Wildcatters Plunge Into North Iraq

[Etta Place]

Wildcatters Plunge Into North Iraq
'Easy Oil' in Kurdistan Spurs Westerners to Brave the Risks

By NEIL KING JR.
July 9, 2008; Page A1

TAWKE, Iraq -- The Canadians are squeezing oil from sand. The Brazilians want to nurse it up through miles of seawater, sandstone and salt. But here in the far north of Iraq, oil is literally bubbling to the surface.

Oil executives lament that the age of "easy oil" is over. It isn't over here. For companies that have stumbled into this corner of Iraq known as Kurdistan, it's an era that has just begun.

"Look at this," said Magne Normann, Middle East director for DNO International ASA of Norway, as he stood beside a pond of oil oozing up on a hillside. For fun, he heaved in a stone. "What a sight," he said, as the liquid shot three feet high. "Pure oil."


Mr. Normann admires one of the many natural oil seeps near the village of Tawke.

Iraq is well known as one of the planet's last great oil repositories, with more than 115 billion barrels of reserves, by most estimates. The surprise is how much oil -- and easily accessible oil -- there appears to be in Iraq's Kurdish region, a rugged, Switzerland-size area that has seen centuries of conflict but essentially no oil exploration, until now.

One of the world's most prolific oil fields, the Kirkuk field, sprawls for more than 70 miles just to the southwest of the Kurdish region's border. After 74 years in production, it still churns out over 400,000 barrels a day. Dozens of similar geological structures extend far to the north in Kurdistan, undrilled and almost entirely unexamined.

"I am not expecting to find another Kirkuk," says Ashti Hawrami, Kurdistan's plain-talking minister of natural resources. "But I think we will find a lot of fields that add up to Kirkuk."

If he's right, Kurdistan's three provinces could hold more than 25 billion barrels of crude. That's roughly five billion barrels more than the remaining proven reserves of the U.S.

With oil prices near record highs -- U.S. benchmark crude closed at $136.04 a barrel yesterday, off $5.33 for the day but still roughly double the level of a year ago -- governments and energy companies are scouring the earth for fresh supplies. (Please see related articles on Asian oil usage2 and commodities prices3.)

Kurdistan is now among the world's last playgrounds for the old-fashioned oil explorers known as wildcatters. More than 20 companies from around the world are prospecting here, making this one of the liveliest exploration zones in the oil-rich Middle East, particularly for risk-taking small fry like DNO.

The hubbub is in sharp contrast to the rest of Iraq, where an exploratory well hasn't been drilled in 15 years, thanks to neglect throughout the Iran-Iraq war, the period of international sanctions and then the war that began in 2003. Major oil companies have entered talks with Baghdad over ways to boost output in the huge fields in Iraq's south. But the Iraqi government remains loath to grant outsiders the right to explore for new oil or to share in the profits.

The freewheeling Kurdish area has no such compunctions. The Kurds have enjoyed near-complete autonomy within Iraq since the early 1990s, and now have their own regional government, complete with a Parliament and a prime minister. The 2005 Iraqi Constitution recognized that autonomy, and gave the Kurds a degree of control over their own resources that they were quick to exploit.

By early 2007, the Kurds had awarded contracts to three exploration ventures. When negotiations over a national Iraqi oil law broke down in acrimony last summer, the Kurds decided to move ahead with their own oil legislation. Some two dozen other exploration deals were signed under the Kurdish law -- causing Iraqi officials in Baghdad to regard them as invalid.

Companies signing deals under the Kurds' law have since been barred by Baghdad from doing business in the rest of Iraq, where the biggest of the country's oil fields lie. That threat is keeping the major oil companies out of Kurdistan, despite their ardor for new terrain to drill. Meanwhile, until Iraqis can agree on a national oil law, the companies drilling in Kurdistan have no way to export oil they unearth.

Even if they do find a way, the oil will have to travel via an existing oil pipeline that runs through Turkey, which has skirmished with the Kurds for decades and fears the rise of a rich and independent Kurdistan. Like Iran and Syria, Turkey has a large and often restive ethnic Kurdish population.

