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By Gavin Jones, Director of Iraq Business News, and Partner at consultancy firm Upper Quartile. This article was originally published on the Emerging Economics blog. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

We are seeing an unprecedented level of interest in Iraq from UK and International companies – we regularly run trips into Baghdad and Basra, have been running recruiting programmes for large international companies and have had a lot of interest from senior Iraqi Government officials and technical staff in visiting the UK to identify partners.

On several occasions we have been asked where UK Trade and Investment is and what they have in place in Iraq to support British companies. The straight answer is that what UKT&I have is very limited, restricted to Baghdad and (appears to me) to be limited to a meeting once a week with the British companies in Iraq that can make it into the British Embassy. This is appalling following the cost in terms of lives and money of getting Iraq into the position of being willing and able to accept international investment. It is all the more galling when a significant number of senior influential Iraqi’s have a close relationship with the UK. As one said “..we would like to work with UK companies but we don’t have to..”

To put the situation into perspective the UK closed their Consulate in Basra in May – then Kuwait opened one in June and the US opened theirs in July; the Russians, Germans, Danes and Turkey have functioning Consulates in Basra. The Basra Oil and Gas show in November has the Swedish Trade Council, South California and Oil and Gas – French Industry ….. all there. No British Government presence. See attached Basra Oil and Gas Exhibition floor plan

There are two reasons behind this myopia that that I can see:

The first is that old one of budget restrictions and argument that UKT&I can maintain a network of representatives in – say – India from which there is a bigger and better established trade relationship, whereas the costs of operating in Iraq are so high that they can only afford a network of two or three staff. This does not really wash – countries with an established (and often sizeable) trade with the UK do not really need support in the same way as a new, very large, wholly untapped and very misunderstood market like Iraq does.  If there was ever a place that companies looking to establish a presence in were crying out for UK Government help in – it is Iraq.

Heritage Oil has announced its interim results for the six months ended 30 June 2011.

Operational Highlights

Corporate Highlights

·    Strong balance sheet with cash of approximately $468 million, excluding $405 million related to the tax dispute

·    Share buy back programme commenced in April 2011 and to date 28,556,281 Ordinary Shares have been bought back and held in treasury

·    12.46% of PetroFrontier Corp. acquired for investment purposes

·   Arbitration proceedings have commenced in London against the Government of the Republic of Uganda (the "Ugandan Government") to resolve the tax dispute

·    Implemented internal systems for managing requirements of the UK Bribery Act which became law in July 2011

Outlook

·    Multiple reservoir intervals to be tested and evaluated in the Miran West-3 well during the second half of 2011 as the well is drilled to a target depth of c.4,400 metres

·    Exploration drilling on the Miran East structure planned to commence in December 2011, at which time two rigs will be operational in the field

·    Final processing of 3D seismic data on the Miran Field is scheduled to be completed in the fourth quarter of 2011

·    Work programmes in Tanzania, Mali and Malta continuing

·    A further development well planned for Russia in the fourth quarter of 2011

·    Production from the Zapadno Chumpasskoye Field, in Russia, expected to continue to increase

·    Active assessment of new acquisitions and opportunities continues

Tony Buckingham, Chief Executive Officer, commented:

"We have started the second half of the year with a strong balance sheet, an active multi-well exploration and appraisal drilling programme in Kurdistan and increased production following the success of our first horizontal well in Russia. We continue to assess opportunities to acquire and invest in exploration and early development opportunities throughout the world, with a particular emphasis on our core areas of Africa and the Middle East where we have a strong technical understanding and an established network of contacts."

