DrDinar Blog

This last February 2009 Iraq Drilling Co. signed and completed the creation of joint venture with the British Mesopotamia Petroleum called Iraq Oil Service Co. (IOSCO).

This new company will purchase twelve drilling rigs as well as secure drilling contracts in the fields controlled by South Oil Company (SOC), Oil Exploration Company (OEC), Missan Oil Company (MOC) and Northern Oil Company (NOC), all state owned organizations in Iraq.

IOSCO will be drilling at least 60 drills per year. These activities should bring a 120,000 barrels increase in the country’s daily oil production during the first year. The first fields where there will be new drills are Fakka, Bazargan and Halfaya.

Iraq Drilling Co. and Mesopotamia Petroleum, which hold 51 percent and 49 percent of the joint venture respectively, decided to invest $400 million in the new company. As part of this investment, Mesopotamia Petroleum will supply the joint venture with integrated methods and technologies aimed at boosting production.

An oil drilling tender was held on December 31, 2008, where 35 international firms joined. In April 2009, the Ministry of Oil announced a list of nine investors selected to participate in the negotiations for drilling contracts, including KazMunaiGaz (Kazakhstan), Rosneft and Tatneft (Russia), PetroVietnam, Pakistan Petroleum, Sonangol (Angola), Jogmec (Japan), Cairn Energy Plc (UK) and Oil India.

The winning bids were announced at the end of June 2009. Winning bidders will be awarded service contracts under which Baghdad will pay them a certain fee, and offer production sharing contracts which would involve the sharing of profits.

Despite the Ministry of Oil’s efforts to bring international investments to Iraq, contractors remain sceptical on the country’s ability to complete the implementation of these projects. The problems lay not in money or security issues, but the process of decision making, as Iraq’s government is still not stable and solid.

The country’s inability to complete the implementation of contract procedures has been a long-term saga putting obstacles in the rehabilitation of the oil industry. Back in 2004, Weatherford, a US company, had won a contract for 60 wells which was never completed.  Yes, that was 5 years ago, we will see if the massive amount of new contract agreeements get drilled out.

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Article may be reprinted online and offline as long
as this box remains and hyperlinked online. Written
by Darren Chabluk for http://DrDinar.com/blog
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As you probably already know, Iraq is the country with the third largest oil reserve in the world, following Arab Saudi and Iran. 

Iraq has eleven oil fields with a total reserve of 115 billion barrels of oil. The production capacity of these fields is of 2.5 million barrels a day. However, for several reasons, such as sabotage acts negatively impacting production in the northern part of the country and technical difficulties in some areas, actual production is only 2 million barrels on a bad day.

Oil production is heavily concentrated in two provinces, Basra and Kirkuk. Other oil fields are located in Mesan, Salaheddin, Mosul, Baghdad and Diala. An exciting fact about the Iraqi oil reserves is that there are also some discovered but undeveloped fields spread across the countries in most provinces, except for Anbar, Babel, Diwaniya and Dahouk. These fields could ensure the future of the oil industry for short to medium term. With the addition of these fields, capacity could reach 5.5 to 6 barrels a day.

Up until recently, Iraq’s oil fields used to be managed centrally by the Iraqi Ministry of Oil. However, with the new Constitution, these fields are now under the management of Iraq’s Federal Government. Under previous legislation, 14 state owned companies were responsible for oil drilling, oil exploration and oil production. The Ministry of Oil’s current strategy is to bring foreign investors to the country’s oil exploration and drilling activities in order to increase production beyond 2.5 million barrels a day.

In August 2008, Iraq signed the first major post-war deal with an international investor – China National Petroleum Corporation. This was actually a revised prewar agreement for CNPC to work on the development of the Ahdab field. The project had been interrupted in 2003 when the war in Iraq started. The Chinese oil company started work in March and continued the project despite security problems and farmers protests for damages to their property.   (article continued in next weeks DrDinar blog post)

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Article may be reprinted online and offline as long
as this box remains and hyperlinked online.  Written
by Darren Chabluk for http://DrDinar.com/blog
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Oil production is the most important component of Iraqs economy. The country has proven reserves of 115 billion barrels, but it’s estimated that about 90 percent of the country is unexplored due to the military turmoil’s that marked Iraq’s recent history.

