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By John Lee.

Iraq and the Russian state oil producer Gazprom Neft have awarded an $879 million contract to South Korea's Samsung Group to develop the Badra oil field in eastern Iraq.

Samsung will design and build phase two of a central processing facility (CPF) for oil production in the field, which is expected to take two years to complete.

Dow Jones reports that initial production from the field is expected to be 15,000 bpd at the end of September this year, increasing to 170,000 bpd by 2017, according to the development plan agreed with the Iraqi government.

The field is being developed by Gazprom (30%), Korea’s KOGAS (22.5%), Malaysia’s Petronas (15%), Turkey’s TPAO (7.5%), and Iraq (25%).

Lead partner Gazprom angered Baghdad by signing a contract with the Kurdistan Regional Government; Baghdad has asked Gazprom to choose between its contract in Kurdistan and the Badra oil field.

(Source: Dow Jones)

By John Lee.

Writing in the Financial Times, a partner at a London-based financial advisory business suggests Iraq as a true frontier market investment.

Citing precedents such as Japan in the early 1960s and Russia in 1995, Richard Greer, a partner at Laurel Capital Kingsway LLP, says:

"The greatest opportunities for emerging market investors have always come when political chaos coincides with a dire media consensus, and a major underlying economic improvement is thereby ignored. Iraq stands firmly in this tradition of missed investor opportunities."

He says that despite the political tensions, many listed Iraqi companies achieved record profits in 2012, there is the beginnings of some sense of civil order, the accumulation and investment of corporate cash, and a widening economic growth.

While energy companies such as Genel Energy, Sterling Energy, and Gulf Keystone Petroleum (GKP) have been investors favourites, Greer says the domestic companies on the Iraq Stock Exchange (ISX) are still waiting to be discovered by international investors.

You can find our latest weekly stock market report here.

By Sherif Salem.

While attending an investment conference in Erbil in November, I was struck by a theme that came through in almost all my meetings with listed-company executives: a desire to engage with foreign companies.

It seems as if expertise is more in demand than capital as companies look to grow and take advantage of the undoubted potential in Iraq’s rapidly expanding economy.

The Iraqi stock market is still relatively small, with a total market capitalisation of around $5.1 billion, but it has shown signs that it will thrive in years to come. In the year after a new government was formed in late 2010, the market rose steadily as interest grew among both local and foreign investors. The first half of this year saw a dip, but since August, the market has rallied again, and daily trading volumes exceed $3 million in most sessions.

Banks and other firms have successfully raised money through rights issues, and telecoms operator AsiaCell is due to launch an IPO in early January 2013 that should boost total market capitalisation, possibly by as much as $1 billion, liquidity and, consequently, investor interest. A successful listing should pave the way for similar moves from the other two telecoms firms, Zain Iraq -- a subsidiary of Kuwait's Zain -- and France Telecom affiliate Korek.

But as companies look to invest, they realise the need to change the way they operate. Some have a history of state ownership and want to become more commercial, some just know that building scale means transforming business processes. And to implement change, they are keen to enter joint ventures, or simply to bring in foreign know-how into their management teams.

Al-Hilal Industries, which is minority owned by the Ministry of Industry, is a good example. The firm, which operates seven factories making evaporative air coolers, and air condition machines and equipment, raised 4 billion dinars in a rights issue at the end of 2010 to help fund expansion.

The company should be expanding quickly as rising income translates into demand for essential products in a hot country, but sales have stagnated in the last couple of years, partly because of rising competition from imports. The company says it is keen to find a partner to help improve operations, but discussions with a European firm have yet to yield any results.

Mamoura Real Estate Investment is in a similar position. The firm raised just over 3 billion dinar in late July to build much needed housing following a subdued 2011, when its development activities dropped markedly. Mamoura has a large plot of land in Baghdad and says it is looking to bring in an experienced foreign developer as a partner to develop it.

Obviously, security remains the major concern for foreign companies looking to do business in Iraq, as is uncertainty over the legal and regulatory environment. But at least from an economic point of view, brining expertise can yield fairly rapid and marked results.

Al-Kindi Veterinary Vaccines Drugs, for instance, recently entered into an agreement with a Russian company for the production of veterinary vaccines for sale to the Ministry of Agriculture. There has also been an agreement signed with the a French research institute that will help with upgrading production techniques. The company has made giant strides and has ambitious plans for the future even as sales have doubled in the last year, and operating profit has almost tripled.

