Petrel Resources PLC (AIM: PET) reiterated its commitment to keep operating in Iraq despite a frustrating delay in receiving payment for its development work on the Subba and Luhais oilfield in southern Iraq.
“It is the potential which keeps Petrel in Iraq. The political, legal administrative and banking uncertainty will, and must, clarify. We believe that we can work through the labyrinth of Baghdad, get paid, and deliver a 200,000 barrel a day oil field to the people of Iraq,” the group said in a statement with its full-year results.
Petrel said that since signing a US$197 million contract in 2005 and receiving US$20 million advance into a JV account from the Iraqi authorities, it has completed approximately 50 percent of the project work but has not received any payment yet.
Protracted discussions have been ongoing for sixteen months. Agreements have been reached, the latest in March 2009, where payments are promised but to no avail. Petrel said it has proposed to the authorities that it is happy not to take payment in cash. Instead, it could take over operatorship of the field, complete the development itself, and take payment in the form of oil. This proposal is well received in certain circles, but the lack of a Hydrocarbon Law makes it difficult to implement, it said.
The group added it wishes to stay in Iraq as a principal rather than a contractor.
“The opportunity in Iraqi oil has not changed. Oil costs US$2 a barrel to produce. There are over 70 known fields waiting to be developed. It makes absolutely no sense that oil production in Iraq is falling to less than 2.4 million barrels a day when it can rise to 10 million barrels a day. Iraq badly needs the revenue and the world needs the oil,” the group said.
Revenue for 2008 declined to €8.23 million in the year to December 31 2008 from €28.9 million in fiscal 2007, while pretax loss widened to €761,000 from €519,000 a year earlier.
“Apart from Iraq, we are active in Jordan on the East Safawi block. Intensive work done by Petrel in recent years has identified drillable targets. This is a 'frontier' area in terms of oil discoveries, so we prefer to joint venture the risk. Negotiations are ongoing with experienced Middle East corporate,” Petrel said.
In March of this year, a long standing institutional shareholder offered funding. Two other investors agreed to participate in the placing and US$3 million was raised at a price close to that prevailing in the market. This money will keep Petrel going for the next eighteen months, it added.