Legalities, realities are high hurdles

Iraq Potential Faces a Lot of ‘Ifs’

American Association of Petroleum Geologists (AAPG)

There are a number of folks who appear to suffer from modern-day Chicken Little syndrome – except rather than running about proclaiming the sky is falling, they’re all aflutter that the world is running out of oil.

Perhaps so, but the global petroleum scene makes this prediction a hard sell to many.

New technology continues to provide access to previously inaccessible deposits, and big new finds aren’t unusual. Look, for instance, at McMoRan Exploration’s recent five-mile-deep discovery in the Gulf of Mexico that has the potential to open up a whole new play in the shallow water Gulf.

Then take a gander at the sizeable proven oil reserves – particularly in the Middle East, where Saudi Arabia reigns as the undisputed kingpin harboring about 260 billion barrels of black gold.

Iraq reportedly occupies second place on the giant reserves list, boasting 115 billion barrels, followed by Iran with 90 billion.

Iraq’s petroleum deposits are concentrated principally in the northern and southern regions of the country. The bulk of oil production and exports originate in the southern province of Basra, while significant amounts come from fields in the northern region near the city of Kirkuk, according to AAPG member Louis Christian, a Dallas-based Middle East exploration consultant.

Iraq essentially is one big oil pool waiting to be produced following years of turmoil in the country.

Christian emphasized that from a geological point of view, Iraq is far less intensely explored than Saudi Arabia, and perhaps Iran as well.

“Tens of kilometers or even 100 kilometers between wells and seismic lines in parts of Iraq west of the Euphrates River leave open, inadequately explored regions,” he said, “where Iraqi gravity and magnetic modeling suggests undrilled structural trends and horst blocks with the potential for Mesozoic and Paleozoic closures, carbonate shelf edges and reef trends analogous in age and dimensions to the Paleozoic basins of West Texas.”

Christian said Paleozoic prospectivity in Iraq depends largely on lower Silurian source rocks, where thermal maturity runs the gamut from cool and immature to mature – and on to sometimes over-mature, depending on current temperatures as well as past burial and re-uplift histories.

Just Getting Started

Look for the exploration action to rev up soon given the many companies just waiting for the chance to explore this oil-rich country, now that the political scene is beginning to stabilize somewhat and the government is putting out a welcome mat of sorts.

In fact, Halliburton CEO Dave Lesar is on record as saying he expects new drilling in Iraq to spark a “land rush,” provided there’s a peaceful Iraqi election in March as well as passage of an oil law by the nation’s Parliament. Such a law would lead to a more inviting climate for foreign investment.

Considerable bickering and disagreements have stalled passage of a pending oil law, delaying an influx of the industry players standing on the sidelines eager to tap into the vast reserves. In the northern part of Iraq, Kurdistan stepped away from the fray early on and implemented its own law.

Attempts by the oil and service companies to secure contracts in the country may be a frustrating exercise, but the real challenges will come later.

Whether wanting to explore and develop or to provide services to existing fields, nothing will be easy in this region where years of warfare and lack of expertise both have taken their toll.

For instance, oilfield infrastructure has suffered dramatically from neglect and purposeful destruction, and many reservoirs reportedly have suffered damage due to lack of production know-how. Also, there’s no guarantee that oilfield sabotage events are a thing of the past in this fragile country still plagued by terrorism, corruption and other problems.

Developing Story

Thus far, the Iraqi government has conducted two bid rounds that included some of its largest fields.

In the first round, BP and China National Petroleum Corp. received the only contract, which entails redeveloping the enormous 17-billion barrel Rumaila field in southern Iraq on the Kuwait border. The companies reportedly intend to spend $15 billion to jack up the production to 2.85 million bopd from the current one million bopd, catapulting Rumaila to second place in output worldwide behind the giant Ghawar Field in Saudi Arabia.

Other giant fields in southern Iraq already are designated to see some action.

These include West Qurna, which is said to hold 21 billion barrels.

In a joint venture, ExxonMobil and Royal Dutch Shell were awarded a contract to develop the nine billion barrel West Qurna-1 field. Statoil and Lukoil are reported to have partnered to ink a deal to develop the 12-plus billion-barrel West Qurna-2.

