CONFIDENTIAL Iraq Oil & Gas Outlook MAY 2015
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C O N F I D E N T I A L
Iraq Oil & Gas Outlook
M A Y 2 0 1 5
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2
Stability in Iraq can open up world class asset and acreage on revised terms
Iraq has 144bn barrels of oil reserves and yet remains one of the world’s least explored major producing country
The giant fields of the south hold the majority of these reserves
Crude oil production in 2014 was above 3.4 mmboepd, forecast to increase to over 7 mmboepd
Iraq will move to 4th largest oil producer, behind Saudi Arabia, Russia and the U.S. by 2017
There has been a rapid widening of Iraq's petroleum sector to foreign participation in the last five years
More than 25 international oil companies now have a licence interest in Iraq
Producing fields in Iraq are operated under Technical Services Contracts (TSC), offering some of the most stringent terms in the Middle East
Most of the major IOCs hold strategic positions in Iraq, focussing on developing large-scale projects in the south and have to-date shown little interest in picking up exploration acreage due to non-friendly investor terms
Ongoing restructuring of existing contracts and rumoured new investor friendly terms on new licensing rounds may reverse this trend
3
1. Oil Sector Overview ##
2. Infrastructure Overview ##
3. Upstream activity and licensing history ##
4. Political challenges ##
5. Future opportunities in Iraq ##
6. Appendix ##
Iraqi oil reserves and production, in perspective
Iraq’s first wells were drilled in Chia Surkh in 1902 and encountered oil and gas shows, but were abandoned for more productive prospects elsewhere
In 1927, major oil exploration got underway, with huge deposits discovered in Mosul province
Two years later, the Iraqi Petroleum Company, comprising of Anglo-Iranian (today British Petroleum), Shell, Mobil and Standard Oil of New Jersey (today Exxon), began producing oil
Super giant discoveries were soon be made, starting with Kirkuk field by the Turkish Petroleum Company in 1927, followed by:
Zubair was discovered by Basrah Petroleum Company, an affiliate of the Iraq Petroleum Company, in 1949
Rumaila was discovered by Basrah Petroleum Company in 1953
Majnoon field was discovered by Braspetro in 1975, under the leadership of Bolivar Montenegro Guerra
The super giant West Qurna field was discovered only 65 km away from other Basra super giant fields by Soviet geologists in 1973
With these discoveries, Iraq holds the fifth largest oil reserves in the world, behind only Saudi Arabia, Venezuela, Canada and Iran
Iraq holds about 144 bnbbl of proved crude oil reserves, representing 18% of proved crude oil reserves in the Middle East and almost 9% of total global reserves
Most known oil and natural gas resources are concentrated in the Shiite areas of the south and the ethnically Kurdish region in the north, with significant prospectivity in the western and central parts of Iraq
History of Iraqi fields discovery
0
50
100
150
200
250
300
350
No.
of
bar
rels
(b
n)
Global Oil Reserves
Global Gas Reserves
5
Source: CIA –The World Factbook
Source: CIA –The World Factbook
0
10
20
30
40
50
60
Tri
llio
n c
ub
ic m
eter
s
144 bnboe
112 TCF
Iraq’s 144 billion barrels of reserves by province
6
91
377
0
100
200
300
400
500
0
100
200
300
400
500
Liquids Gas
2012E
Pro
d'n
(m
bo
e/d
)
Co
mm
erc
ial P
+P
(m
mb
oe)Anbar
Field P+P Prod'n
(mmboe) (mboe/d)
Akkas 468 0
1,859
00
10
20
30
40
0
500
1,000
1,500
2,000
Liquids Gas
2012E
Pro
d'n
(m
bo
e/d
)
Co
mm
erc
ial P
+P
(m
mb
oe)
Ninewa
Field P+P Prod'n
(mmboe) (mboe/d)
Ain Zalah/West Butmah 301 5
Shaikan 1,500 8
Sufaya 58 0
Ta'mim
Field P+P Prod'n
(mmboe) (mboe/d)
