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Being among the first companies to enter Iraq’s Kurdistan region brought challenges for WesternZagros. But the work appears to be paying off as the company makes oil and gas discoveries.
If anyone is looking for a joint venture or M&A target abroad, then WesternZagros Resources CFO Greg Stevenson said he may be wearing the target on his back.
As one of the first entrants into Iraq’s Kurdistan region following the overthrow of Saddam Hussein’s regime, arriving in 2003-04, WesternZagros Resources (WZR) set out with a strategy of getting on trend with the supergiant Kirkuk oil field. WZR was met with several challenges, but the payoff has been a 100% success rate, having found oil at four wells drilled in the region. And its exploration area is among the region’s largest at 2,120 sq km (819 sq miles).
The Kurdamir block, of which WZR has a 40% interest with Talisman (40%) and KRG (20%), has mean prospective resources of an estimated 1,609 MMbbl. WZR has more than 1 Bbbl of net prospective oil resources in the Garmian block, 40% interest.
“I think the challenge in our strategy is really built around drilling and making the large discoveries and making them as quickly as possible,” Stevenson said Oct. 9 during the Oil Council North America Assembly in Houston, “because if the political backdrop is successful in being reconciled between Baghdad and the Kurdistan region, the handcuffs will come off a number of these operations.”
Stevenson, the final presenter in a session on “Independents Abroad: International E&P Strategies,” spoke about how the Kurdistan region has become an attractive market for companies wanting to find oil in the Middle East. The Kurdistan Regional Government’s hydrocarbon law and production-sharing contracts have caused several large companies to risk harming relationships in efforts to do business in the Kurdistan region rather than with Iraq proper, which has technical service contracts usually accompanied by a fee per barrel.
The number of companies operating in Kurdistan has grown from four in the early 2000s to more than 20. But being one of the early entrants has resulted in benefits for WZR, Stevenson said. For one, the region has adopted a PSC-effective profit oil entitlement, which essentially takes a share of a company’s profit and gives it back to the government. WZR’s percentage is 3%, compared to later entrants that have percentages in the 30% to 35% range.
However, entering Iraq didn’t come without a multitude of obstacles.
“Finding oil in Iraq is not difficult. Finding light oil in Iraq is the challenge,” Stevenson explained. “Over two-thirds of it is 26° API or heavier. Finding light oil that improved export blend was our strategy and what we focused on. The challenge with that is you’re also saddled with gas and gas caps.”
Gas is plentiful in the southern quadrant of Iraq; however, gas doesn’t have a ready market in Iraq, he said.
The good news is that an energy market exists in neighboring Turkey, which imports 90% of its energy from Russia. These imports include gas and oil. Bad news is that infrastructure is a challenge, although plans exist for a more than 1 MMbbl/d pipeline capable of transporting oil from fields, including the Kirkuk.
Finding services and equipment also was a challenge. The answer was bringing in equipment from elsewhere. WZR’s first rig was built in Houston, and then shipped to Iraq, Stevenson said, adding seismic crews were brought in from Houston and Canada.
Then, there is the obstacle of dealing with politics, which is capable of creeping its way into various parts of operation and lengthening processes. Dealing with that takes patience, he continued.
“Iraq is starting to realize the benefit of what the Kurdistan region has put in place for companies it has brought in and the security that’s available in the Kurdistan region compared to the rest of Iraq,” Stevenson said.
Developing infrastructure, the size of the discoveries, and the improving political framework of the Kurdistan region continues to attract companies, and the rest of Iraq has suffered, he added.
“Our strategy for being a small organization is to be flexible, to be driven towards a goal and to capture as much of the exploration on site as we can,” Stevenson said.
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