Petrel Resources back on track in Iraq

Petrel Resources, the oil and gas exploration and development company operating in Iraq, announced interim results for the six months to 30 June 2008 today. Shares in the highly speculative oil junior climbed slightly, as the company confirmed that “progress is again underway in our Iraqi operations”.

Petrel posted a loss after tax of €0.417 million on revenues of €8.3 million generated from its contract on redeveloping the Subba & Luhais Project.  Cash at the end of the period was €1.6 million.
But the real interest in the announcement was a summary of activities delivered by the company’s Managing Director, David Horgan.

Mr. Horgan reported that after a “difficult and uncertain” period, the company was again making progress on its Subba & Luhais Project.  The Subba & Luhais development services contract was awarded to Petrel Resources, and covers the design and development of the oilfield. The total amount of this contract is US$197 million.

Petrel had previously run into issues with proposed changes to the design and operational requirements of the contract, which required approval from the Iraqi Ministry, but were not easily forthcoming.   Part of Petrel’s proposed changes was to add a dedicated power supply to the project, to help avoid issues with power disruption in the wider area.

 The Irish based oil and gas junior also ran into difficulties securing reimbursement for cost incurred in an acceptable time frame, but said it was now in meetings to amend payment conditions and scheduling.

“Following detailed meetings with the Ministry in September, we are assured that the bulk of the payments due will shortly be made by the Ministry of Oil to our bank accounts.”  Mr. Horgan added that the Ministry had agreed to amend and extend a Project Letter of Credit used for financing arrangements by Petrel, which would allow for project activity to increase.

“We are pleased to report that Ministry officials have recently shown flexibility and renewed commitment to Petrel as contractor in getting the work done in the interests of the project and all stakeholders.  This is heartening given the exceptional and unusual challenges of working in Iraq.”

Mr. Horgan continued that recent positive movements by the Iraqi officials ‘augurs well’ for the company’s ambitions to secure and develop other oil and gas interests in the country.

“While nothing is certain, easy or quick in Iraq, these recent positive developments help streamline operations and reduce risk for this project and our overall involvement in the Iraqi oil industry.”

Meanwhile on the Dhufriya Technical Cooperation Agreement, Petrel confirmed that data on the gas and oil field had been collected and was now under analysis.  Across the border, in Jordon, Petrel said that well planning and farm-in discussions were underway to test a shallow oil play on the East Safawi PSA.

Not surprisingly, the Managing Director also commented on recent movements by the Iraq Ministry of Oil’s attempts to open the sector up for development with foreign companies.  Petrel Resources is undeniably keen to be involved in this process and Mr. Horgan said that progress was accelerating, noting a recent $3 billion service contract signed by the CNPC of China and a gas gathering joint venture agreement between Shell and the Iraq Ministry of Oil’s South Oil company.

“A similar gas-gathering idea was proposed by Petrel in 2004 in connection with gas and condensate being flared at the Subba & Luhais fields.  The acceptance of this principle under the existing law opens up the possibility of similar deals on other fields. If progress continues and circumstances warrant, we will make a similar proposal.”

On a final note, then Mr. Horgan continued to emphasise his belief that Petrels’ long standing commitment to Iraq will reap benefits for the company.

“Fears that super-majors would have preferential access to super-giant fields on the basis of no-bid contracts are groundless.  There are at least 80 major fields in Iraq and the advantage is with those players who are knowledgeable and ready to work immediately.”  

“Iraqi officials tire of vague undertakings from diffident oil majors and are now focusing on practical steps with committed players for early progress on the ground.”