Bai Hassan 3,846 205
Hamrin 886 0
Jambur 1,803 71
Khabbaz 711 31
5,804
1,442
0
100
200
300
400
500
600
0
1,000
2,000
3,000
4,000
5,000
6,000
Liquids Gas
2012E
Pro
d'n
(m
bo
e/d
)
Co
mm
erc
ial P
+P
(m
mb
oe)
Salahuddin
Field P+P Prod'n
(mmboe) (mboe/d)
Ajil 618 12
484
134
0
10
20
30
40
0
100
200
300
400
500
Liquids Gas
2012E
Pro
d'n
(m
bo
e/d
)
Co
mm
erc
ial P
+P
(m
mb
oe)
Diyala
Field P+P Prod'n
(mmboe) (mboe/d)
East Baghdad 620 15
Naft Khaneh 114 5
734
00
10
20
30
40
0
200
400
600
800
Liquids Gas
2012E
Pro
d'n
(m
bo
e/d
)
Co
mm
erc
ial P
+P
(m
mb
oe)
Wasit
Field P+P Prod'n
(mmboe) (mboe/d)
Ahdab 1,163 60
Badrah 755 0
1,918
00
25
50
75
100
0
500
1,000
1,500
2,000
Liquids Gas
2012E
Pro
d'n
(m
bo
e/d
)
Co
mm
erc
ial P
+P
(m
mb
oe)
Misan
Field P+P Prod'n
(mmboe) (mboe/d)
Halfaya 4,940 71
Majnoon 16,978 100
Misan Group 2,500 104
23,294
1,124
0
100
200
300
400
500
0
5,000
10,000
15,000
20,000
25,000
Liquids Gas
2012E
Pro
d'n
(m
bo
e/d
)
Co
mm
erc
ial P
+P
(m
mb
oe)
Dhi-Qar
Field P+P Prod'n
(mmboe) (mboe/d)
Gharraf 1,100 35
Nasiriyah 864 6
1,964
00
25
50
75
100
0
500
1,000
1,500
2,000
Liquids Gas
2012E
Pro
d'n
(m
bo
e/d
)
Co
mm
erc
ial P
+P
(m
mb
oe)
Basrah
Field P+P Prod'n
(mmboe) (mboe/d)
Basrah Gas Project 3,497 105
Luhais and Subba 769 27
Nahr Umr 1,090 5
Ratawi 931 6
Rumaila 31,058 1,300
Siba 118 0
Tuba 189 5
West Qurna One 14,932 377
West Qurna Two 14,185 0
Zubair 9,498 300
71,823
4,444
0
1,000
2,000
3,000
4,000
0
20,000
40,000
60,000
80,000
Liquids Gas
2012E
Pro
d'n
(m
bo
e/d
)
Co
mm
erc
ial P
+P
(m
mb
oe)
Commercial P+P (mmboe)
2012E Production (mboe/d)
Anbar
Wasit
Ninewa
Erbil
Salahuddin
Diyala
BabilKarbala
Qadisiyah
Najaf
Muthanna
Basrah
Dhi-Qar
Misan
Dohuk
Ta’mimSuleimaniyah
Kurdistan Line of Control
ISIS primary areas of activity are not in the major oil
producing regions
Iraq Pipelines
Kurdistan Pipelines
Kurdistan provincesKey provinces for explorationKey oil producing provinces
Iraq political history plays a big role in oil & gas output
For most of recent history, Iraq was ruled by the Ottoman Empire until World War I where Iraq was passed to British control until the Kingdom of Iraq was formed in 1932
Oil prospecting in the county began almost immediately after WWI, with the Iraqi Petroleum Company (IPC), an antecedent of British oil giant BP, receiving prospecting rights for nearly 100% of Iraqi territory
A coup was launched in 1958, ushering in an ear of Baathist rule when in the late 1960’s, IPC was nationalized and the state cemented its control of the oil industry
Saddam Hussein came to power in 1979 as the chosen successor, launching wars against neighbours and alienating the international community
Sanctions were placed on Iraq in 1990 and lasting until 2003, limiting any western investment or activity in Iraq’s oil sector
Following the Iraq War in 2003, a new constitution was passed in 2005 and public licensing rounds for the oil sector commenced
The outcome of these licensing rounds has been underwhelming as significant commercial challenges still exist and most of Iraq’s oil infrastructure is outdated and in need of significant repair
After reaching an all-time high in December 1979 at 3.7mmboepd, production collapsed in the 80’s and again in the 90’s after a short rebound in the early 90’s
Iraqi 3 biggest fields (Rumaila, West Qurna I and II) account for c. 55% of the total Iraq production capacity
Background Historical crude oil production was sporadic…
… with significant drops in the 80’s-90’s limiting investment
7
With reclusive political leadership, Iraq struggled to attract investment and maintain production
Source: U.S. Energy Information Administration as of January 2015
0
0.5
1
1.5
2
2.5
3
3.5
4
197
3
197
5
197
7
197
9
198
1
198