If anyone ever doubted the international nature of business in Iraq, just look at the list of nationalities represented on the list of companies pre-qualified for the country's fourth round of oil licences:

• Angola
• China
• Croatia
• Egypt
• France
• India
• Indonesia
• Italy
• Japan
• Kuwait
• Malaysia
• Netherlands
• Norway
• Pakistan
• Russia
• South Korea
• Thailand
• Turkey
• United Arab Emirates
• United Kingdom
• United States
• Vietnam

And in the past week alone we've seen announcements of an Egyptian refinery in Mosul, a Jordanian company winning an oil transportation contract, A Korean firm building 100,000 homes in Baghdad, an American company supplying surveillance equipment, a Swiss company modernising a textile plant in Wassit, and Turkish and French businesses building hotels.

And on the subject of international presence, Iraq Business News has readers in 167 countries - there’s no better way to reach this global audience than to advertise in IBN!

Can you see opportunities for your business in Iraq?

If so, Upper Quartile and AAIB are the perfect team to help you manage the risks and grasp the opportunities. For more information please contact Gavin Jones or Adrian Shaw.

Iraq's oil ministry has issued a list of the 41 companies qualified to participate in its fourth energy bidding round in January:

ATPECO  - Japan

Bashneft - Russia

BP - UK

Chevron Corp - United States

CNOOC - China

CNPC - China

Edison - Italy

Egyptian General Petroleum Corp - Egypt

Eni Iraq - Italy

ExxonMobil - United States

Gazprom - Russia

Hess Corporation - United States

INA-Industrja Nafte - Croatia

Inpex Corp - Japan

ITOCHU Corp - Japan

Japex - Japan

JOGMEC - Japan

JX Nippon Oil and Gas - Japan

Kogas - South Korea

Kuwait Energy - Kuwait

Lukoil - Russia

Mitsubishi Corp - Japan

Mitsui Oil - Japan

Mubadala Oil - United Arab Emirates

Occidental Petroleum - United States

OJSC Oil Company Rosneft - Russia

OJSC TNK-BP Holding - Russia

ONGC Videsh Ltd - India

Pakistan Petroleum - Pakistan

Petro Vietnam - Vietnam

PetroChina - China

Petronas - Malaysia

Premier Oil - UK

PT Pertamina - Indonesia

PTTEP International Holding - Thailand

Royal Dutch Shell - UK/Netherlands

Sonangol - Angola

Statoil - Norway

Sumitomo Corp - Japan

Total - France

TPAO - Turkey

Baker Hughes will drill 23 new wells in Iraq’s largest oil field, West Qurna 2, after signing a contract with Russia’s second largest oil company, Lukoil.

Baker Hughes will use five rigs using advanced technology to drill the wells to a depth exceeding 4,000 meters, the statement said.

"Drilling will begin in the fourth quarter of this year and the projected scope of work will be completed within two years," a statement released by Lukoil said.

The company didn't reveal costs of the contract, but a person familiar with the project told Dow Jones in July that the contract would be worth around $160 million.

The oil field is believed to hold 43 billion barrels of as of yet untapped oil, making it the second largest field in the world.

Lukoil were awarded the contract to develop the field in 2009. It projects that by 2012 they will be pumping 120,000 barrels per day (bpd) raising to 1.8 million within 13 years.

(Sources: MarketWatch, AKnews)

Reuters reports that Iraq's oil exports from its southern ports jumped last month to a six-month high, reflecting efforts by foreign oil companies to boost production.

Exports from the Basra oil terminal and Khor al-Amaya averaged 1.77 million bpd in July, shipping data tracked by Reuters showed. That is the highest since 1.8 million bpd was exported from the south in January.

BP and CNPC have been developing the Rumaila field, where supply is running at about 1.3 million bpd, BP said last week, up from around 1.2 million bpd in May.

More Basra crude than normal is heading to Europe this and next month, according to trading sources, partly in response to a rise in the price of competing Russian Urals.

Iraq's exports overall actually fell in July from June. According to shipping industry sources, exports of Kirkuk crude shipped from the country's north averaged 445,0000 bpd, less than in June.

A senior Iraqi official on Monday cited growing local demand, because of hot weather, for the decline in exports overall.