All these uncertainties have helped push down the stocks of some of the oil companies operating here, as investors have recoiled from the legal morass and the overall dangers of Iraq. A slumping share price was one reason that Todd Kozel, the American chief executive of U.K.-based Gulf Keystone Petroleum Ltd., recently flew a dozen hedge-fund managers and financial analysts over to see his company's holdings firsthand. "The goal of this trip is to prove that Kurdistan is safe," he told them.

Insurance Policy

Kurdish officials look at the flurry of oil contracts they're signing as a two-pronged insurance policy. By cutting deals with companies from countries as diverse as Australia, Britain, France, India, Russia, South Korea, Turkey and the U.S., the Kurds say they hope to win international political support in case things go awry with Baghdad.

And in case Iraq were to break up, the Kurds would have their own abundant revenue stream. "Has this been deliberate? It certainly has," says a beaming Mr. Hawrami, the Kurdish natural-resources minister, who has crafted the bulk of the contracts awarded so far. "We want a balance. We want friends on all sides."

Some good-sized companies have planted their flags here, including Austria's OMV AG, Hungary's MOL Group and India's Reliance Industries Ltd. But they are far outnumbered by lesser-known ones that see Kurdistan as a once-in-a-generation opportunity. WesternZagros Resources Ltd., for example, is a Canadian company that has never drilled for oil. It now has the rights to a 2,000-acre patch about 60 miles southeast of the famed Kirkuk field.

Then there's Genel Enerji AS and Addax Petroleum Inc. Together, the Turkish and Swiss-Canadian concerns have sunk six wells in their Taqtaq field and are ready to pump more than 50,000 barrels a day. Estimated extractable oil in their field, the companies say: at least 550 million barrels.

Rumblings of a coming oil boom have triggered pell-mell construction in Erbil, the capital of the Kurdish region, a city that local officials tout as the next Dubai. It has a new airport. Cranes hover over the frame of a high-rise hotel being built for Kempinski, the German luxury hotelier. A United Arab Emirates company, Damac Properties, is planning a $4.5 billion retail and golf community on the outskirts.


No company better captures Kurdistan's oil boom than DNO, which in 1995 had just three employees and a North Sea oil plot that coughed up around 800 barrels a day. By 2004, DNO had multiplied its output with expanded North Sea holdings and 30 wells in Yemen. That year, DNO signed its first contract with the Kurdistan regional government.

What brought Mr. Normann to the tiny village of Tawke, within sight of the Turkish border, were the area's pond-size oil "seeps." Oil and gas seeps aren't always a good sign. But in Iraq, they have led, over the years, to some of the biggest finds.

The DNO deal was unusual in several ways. It was signed just as the insurgency caught fire in the rest of Iraq, but before Iraq had a new constitution. More noteworthy was that it promised the Norwegian company a cut of future revenue in exchange for shouldering all upfront risks and investment costs.

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[Etta Place]

Wildcatters in Iraq, continued

Such so-called "production-sharing contracts" are controversial in much of the Middle East, where people oppose giving foreigners a cut of their nations' resources. But the Kurds have used roughly the same model for all ensuing oil deals, permitting companies to take profits, after expenses, of around 18% on average. The rest will go to the Kurdish government. How that will then be distributed within Iraq is still being negotiated.

What the Kurds wanted in return was speed. Dozens of contractors turned down DNO, but it managed to hire a Canadian seismic crew and a Chinese drilling company called Great Wall Drilling. By November 2005 it had its first drilling rig in place, shipped from China and hauled by a 110-truck convoy from the Turkish port of Mercin.

Six months later, DNO announced it had struck oil -- the first new discovery in Iraq since the early 1990s. "By any measure, anywhere, that's fast," says Mr. Normann.

DNO now has three tracts covering an area nearly the size of Rhode Island. It is drilling its 11th and 12th production wells at its Tawke field, which extends for 16 miles along an undulating rise in the far northwest corner of Iraq. Tests so far suggest the field may contain more than a billion barrels of oil. DNO has told shareholders that with its current technology, it expects to recover at least a quarter of that.

Its Tawke wells can pump an average of around 10,000 barrels a day each. That is small compared with Kirkuk and other mammoth fields. But it has been years since any U.S. oil well, outside of Alaska and the Gulf of Mexico, produced anywhere near that. The most prolific onshore well in the lower 48 states, owned by Swift Energy Co. in Louisiana, pumped just 1,600 barrels a day last year.