3
198
5
198
7
198
9
199
1
199
3
199
5
199
7
199
9
200
1
200
3
200
5
200
7
200
9
201
1
201
3
0
0.5
1
1.5
2
2.5
3
3.5
4
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
mmboe/d
mmboe/d
Key milestones in Iraq’s oil and gas history
Key milestones Oil from Babylon to Iraq
8
1902 First oil exploration well (drilled in Chia Surkh)
1927 Discovery of the “super-giant” Kirkuk field
1938 Exploration terminated due to war preparation
1948 Exploration re-started, discovery of Zubair and Nahr Umr fields
1953 Rumaila field is discovered
1961 Termination of activities by IOCs according to law No. 80
1964 Iraq National Oil Company (INOC) established
70’s /80’s
Many new fields discovered (including West Qurna and Majnoon)
1979 Iraq oil production peaks
80’s /90’s
Decline in activity due to sanctions, Iran–Iraq war and two Gulf wars
2007 KRG develops its own PSC and begins licensing
2008 /2010
First, Second and Third licensing rounds announced and awarded
2012 Fourth licensing round announced April 2012 -only 3 blocks awarded
One of the biggest challenges is a nationalized sector with a large network of state-owned companies
9
Ministry of Oil
Upstream Downstream Institutes
North Oil Co.
South Oil Co.
Missan Oil Co.
Midland Oil Co.
Oil Exploration Co.
Iraq Drilling Co.
Oil Project Co.
North Gas Co.
South Gas Co.
North Refineries Co.
South Refineries Co.
Midland Refinery Co.
Oil Pipelines Co.
Iraqi oil Tankers Co.
Oil Marketing Co.
Gas Filling Co.
Oil Product Distribution Co.
Heavy Engineering Equipment Co.
State Org for Marketing Oil (“SOMO”)
State Co for Oil Projects (“SCOP”)
Petroleum Research and Development Centre
Baghdad Oil Training Institute
Kirkuk Oil Training Institute
Basrah Oil Training Institute
Baiji Oil Training Institute
But, Iraq oil and gas outlook is starting to look more promising…
Key recent developments in Iraq
Reserves and production by province Historical and forecast production
10
Source: Wood Mackenzie Source: Wood Mackenzie
Blocks awarded by region
Economic sanctions against Iraq (through 2003)
National Assembly commences drafting constitution
1st federal Iraqi bid round: TSC structure2nd federal Iraqi bid round: TSC structure
3rd federal Iraqi bid round: First exploration licenses
Kurdistan production reaches 150 kboepd (from nil in 2007)ExxonMobil signs 6 PSCs in Kurdistan Region
4th federal Iraqi bid round fails to attract IOCs
Iraq hits highest exports of 3.7 mmboepd in January
1990
2005
2009
2010
2011
2012
2015
Total: 144bnboe
53%
18%
17%
5%1% 6%
2P by Province
Basrah Erbil Misan
Ta'mim Dhi-Qar Other
63%12%
8%
9%
2%6%
2014 Production by Province
Basrah Erbil Misan
Ta'mim Suleimaniyah Other
Total: 3.4mmboe
0%
2%
4%
6%
8%
10%
12%
14%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
202
1
202
2
202
3
Liquid Gas % Gas
kboe/d 2014-2023E Production CAGR: 6%
-
2
4
6
8
10
12
14
16
18
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
No. blocks Kurdistan Northern Iraq Southern Iraq Western Desert
… with significant infrastructure in-place to support production targets
11
Oil fields Partners Prod. Capacity (kbpd) Export outletIraq capacityRumaila BP, CNPC 1,430
Basra port including 3 SPM systems and Khor al-Amaya port
West Qurna-1 ExxonMobil, Petrochina, Shell 550West Qurna-2 Lukoil 220Zubair Eni, Occidental 360Majnoon Shell, Petronas 200Garraf Petronas, Japex 100Missan fields (Fakka, Abu Gharb, Bazergan) CNOOC 135Halfaya CNPC, Total, Petronas 110Other fields 215S. Iraq capacity 3,320Ahdab CNPC 140
Connected to southern export infrastructureBadra Gazprom Neft, Kogas, Petronas 15Other fields 25C. Iraq capacity 180Kirkuk (Avana & Baba) 220
Iraq (Kirkuk) to Turkey (Ceyhan) pipeline (Flows stopped in March 2014 and the pipeline is currently unusable.)