Falah Alamri, head of Iraq's State Oil Marketing Organisation, said exports dipped to 2.164 million bpd from 2.275 million bpd in June as more crude was used domestically.

The FMG Iraq Fund has grown by + 25% since it began in May 2010. Year to Date the fund is up + 10% and in the month of June it was up by an estimated + 4.1%.

The Fund invests mainly in stocks listed on the Iraq Stock Exchange (ISX) and to a lesser degree in off shore listed shares that derive a significant part of their business from Iraq.

Johan Kahm, founder of FMG, who visited Iraq in June 2011 and said upon his return:

“Iraq is turning the corner for the better. We are looking at a unique investment opportunity where we hope to make outsized returns over the next 5-10 years. Our decision to launch the Iraq Fund a year ago seems to have been well timed. Iraq sits as the third largest proven oil reserves in the world and has the potential to overtake Saudi Arabia as the world’s largest oil producer.”

Henrik Kahm, who is managing the Iraq Fund, said:

“Over the last year there has been a strong performance of the Iraq Fund thanks to the successful efforts to stabilise and rebuilt Iraq. The Fund offers investors an easy way to participate in the Iraqi growth story and is positioned to take advantage of the growth derived from post-war reconstruction and massive oil production expansion.”

The following facts are supporting the investment opportunities in the Iraq:

• Iraq is currently producing 2.7 million barrels of oil per day planning for 12 million by 2015.

• A country with 143 billion barrels of Proven Reserves - only 20% of Iraq has been explored for oil.

• Iraq has $46bn in Cash Reserves and growing.

• The Economy is expected to double (from $75bn to $150bn) by 2015. The new democracy is standing up well to its reconstruction challenges. $186 billion infrastructure spending plan. Should the price of oil be over $100 per barrel, then the infrastructure spending can be expected to increase significantly.

• Expected GDP growth of some 7% in 2011 (IMF).

• The current market cap of the Iraq Stock Exchange (ISX)­ is less than USD 4bn, compared to its neighbour Saudi Arabia, that has a market cap 85 times larger despite only 1.9 times more oil reserves.

• In 1995 FMG launched one of the very first Russia Funds and the early investors have now made 2000% returns. Today a similar opportunity has unfolded. Iraq is emerging as a very exciting frontier market.

Although usually only open to larger institutional type investors, FMG provides investors with the opportunity to invest with a minimum investment of US $10,000. (£6,000)

Investment into the Iraq Fund is an attractive proposition for UK investors, as gains will be taxed as capital gains at 28% and not as income tax rate at 50% as the fund has Her Majesties Revenue and Customs “Reporting Status”.

Previously called the FMG Special Opportunity Fund it has now been renamed due to the nature of the investments as the FMG Iraq Fund.

(Source: FMG)

By Gavin Jones, Director of Iraq Business News, and Partner at consultancy firm Upper Quartile.

"Something we could not have predicted five months ago is that Iraq would emerge as the most advanced Arab democracy in the entire region. As messy as it is, when you think back to the months and months that it took to form a government, and the fact that the conflict was political, they weren't in the streets shooting each other. The government wasn't in the streets shooting its people." Bob Gates, US Defense Secretary.

Well, well ……………. given all the soul searching and some of the appalling misjudgments by various Governments involved in the reconstruction of Iraq followed by some the comments then made by the press over the management of the country by the Iraqi Government maybe the cynicism in the West is becoming a bit more muted.

Looking back to all the press speculation at the various game changing decision-points in the country’s development over the last 5 years it is astonishing how wrong all the experts were and – in many cases – still are. We have hosted Iraqi delegations to the UK on a number of occasions – on the first one a delegation of international oil companies dedicated time to explaining to the Iraqi Government that Service Agreements would never work; explaining (carefully) that if the Iraqi Government were looking to much-needed investment, they needed to come into line with the rest of the world and award Production Sharing Agreements (PSA’s) - or the international oil industry would walk right on by and invest elsewhere.