Sherif Salem is portfolio manager at Abu Dhabi-based asset manager Invest AD. He manages the Invest AD Iraq Opportunity Fund, as well as helping to manage other equities funds investing in the Middle East and Africa.

Russia’s LUKoil has said it has cut its oil production plan in Iraq by almost a third, in line with the local government’s plans to increase the lifetime of its oilfields, reports Al Arabiya.

Andrei Kuzyayev, head of LUKoil Overseas, told Russian state TV channel Rossiya-24 that LUKoil is now looking for peak production at the West Qurna-2 oilfield of 1.2 million bpd, not 1.8 million bpd as previously envisaged.

He said the Iraqi government has decided to cut peak oil production in order to prop up oil prices and help its economy.

“That’s why Iraq’s leadership has decided to limit production in the whole country to 9 million bpd, not 12 million bpd,” he said.

“The Iraqis have analyzed the situation for the last three years, and they come to the conclusion they didn't need (sharp rises in) peak production,” Kuzyayev added. “That’s because the peak production will lead to creation of excessive infrastructure. And going forward, when production will start to sharply decline that would create an unstable macroeconomic situation in Iraq.

Iraq has signed a series of contracts with foreign companies that target total oil production capacity of 12 million bpd by 2017, but has been reviewing the target.

“In return (for cuts) we got a substantial increase in the lifetime of the plateau production. The plateau output has been envisaged to last 12-13 years, while now it has been revised to 19 years,” Kuzyayev said.

Any deep cut to Iraq’s overall target could mean the deals could need to be adjusted to accommodate lower production plateaus, or peak output levels, which would mean lower returns for oil companies in the short term.

(Sources: Al Arabiya, Aswat al Iraq)

By John Lee.

WesternZagros Resources has announced the appointment of Mr. William (Bill) Jack to the position of General Manager Kurdistan, to be resident in Iraqi Kurdistan, effective February 1, 2013.

This appointment follows the decision by Mr. Ian McIntosh, Vice President, Kurdistan Business Unit, to retire in January 2013 after three years of valuable service.

"Ian has been an important member of the Company's executive and has built our Kurdistan organization into a highly effective team. Among his many contributions, Ian was instrumental in quickly preparing the Sarqala-1 well for an extended well test. We wish Ian the very best," said Simon Hatfield, WesternZagros Chief Executive Officer. "We are, at the same time, delighted to welcome Bill to the WesternZagros team. His international experience is very well suited to our ambitious exploration and appraisal plans."

As General Manager Kurdistan, Mr. Jack will be a member of the Executive Management Team, and will assume responsibility for government liaison and in-country administration. Mr. Jack's extensive background encompasses more than 30 years of progressive leadership in international oil and gas roles, having spent the majority of his career with BP on projects in the United Kingdom, Middle East, Russia, Australia and North America. His most recent appointment was General and Country Manager, Tunisia for Petrofac. Mr. Jack holds a Bachelor of Science, Mechanical Engineering from University of Glasgow.

(Source: WesternZagros)

By John Lee.

Iraq made its first major move in years to boost its gold reserves, joining central banks from emerging market economies such as Brazil and Russia in diversifying its foreign reserves.

According to a report from the Lebanese Daily Star, central bank purchases have been one of the biggest drivers of gold's rally since 2010 - a year which saw central banks turning net buyers of the precious metal for the first time in two decades amid growing doubts about the stability of the dollar as the world's top reserve currency.

Over the course of three months between August and October this year, Iraq's gold holdings quadrupled to 31.07 tonnes, the International Monetary Fund's monthly statistics report showed on Thursday.

(Source: Lebanese Daily Star)

By Madeleine White, former teacher and educational writer and Head of Marketing, Whizz Education.

This month’s announcement of closer collaboration between Europe and Iraq, coupled with last month’s WISE 2012 summit in Qatar, provides a great starting point for exploring the role of the Middle East in driving global collaboration and knowledge-share in Education.

It is clear that oil wealth, coupled with the desire to build a knowledge economy, offers a powerful incentive for recycling natural resources into knowledge. For example, the Educate A Child project was launched at WISE as a global initiative, aiming to make high-quality education accessible to all.  Might Kurdistan’s difficult history provide equally fertile ground for facilitating a global paradigm shift in education? The enforced isolation of a generation might indeed help leapfrog ‘received wisdom’ in order to serve immediate regional needs.

