid 2012, Petrel appointed a new Baghdad/Amman based team of Iraqi citizens to review the standing of and opportunities for Petrel in Iraq. The first objective was to clarify the position of Petrel with the national authorities in relation to existing and historic projects in which Petrel has or had an interest. This is done, the company said in a statement.

The second objective is to work with national and regional authorities in Iraq to identify projects in which Petrel can be involved. This work is ongoing.

John Teeling, Chairman, commented:

"This is a new start for Petrel in Iraq. We are long term believers in the massive potential for the country. We are working quietly with the national and regional authorities to identify ways forward."

John Teeling, Chairman of Petrel Resources, made the following comments on the company's Iraqi operations in its preliminary results for the Year Ended 31 December 2011:

"First formed in the 1980's to explore offshore Ireland, Petrel entered into Iraq in 1999. We worked diligently with the Iraqi Oil Ministry and in 2002 agreed an exploration lease on a 10,000 sq km area in the Western Desert.

"This was approved by the Oil Ministry but not the supreme authority. Post 2004, Petrel was successful in obtaining a large oil field construction contract, Subba and Luhais, and Technical Cooperation Agreements on two undeveloped oil fields, Merjan and Dhufriyah.

"A local partner was imposed on Petrel at the signing of the Subba and Luhais agreement. Difficulties arose in the execution of the contract and after extensive negotiations Petrel withdrew from the contract with $ 7m in compensation and a 10% net profits interest. The project is virtually complete but we expect no further payment.

"Since 2008 we have applied to be pre-qualified for four licencing rounds. To date we have been unsuccessful. When compared to the super-major and giant national oil companies who applied in the early rounds, our small size militated against us - though we had strong in country experience.

"It must be said that even had we pre-qualified there is no certainty that we would have completed a deal. Iraqi terms are very difficult and it is not clear how economic they are for investors. But we remain committed to Iraq. It is the best and cheapest place in the world to find oil and gas.

"The current political, economic and legal uncertainties will be ironed out but it could take time. We have recognised that our existing structure has been unsuccessful so we are in the process of establishing a new Baghdad based specialist oil team who will further our Block 6 interests as well as seeking out new opportunities."

In its interim results, announced this morning, Petrel Resources said it may review its strategy in Iraq following failure to qualify for bidding in the 4th energy licensing round:

After 14 years in Iraq it continues to frustrate. The economy remains fragile, as does the security situation. There is still no hydrocarbon law. As such, our legal position is in limbo on the 10,000 sq km area of ground in the Western Desert formerly known as Block 6. We will protect our interest in this block.

The terms on offer in the recent 4th licencing round were very tough. Indeed in numerous instances we remain nonplussed as to how the super-majors will ever make money. We struggled to explain the financial logic behind bidding for low returns in projects which involved geological, as well as operational and political risks.

Required economic rates of return have risen with the enhanced uncertainty of recent years. Politicians do not always understand that risk and reward are correlated, but the financial markets do.

Nevertheless, because of our operating experience and long-standing commitment to Iraq, we prepared detailed comprehensive proposals for the 4th Licencing Round. We had high expectations of making the approved list but it did not happen. We are taking a fresh look at our approach in Iraq. This may lead to a change in strategy. Iraq still offers the best hydrocarbon potential worldwide but it does not make sense to work for inadequate returns.

(Source: Petrel)

Petrel resources applied to participate in the fourth oil licencing round in Iraq, but has not been pre-qualified.

The eventual criteria adopted by the Iraqi authorities were heavily weighted (over 50%) towards financial size and strength, rather than practical experience working in Iraqi conditions.

As a result no juniors or smaller independent oil companies have been qualified for the bid rounds. The qualified list includes the oil & gas super-majors, many national oil companies and some large international independent oil companies.

Petrel will continue direct discussions on its existing interest in Western Desert Block 6.

Petrel will also seek direct negotiations on smaller fields that have not been awarded in the bid rounds.

David Horgan, Managing Director, commented: "Petrel is a junior oil company, focused on Iraq. We have worked continuously with the Iraqi Ministry of Oil since 1999.

"We were disappointed not to have qualified for the current bid round process. Our application was initially well received, but the ultimate criteria were heavily weighted towards large company strengths such as financial depth, rather than technical and practical experience working on the ground in Iraq.

"As a result, neither Petrel nor other juniors were qualified...Accordingly we will pursue direct negotiations on our existing interests in Western Desert Block 6 and possibly for future development of smaller oil fields that are not part of the bid process.

"Failure to qualify is a set-back, but we have overcome many similar challenges since starting Iraqi work twelve years ago.

"Petrel is well funded and ready to move once necessary approvals are obtained."

Petrel Resources has announced its preliminary results for the year ended 31st December 2010:

Highlights:

• The Subba and Luhais oil field development contract in Iraq is virtually completed.
• Petrel has received all US$7 million due from the sale of the Company's shareholding in Subba and Luhais. Petrel maintains a 10% profit interest.
• Petrel has applied to participate in the 4^th Oil Licencing Round in Iraq.
• The Company await parliament approval on the Tano 2A licence block in Ghana where Petrel holds a 30% interest.
• Reprocessing of over 760 kilometres of seismic lines on Tano 2A has identified a number of promising areas.
• Petrel has submitted applications for blocks in the Porcupine Basin area offshore Ireland.
• The company has over US$6 million in cash.