"For a company of our size, there is nothing like this anywhere in the world," said Mr. Normann, gazing at DNO's rugged concession on a drive from Erbil to Tawke.

After crossing other companies' tracts, his Land Rover cruised for nearly an hour along an arid, scrub-dotted plain with an immense ridge to the north extending far to the horizon -- all of it open to DNO exploration. "That ridge goes all the way to Syria," Mr. Normann said, pushing back his cowboy hat. "And we haven't drilled any of it."

Export Holdup

DNO is lucky on several counts. It has found abundant oil. Its contract, approved before Baghdad and Erbil had their bust-up early last year over the national oil law, is one of the only three not under fire.

And its main holdings are within easy reach of the oil pipeline that extends into Turkey from the Kirkuk field. DNO has laid its own 30-mile pipeline to hook into the main line.

All of DNO's oil operations are guarded by Kurdish militia forces.
But it still has a big problem. After investing more than $350 million drilling wells and laying infrastructure, it still can't export oil; Baghdad has held up any exports pending resolution of the debate over a national oil law. Instead, dozens of tanker trucks line up at its base camp to haul away some 7,000 barrels a day, pumped straight from the wellhead for the local market. The stock of DNO is off 21% since a year ago.

On their parched plot to the east of Erbil, the Turkish-Canadian operators of the Taqtaq field are in the same bind. Turkey's Genel Enerji got the rights to the field in 2003 and later brought in Addax as a partner. Their target production is 300,000 barrels a day. But to export any of it they must lay their own pipe roughly 30 miles to the Kirkuk line, an investment they are reluctant to make until the Kurds resolve their standoff with Baghdad.

"For now, we are just spending money," says a frustrated Can Savun, the venture's project manager.

Newcomers like Gulf Keystone, which signed its contract amid a rash of contested deals last fall, are charging ahead as well, confident the brawl over the national oil law will be resolved before they hit oil.

Gulf Keystone is doing seismic tests and plans to have a drilling rig in place by early next year. Its CEO, Mr. Kozel, brims with enthusiasm over Kurdistan's promise. "This is Iraq," he said. "This is the most promising oil patch in the world." Stock-market investors, evidently mindful of the risks, are less enthusiastic. The stock is down about 30% from early November, when it announced the deal.

To stir some market confidence, Mr. Kozel brought his gaggle of investment managers and analysts by for a chat with Mr. Hawrami, Kurdistan's de facto oil minister. Baghdad has no right to approve or disapprove of the contracts Erbil has already signed, Mr. Hawrami told them. "It is done, it is finished, it is history, it is final," he said, with a faint brogue gained from years spent in Scotland.

So when might companies here start exporting oil? Mr. Hawrami shrugged. That will take more time, he said. But by the end of next year, he assured them, Kurdistan would be exporting a quarter of a million barrels a day. "I have no doubt about that," he said.

Write to Neil King Jr. at neil.king@wsj.com4

[Etta Place]

Some time ago, I was discussing the war in Iraq with a geologist friend of mine. He mentioned these oil company wet dreams -- pools of oil just sitting on the surface in Iraq.

What I suspect is that the oil companies would expect the U.S. taxpayer to help foot the bill for drilling in the U.S., where the oil is harder to reach.

[AZXD]

You foot the bill either way.

Which is cheaper ??
Which removes our foreign oil dependency ??

I thought you were opposed to big oil, and viewed our presence in Iraq as something that needed to end yesterday.

Is it now OK because there is the potential that we might eventually remove the political ties that keep us from using our own resources ??

Is it now OK because drilling and refining at home would lower the cost and thus reduce the potential that the U.S. might reduce its energy consumption ??

[DanTheEldest]

Good for the Kurds. They have a saleable domestic resource, and they're intending to use it to the fullest. Why we still seem to have a complex about doing the same thing here remains a mystery to me.

[FLSTFI Dave]

Originally Posted by DanTheEldest

Good for the Kurds. They have a saleable domestic resource, and they're intending to use it to the fullest. Why we still seem to have a complex about doing the same thing here remains a mystery to me.

No mystery here. NIMBY (not in my back yard) syndrom.

Example, Senator Kennedy is all for wind power, just not near MA, his home and home state.

New refinery was blocked in LA (state) due to NIMBY, as the state has many old refineries.