The press presented the 1st license round as a failure by the Iraqi Government who only allocated one license out of the ten bid ………… and publically forced BP to reduce their bid from $3.99 per barrel to $2. BP was hammered in the press for agreeing to take such a cut and the press talked about the oil community by-passing Iraq.

Where are we now; all licenses are awarded; BP’s agreement looks pretty shrewd with other service agreements being awarded at $1.39 per barrel and $1.15 in much smaller fields. And they are all there – Americans, Korean’s, Russians, Malaysia – and all contracted as service companies to the Iraq Government.

We watch the International Oil Companies - so used to being top-dog – coming to terms with their role of a sub-contractor …………. and some are taking a long time to adjust to this position.

The next issue to unfold will be whether Iraq holding out is going to change the way oil-rich countries allow companies to operate in their country is going to become embedded ………… eyes on Libya!

What Mr. Gates was in effect saying is that Iraq as a democtatic model is a potential bulwark for American interests in the Gulf. The private sector is piling in with eye-watering levels of investment - the Press (still) won't acknowledge that Iraq is looking pretty good but - generally: mission accomplished.

It leaves the question as to why the interventions in Libya are based on principles learnt in Afghanistan; it’s the wrong model stupid! Learn from Iraq ..... not Afghanistan.

The Italian oil company Eni, and its Saipem subsidiary, said in a statement Wednesday that they are the injured parties in an investigation into alleged bribes related to contracts in Kuwait and Iraq.

BusinessWeek says Milan prosecutors are investigating whether executives took bribes from Italian engineering and construction firms for subcontracts in Iraq's Zubair oil field and Kuwait's Jurassic fields.

Mario Reali, the former head of Eni offices in Russia, told investigators about alleged payoffs related to contracts in Kazakhstan, and this led investigators in Milan to look into similar allegations related to the Jurassic oil field in Kuwait and the Zubair oil field in Iraq, Italian news agency Adnkronos International reports.

Eni said it has taken "immediate disciplinary and precautionary action against the individuals involved," and that it would take any necessary action to safeguard its own "interests and reputation."

Eni identified the two employees under investigation as an Eni manager in Iraq and a Saipem executive in Italy involved in a project in Kuwait. Eni confirmed their offices have been searched.

News reports said three mediators also were under investigation.

Eni and Saipem -- an oil contractor -- also are under investigation as entities that benefited from the alleged crimes.

Eni leads a consortium developing the Zubair oil field in Iraq, while Saipem has a contract for oil and gas treatment facilities in Kuwait.

(Sources: BusinessWeek, UPI)

Reuters reports that Iraq and its partners, Russia's LUKoil and Norway's Statoil, have shortlisted five companies to compete for the West Qurna Phase Two oilfield development contract.

An Iraqi oil official who asked not to be identified said on Tuesday that the oil service companies selected are Saipem , SNC Lavalin Group Inc , Punj Lloyd Ltd , Globalstroy Engineering and South Korea's Samsung Engineering.

"We are studying the commercial offers and we expect to select a winning company within two weeks," the official said.

Last September, Iraq and its partners issued four tenders for construction and energy projects at West Qurna II, a 12.9-billion-barrel supergiant oilfield in southern Iraq.

The official said seven companies submitted bids, but that two, Petrofac Ltd and Technimont, were rejected. He did not offer any reason for their exclusion.

The four tenders are for the construction of an oil export pipeline; a tank farm at Tuba; a power distribution station and an associated gas processing plant; and an oil gathering system, central processing facilities and a water supply system.

The tenders are part of the initial development plan set by LUKOIL and Statoil and approved by Iraq's oil ministry last year to start production at the untapped oilfield.

They are expected to help production at the field hit 150,000 barrels of oil per day (bpd) in January 2013, the Iraqi oil official said.

West Qurna Phase Two operator LUKOIL is selecting one company to work on an Engineering, Procurements and Construction contract (EPC) for building oil facilities.

(Source: Reuters)