John Teeling, Chairman, commented:

"Waiting is frustrating for shareholders, management and employees. We are waiting for necessary approvals in Ghana on the Tano 2A block. We are waiting for a hydrocarbon law in Iraq to clarify our position on the Western Desert block 6. We are an applicant in the current licencing round in Iraq, but that too will take time. We have gone back to our 1980s origins by using our extensive Irish offshore database to apply for blocks in the new licencing round. We are well funded and ready to move once necessary approvals are obtained."

Statement Accompanying the Preliminary Results:

Petrel has been in existence for almost 30 years. This will undoubtedly come as a surprise to many shareholders who know only of our Iraqi activities. It was set up in 1982 to explore for oil offshore Ireland - but that venture failed. Following an abortive and expensive incursion into US oil and gas, the company value was virtually written off. David Horgan, currently the Managing Director, bought the shell in the mid 1990s and financed it, initially for African exploration in Namibia and Uganda. Then an opportunity opened in 1999 to go into Iraq, which was and is the best hydrocarbon province in the world. We exited Africa.

In Iraq we worked with the Ministry of Oil under the Saddam regime. Since 2003 operating in Iraq has become more difficult, complicated and dangerous. In the last eight years Iraqi oil development has languished with production levels only now getting back to pre-war levels. There is no clear set of rules, there is no new Hydrocarbon Law. We had an early success getting access to a 10,000 sq km block in the Western Desert and a very substantial success in 2005 with the award of the Subba and Luhais US$197 million (Engineering Procurement and Supervision of Construction) development contract to a Petrel/Makman partnership. But repeated changes in rules and personnel made it difficult to operate. Nevertheless we obtained two further Technical Cooperation Agreements in Iraq, to produce evaluators of both the Merjan and Dhurfiya fields. The world's supermajors have rushed in and accepted service contracts on sub-economic terms.

Shares in Petrel Resources (AIM:PET) jumped 11% this morning following the company's update on its operations in Iraq.

The board announced that Petrel has received the final US$2.5m payment due in relation to the Engineering, Procurement and Supervision of Services (EPC) contract on the Subba and Luhais oil field development. The company retains a 10% profit interest in the project. Completion meetings with the Iraqi authorities are scheduled during May 2011.

Since Subba and Luhais is successfully nearing completion, Petrel is now preparing a detailed proposal to participate in the recently announced Fourth Licensing Round in Iraq. Specific blocks have been identified, with a focus on the oil-prone acreage becoming available from January 2012. The closure date for pre-qualification documents is 19th May 2011.

It should be noted, the 10,000km2 area formerly known as 'Iraqi Western Desert Block 6' is not one of the blocks on offer in the current round. The new, 'Block 6' advertised by the Iraqi authorities is not in any way connected with the 'Western Desert Block 6'. The long term, continued interest of Petrel in this area is known to the relevant authorities in Iraq.

David Horgan, Managing Director, commented:

"We reaffirm our commitment to Iraq. The Subba and Luhais Joint Venture company has paid Petrel the final US$2.5 million due. We maintain a 10% profit interest in the project, but the prevailing circumstances in Iraq, especially delays and materials inflation, means that any profit is likely to be small.

The Subba and Luhais project is now nearing successful completion, after the parties overcame operational obstacles. Successful delivery of all equipment and services to site, without injury, loss of life or equipment is a major achievement for everyone involved with this important project. This experience proves that with goodwill, enthusiasm and unremitting effort, large-scale work can be satisfactorily delivered notwithstanding the prevailing circumstances.

We have identified specific targets in the blocks included in the Fourth Hydrocarbon Licensing Round. Petrel is now completing a detailed submission to the authorities. The closing date for application is 19th May. The blocks on offer are interesting for gas and oil but do not include the 10,000km2 area known as 'Iraqi Western Desert Block 6'.

A successful election in March 2010 led to many months delay in the formation of a new government, which in turn hampered the planned rapid development of Iraqi oil. A new Administration has taken charge, and remaining issues are being resolved.

We expect renewed progress in the coming months to drive forward the development of Iraq and particularly its hydrocarbons industry, to the benefit of all stakeholders. We have a strong balance sheet with over US$6m in cash and are well-placed to take advantage of opportunities.'

Shares in Petrel Resources (LSE: PET) were up 14% this morning following the release of its interim results.

Chairman John Teeling confirms that "the focus of Petrel remains firmly on Iraq, but the parameters of operating in the country are changing", and reflects in his summary on Petrel's continuing 'Iraqi odyssey':

Interim Results for the Six Months to end June 30^th 2010

-      Subba & Luhais project successfully remobilised and proceeding on schedule

-      Cash owed to Petrel has been received

-      Continued commitment to Iraq with return to African roots as diversification

The focus of Petrel remains firmly on Iraq, but the parameters of operating in the country are changing.  The steady disengagement of foreign military personnel reduces undue overseas influence and boosts the legitimacy and self-confidence of the Iraqi authorities.  Democratic elections were successfully run in March 2010, though the lack of an emphatic winner complicated Government-formation.  Six months later there is still no government.  This has serious implications for the development of the oil industry.  Much will depend on the new Minister.  We expect that policies will be improved and streamlined to arrest the decline in oil production and to encourage exploration and development.  The terms must be reasonable.  Iraq is capable of producing at least 9 million barrels a day, but current production is under 3 million.