Leading the Way...

• Plans for major engineering and infrastructure projects (i.e. around Water and Agriculture) have highlighted a significant skills gap. Kurdistan is therefore matching the outputs of the education and training system by 15% per annum to meet the needs of the labour market. This kind of initiative can be used as a model to be shared with other countries.

• There is a genuine desire for support and promotion of education in the international community in order to further develop social equity and economic opportunities.  With the help of the Dubai Financial Market for example, Kurdistan will be launching Iraq’s second stock market in the next six months.

... with a little help from some friends

• Development Banks see themselves as knowledge banks as well as funding sources. They are able to use a vast amount of expertise, research and ideas to apply the strategies that they consider to be of the greatest use. This is relevant because EU support, for example, is channeled via the World Bank. World Bank projects that have contributed to Iraq’s reconstruction efforts include the construction of 66 new schools, the rehabilitation of 133 schools and the financing of more than 82 million textbooks.

• NGO involvement is also important. Last August saw UNICEF sending a delegation to meet with the Kurdish region Minister of Education in order to discuss the development of schools in the region. With goals of an  80% literacy rate within 5 years laid out and confirmed by the Regional Government, there is certainly a challenge to be met. Leveraging international expertise will therefore be of great value.

Between August 2006 to February 2012, an estimated $426 million, US dollars, capital private investment has been made in the Education sector in Kurdistan. One thing is clear, it is not easy turning oil and gas profits into knowledge  – but Iraqi Kurdistan does seem to be committed to making his happen.

Madeleine White is Head of Marketing for Whizz Education.  A former teacher and mother of 3 she is passionate about education, communication and CSR and has written extensively around her experiences.

Since starting in 2004, Whizz Education’s mission has been to raise standards in Maths. Maths-Whizz is used by thousands of 5-13 year olds in 8 countries, with major growth coming from the USA, the Middle East and Russia. By mid-2013, Maths-Whizz is expected to have launched and rolled out into 10 markets. To support this model of sustained, positive growth, Maths-Whizz is supported by Whizz Education offices in London, Seattle and Dubai. Additional support is provided through authorised international partners.Whizz Education is looking forward to other international market entries in 2013 and always welcomes strong partner approaches to support further international expansion.

By John Lee.

An article from Seeking Alpha speculates that Iraq could provide solid opportunities to oil field services firms like Baker Hughes, but points out that there are significant risks and issues that need to be addressed before international firms can participate wholeheartedly in this promising market.

Baker Hughes has been making steady progress by bagging contracts in the Iraqi market. The company inked a deal with Russia’s Lukoil last year to drill in the West Qurna-2 oil fields; the firm also secured a $640 million contract for drilling 60 wells at Zubair.

However, the firms operations in the region have been slow to pick up. It has been experiencing high start-up costs relating to equipment movement and logistical issues, and the firm mentioned that at present Iraqi operations were a compression of the firms margins. A lack of clarity in rules and institutional inefficiencies have also slowed down the firms operations in the country.

The author gives a price estimate of $54 for Baker Hughes, representing a 28% premium to the current market price.

(Source: Seeking Alpha)

By John Lee.

Reuters reports that top oil trader Vitol has apologised to the Iraqi government for buying Kurdish oil that was exported via Turkey without Baghdad's permission.

Iraqi Oil Minister Abdul-Kareem Luaibi [Elaibi] said on in Vienna:

"In terms of Vitol, they have cancelled the Kurdish amount and they apologised officially ... As for LUKoil, there will be a meeting about this concern - maybe tomorrow or the day after."

He made no mention of Trafigura.

Kurdistan began selling oil into international markets in independent export deals in October, further challenging Baghdad's claim to full control over Iraqi oil after signing independent exploration deals with foreign oil majors last year.

(Source: Reuters)

By John Lee.

According to a report from NINA, the Iraqi government decided today (Thursday) to end the official contract for Ali al-Dabbagh as the Iraqi government Spokesman.

Dabbagh stated earlier:

"I'm the first one who alerted the Prime Minister Nuri al-Maliki to the possible existence of suspicions of corruption regarding arms deal with Russia."

The following day, the Prime Minister reportedly denied Dabbagh's statement and some media outlets reported Dabbagh's name "as one of the suspicious officials [with a] role in the Russian arms deal for Iraq worth of $4.2 billion".

(Source: NINA)