If these estimates are true, the undiscovered reserves could increase production capacity with 100 billion barrels. The cost of producing oil is also amongst the lowest. Finding cost is less than one dollar per barrel, while finding and development is estimated at $1.50 to $2.25 per barrel.

Oil production was deeply affected by the 2003 US-led invasion. Pre-invasion production was 3.5 million barrels a day and is currently around 2.5 million. Iraq’s Ministry of Oil expected to reach 6 million barrels a day by 2012. However, the country’s capacity of boosting production depends on three factors.

Boosting Oil Production depends on 3 factors 

#1
First, Iraq must set up a viable business model for international investments switching from its long experimented state company model. The country may not have money to pay for international contractors without giving them a share of the profits.  The Iraq Hydrocarbon Law comes into play.

#2
Second, Iraq is a member of OPEC, which imposes certain restrictions on production.

#3
Third, the country must increase security and deter any risks of terrorist attacks.

In May 2007, Iraqi Council proposed a legislation known as the Iraq oil law or hydrocarbon law which would authorize PSAs (production share agreements) with foreign companies, guaranteeing them a share of profits. The remaining revenue would be distributed by the central government on a per capita basis.

Furthermore, Iraqi provinces would receive autonomy in awarding exploration and production deals. Under this legislation, the state-run National Oil Company would only control 17 out of Iraq’s 80 oil fields, leaving operational control over two thirds of the fields in the hands of foreign investors. However, part of the profits would go into Iraq’s tax revenue.

After the $3 billion deal signed with China in 2008, Iraq started looking for other international partnerships, including Russia and Iran. The Russian company LUKoil is in talks for renewing its $3.4 billion deal with Iraq from the Saddam Hussein period. Gazprom Neft is another company interested in developing oil and gas plants in Iraq.

Iran plans to build a gas pipeline project passing through Iraq. The country aims to import about 200 thousand barrels of oil a day from Iraq for its Khuzestan refinery.

All these international partnerships should help Iraq reach the goal of more than doubling oil production by 2015. However, recent reports claim that these plans are somewhat unrealistic and that if everything goes well, Iraq may be able to increase production  to approximately 4.1 million barrels per day by 2015 which leaves the range of estimates from 4.1 to 6 million barrels per day.

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This article may be reprinted online or offline as long
as this box remains and hyperlinked online. Written
by Darren Chabluk for http://DrDinar.com/blog
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Warka Bank recently set up an online banking system which helped increase operating revenues by 9 percent to IQD29 billions in the first quarter of 2009. Operating revenues represent 98% of total revenues, which increased by 6 percent during the first quarter.

Warka Bank is also the first bank in Iraq to implement foreign investment legislation, allowing foreign investors to purchase Iraq stock. The bank now has 10,000 international clients, some of which are also purchasing stock. International investments were also an important driver to the company’s financial growth.

Growth strategy is based on both expanding portfolio of products and services and geographic expansion.  Warka is importing 15 thousand POS machines that will be implemented wherever needed throughout the country, in shops, plazas, fuel stations or ministries. 

Warka’s expansion strategy is focused on those areas with large construction projects, grants and other funding. These areas offer the biggest opportunities for rapid business growth. In order to keep well informed, the company communicates intensively with branch and area managers. 

Warka bank has plans to go international, opening up a branch in Beirut and bank offices in Egypt, Jordan, Turkey and Dubai.

Warka Bank’s expansion has been boosted by the bank’s large presence throughout the country and the responsiveness to evolving market needs. Company representatives believe that one of the success factors is also the fact that they are very independent. Warka Bank is a family-owned company run by one of the richest men in Iraq, Saad S. Al-Bunnia, and the large inflow of capital has allowed the company to refuse all offers from other banks.

The international partnerships are an important step towards the development of the Iraqi banking system and the reintegration within the world’s financial network. The CEO of Warka Bank stated that the company plans to contribute to the overall reconstruction of Iraq as an important financier in many sectors such as water, power, construction and communication.

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This article may be reprinted online and offline as long
as this box remains and hyperlinked online. Written by
Darren Chabluk for http://DrDinar.com/blog
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