The agreement on Subba and Luhais means that Petrel has refocused on exploration activities.  The upside in exploration will be higher than that available through developing oil and gas fields under service contracts.

Under the current policy of awarding service contracts to international companies we have resolved all the outstanding issues with the Iraqi Ministry of Oil.  These were complicating and delaying completion of the Subba & Luhais EPC contract in southern Iraq.  The project has now been successfully remobilised and is proceeding smoothly within an agreed 14 month revised completion schedule. Both the Project Joint Venture company and Petrel have received the cash owed.

This is a satisfactory outcome for Petrel as it removes all obstacles to moving ahead with formalising our existing interests in Iraq in particular Western Desert Block 6 as well as possible future projects.

Jordan Exit:

As noted at the July 2010 AGM, we opted not to proceed with the East Safawi Block in Jordan.  We entered Jordan as a result of our analysis of the Iraqi western desert.  We were hoping that seismic and well log reinterpretation would reveal large oil targets or Risha-type gas targets.  Instead, the detailed analysis showed that sands at the targeted depth were thin and tight.  Our technical team instead developed a shallower Triassic type play similar to Libyan reefs.  This revealed a billion barrel potential target, but with high exploration risk.  In normal circumstances this would suit a large farm-in partner.  Following the Lehman Brothers failure and subsequent financial crisis, the risk appetite of potential partners evaporated.  Several companies who were interested could not get management approval to drill.  The Jordanian authorities have been very patient giving a 15 month extension.  Jordan is a good business location with excellent terms - but Petrel decided not to drill at its own risk.  This decision has no financial consequences as the expenditure and bond were written off in the 2009 accounts.

Ghana Entry

Though Petrel's focus is Iraqi oil, we have been offered an exceptional opportunity to diversify at low cost.  Ghana's Tano Basin has recently emerged as an exploration hot-spot, with four discoveries by Kosmos/Tullow, including the giant Jubillee oilfield.  Petrel seized the opportunity to take a 30% interest, with sister companies holding 60%, in a Petroleum Agreement on Tano Block 2A.  A local partner holds the remaining 10%.  This block covers 1,532km2 of highly prospective acreage.  The Ghanaian National Petroleum Company (GNPC) has provided available data, including 44 geological reports and extensive, good quality 2D seismic.   Analysis and processing of data is underway.

This agreement is subject to ratification by Cabinet and Parliament, which we expect in the coming months.

Summary

The Iraqi odyssey continues.  Since we entered Iraq in 1999 we have dealt with 5 governments, survived a war, faced down many threats and risks, all in pursuit of oil.  Iraq will in future years provide oil for a significant percentage of the world's energy needs.  We will be part of it.   The lengthy wait for a new Iraqi Government has strained patience.  Iraqi oil production is down but the principle of international company involvement is gaining acceptance.  This is an important step toward creating economic terms.  Financial markets are nervous but it is a time of opportunity.

But 11 years is a long time to wait and uncertainty continues.  By diversifying into Africa we return to our roots.  Ghana will be a major force in world oil.  We are taking the opportunity to participate at an early stage.

John Teeling

Chairman
...

At Monday’s AGM of Petrel Resources (LON:PET), the Dublin-based oil exploration company, managing director David Horgan told investors that Iraq is "the best place in the world for oil".

“Petrel has raised a total of US$15 million or £10 million from 1994 to date ... It has operated continually in Iraq since 1999 and has run a Baghdad office through sanctions, invasion, civil war and 5 governments ... We intend to remain in Iraq which remains the best and cheapest source of oil”.

Petrel now has $7 million in cash or near-cash and a market capitalisation of $24 million.

The company has resolved the status of its Subba and Luhais contract, in the south of the country, in which it retains a 10 per cent profit interest - first oil is expected within 13 months.

Despite being forced to look outside of the Middle East lately - it recently invested in a block in Ghana - Petrel remains committed to Iraq.

Related article:

• Petrel Cuts Subba Stake

26 April 2010 - Upstreamonline.com

London-listed Petrel Resources said its Iraqi partner, Makman, will assume the responsibility for the final phases of work at the Subba & Luhais oilfield development in southern Iraq.

Mobilisation for the project, which has been in suspension for 20 months, will begin shortly, Petrel said.

The transfer of responsibility is in line with a joint venture agreement between Petrel and Makman for the oilfield development.

In return, Petrel will receive $7 million, of which the first $2 million has been paid up, and the remaining $5 million will be issued in two tranches over 12 months.

Petrel will also receive a 10% profit interest in exchange for surrendering a 50% stake in the oilfield.

The Iraqi authorities have put in place a new letter of credit for the balance of the contract.

The UK player plans to focus on growing its exploration interests in Iraq.