Not far away to the east, Shell and Petronas latched on to a contract to develop the 13 billion-barrel Majnoon field, where development has been hindered by its location on the Iranian border. Majnoon reportedly means “crazy” in Arabic, which was considered to be an appropriate moniker for a field holding such massive reserves in a relatively small geographic area.

Oil industry interest in southern Iraq clearly is intense, yet the productive Kurdistan region in the north has its share of the action, including the prolific Kirkuk field, which was originally discovered in 1927. The field may hold nine billion barrels of remaining reserves, but it has suffered considerable damage.

For example, waterflood projects had broken down in the past, and the field workers were re-injecting processed crude and residual oil back into the sands because there was no other place for it, according to AAPG member Harry “Bud” Holzman, geological consultant.

Independents’ Day

Opportunities in Iraq aren’t exclusively for the super-big players.

Look, for instance, at Gulf Keystone Petroleum Ltd., which is a Bermuda-registered independent oil and gas exploration company listed in London that focuses on exploration in the highly prospective and productive Kurdistan region in northern Iraq.

Gulf Keystone drilled the Shaikan1-B discovery well in 2009 in the Shaikan block near the city of Dohuk, about 85 kilometers northwest of Erbil. The block covers an area of 283 square kilometers.

The Shaikan structure in the Kurdistan province is an east-west anticline at the northwestern part of the Zagros/Taurus Foldbelt, according to AAPG member Joe Studlick, COO at Dynamic Global Advisors in Houston and a 2009 Robert H. Dott Award-winning co-author. The structure is on trend with several major discoveries, including Miran West, Kirkuk, Taq Taq and Tawke.

“The early Paleozoic history of this province was dominated by clastic deposition,” Studlick said. “Silurian shale was deposited during this time and is a key source rock in the region.

“Carbonates dominate the reservoirs of the Mesozoic stable platform of the Zagros Foldbelt,” he said, adding that “multiple potential source rock intervals – Triassic, Middle and Upper Jurassic, Lower and Middle Cretaceous – occur in this sequence.”

The Shaikan1-B well reached TD at 2,950 meters measured depth and encountered nine hydrocarbon-bearing formations within Cretaceous, Jurassic and Triassic deposits. Drilling was halted several hundred meters above the planned TD because of an influx of high-pressure gas while drilling the borehole.

Studlick noted that seismic data show prospective deeper closures that will be tested by further drilling in 2010.

A 3-D seismic program over the Shaikan structure also is planned for 2010.

Gulf Keystone contracted DGA while the well was still drilling, to evaluate the resources discovered by the Shaikan1-B well, which was a kind of feather-in-the-cap event.

“It’s a rare opportunity in one’s career to be able to evaluate a world class discovery,” Studlick emphasized. “I believe Shaikan was in the top five discoveries in 2009.”

DGA estimated the oil resources between 1.9 BBO and 7.4 BBO with a mean value of 4.2 BBO. Gas resources range from 0.4 Tcf to 1.5 Tcf with a mean value of 0.8 Tcf. High side resources are estimated at approximately 13 BBO and 2.7 Tcf. There was no free water level encountered in the well through TD.

The Shaikan discovery not only demonstrates a significant resource but significantly reduces the geologic risk in Gulf Keystone’s adjacent opportunities: the Sheikh Adi, Akri Bijeel and the Ber Bahr blocks, which are on trend with the Shaikan structure. The discovery proves the presence of hydrocarbon source and migration in the area.

The pleasant work experience in Kurdistan was an added bonus.

“Working in Kurdistan for the last two years has been a pleasure,” said AAPG member Chris Garrett, vice president of operations at Gulf Keystone.

“The scenery and geology are exceptional, and the Kurds are welcoming,” he said, “and the Kurdish government is helpful, proactive and positive.

“Gulf Keystone as an operator has been encouraged to move forward with a minimal amount of bureaucracy,” Garrett noted. “This, combined with the spectacular Shaikan prospect, has allowed us to quickly drill the Shaikan1-B discovery well.”

Holzman expressed confidence that if Iraq gets its act together with a good hydrocarbon law and brings in the service companies to repair the infrastructure, there’s no reason why the country couldn’t overtake any place in the world in production. The veteran geologist emphasized the country is the size of Texas with about 2,300 wells drilled.

“They have the oil, and they just need to get it out,” he said. “It’s easy to get to, and the exploration costs are extremely low.”

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