Fights are going on in west TX over Wind turbine farmes, again the NIMBY

It is not just oil that the enviormentalists and the NIMBY are blocking they are also blocking Large Scale solar, blocking Wind power, blocking Nuclear power, coal to liquid, coal mining and the list goes on.

Soon they will be blocking electric cars when they figure out these huge lead acid batteries have to be disposed of.

I can tell you I would much rather live next to a nuclear power plant than just about any other type power plant. Why? Because it is clean, does not emit smoke. In fact I am so confident in it I live less than 10 miles from a Nuke plant.

We need to take our county back from the Enviornmental nuts, and the NIMBY's.

Now when I say that, I am not talking the average person who support the enviornment. I for example recycle paper, aluminum, plastic, cardboard and so on. I also drive a flex fuel car that get 30mpg. I ride my motorcycle that gets 50 mpg when I can.

But we can not distroy our economy and our country to appease the nut jobs.

[AZXD]

Originally Posted by FLSTFI Dave

We need to take our county back from the Enviornmental nuts, and the NIMBY's.

But we can not distroy our economy and our country to appease the nut jobs.

+1,000,000 on both counts

[DanTheEldest]

Originally Posted by FLSTFI Dave

No mystery here. NIMBY (not in my back yard) syndrom.

Example, Senator Kennedy is all for wind power, just not near MA, his home and home state.

New refinery was blocked in LA (state) due to NIMBY, as the state has many old refineries.

Fights are going on in west TX over Wind turbine farmes, again the NIMBY

It is not just oil that the enviormentalists and the NIMBY are blocking they are also blocking Large Scale solar, blocking Wind power, blocking Nuclear power, coal to liquid, coal mining and the list goes on.

Soon they will be blocking electric cars when they figure out these huge lead acid batteries have to be disposed of.

I can tell you I would much rather live next to a nuclear power plant than just about any other type power plant. Why? Because it is clean, does not emit smoke. In fact I am so confident in it I live less than 10 miles from a Nuke plant.

We need to take our county back from the Enviornmental nuts, and the NIMBY's.

Now when I say that, I am not talking the average person who support the enviornment. I for example recycle paper, aluminum, plastic, cardboard and so on. I also drive a flex fuel car that get 30mpg. I ride my motorcycle that gets 50 mpg when I can.

But we can not distroy our economy and our country to appease the nut jobs.

It was a rhetorical statement, but I agree with you completely.

[FLSTFI Dave]

Originally Posted by DanTheEldest

It was a rhetorical statement, but I agree with you completely.

I sort of figured it was, as in another post you had commented on the NIMBT types.

I just took at as a good opertunity to point out some of the hypocracy, and the fact that the extremests are holding our energy needs hostage.

[AZXD]

I guess Blythe will never be a NIMBY haven, and I guess this is the price the California NIMBY crowd is willing to pay for green living.

California Approves First Thin-Film Solar Project for Utility

Written by Katie Fehrenbacher
The California Public Utilities Commission has approved what it says is the first utility-scale thin-film solar project to be built in California, in a contract between utility Southern California Edison and thin-film solar maker First Solar.

The contract is for a 7.5 megawatt solar facility, with the potential to scale up to 21 megawatts, that will be built in Blythe, California, which is right on the border of California and Arizona. According to an advice letter for the contract, the project is expected to start operating in October 2009, and Southern California Edison will buy the clean power in a 20-year deal.

When First Solar purchased Ted Turner’s Turner Renewable Energy, for $34.3 million in December, First Solar bought access to this Blythe project. According to the advice letter, Turner’s personnel will be involved in the development, installation and financing of the project, and the group has already gained control of a large portion of the land.

Because the project is supposed to go online in 2009, Southern California Edison says the project is “especially important in reaching the State’s goal of 20% renewables by 2010.” Specifically Southern California Edison said in the advice letter that “without the approval of the FSE Contract it will be difficult for SCE to reach this goal.” Well, good thing it passed then.

Stock market darling First Solar uses the thin-film technology cadmium telluride to produce its thin photovoltaic panels and has been building utility-scale thin-film solar facilities in Germany, Spain, and the U.S. Some of the company’s larger utility-scale projects include a 40 megawatt project in Brandis, Germany; a 5 megawatt facility in Bullas, Spain, and a 6 megawatt project in Rote Jahne, Germany.