Bai Hasan 185Jambur 40Khabbaz 30Other fields 50N. Iraq capacity 525Iraq Total capacity 4,025
Kurdistan capacityKhurmala Dome (northern of Kirkuk) 110
KRG pipelines that connect to Turkey Ceyhan) pipeline; some oil trucked to ports in Turkey Mersin, Dortyol, & Toros) and to Iran
Tawke DNO, Genel Energy 130Taq Taq Genel Energy, Sinopec 130Shaikan Gulf Keystone 21Other fields 36Total KRG capacity 427
Total capacity 4,452
Source: U.S. Energy Information Administration, Energy Intelligence Group, Iraq Oil Report, Middle East Economic Survey; Note: Iraq's actual production is much lower than capacity as most oil fields are producing below capacity because of infrastructure constraints; A portion of northern production is not being produced commercially and is considered a supply disruption
Most Iraqi oil is being exported from the ports in Basra
Map Iraq maintains significant and consistent oil production
Exports overview
12
Source: Iraqi Ministry of Oil, Lloyd’s List Intelligence (APEX tanker database)
Note: Exports shown only include oil transported via pipeline to a seaport, not crude trucked to a seaport
550kboepd
2.7mmboepd
Northern exports (KRG-Turkey pipeline)Northern exports (Iraq-Turkey pipeline) Non-operationalSouthern exports
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Jan
-13
Feb
-13
Mar
-13
Ap
r-13
May
-13
Jun
-13
Jul-
13
Au
g-13
Sep-
13
Oct
-13
Nov
-13
Dec
-13
Jan
-14
Feb
-14
Mar
-14
Ap
r-14
May
-14
Jun
-14
Jul-
14
Au
g-14
Sep-
14
Oct
-14
Nov
-14
Dec
-14
Southern exports Northen exports (Iraq-Turkey pipeline) Northen exports (KRG-Turkey pipeline)
mmbpd
About 95% of Iraq's crude oil exports came from the country's southern export terminals along the Persian Gulf in 2014, which export Iraq's Basra crude grade, compared with 2013 when it was slightly below 90%
Northern seaborne exports from the Turkish Ceyhan port via the Iraq-Turkey pipeline averaged 260 kbpd in 2013
Northern exports in Iraq fell substantially after the Iraq-Turkey pipeline went out of service in March 2014
The KRG started to export crude via its independent pipeline for the first time in May 2014
The pipeline flows have reached more than 300 kbpd, but this flow level has not been maintained on a sustained basis
Iraq previously exported about 10 kbpd of crude to Jordan by truck, but due to insecurity in the Anbar province, those exports were halted in early 2014
The KRG trucks about 50 kbpd to 100 kbpd of crude and condensate to the Turkish ports of Mersin, Dortyol, and Toros, and to Iran
150kboepd
…And a majority of the oil is coming from the four super giant fields
Iraq’s daily production by field
China was the largest importer of Iraq's crude oil, followed by India and the United States in 2014
Total Iraqi crude oil exports averaged 2.6mmboepd in 2014, 0.2 mmboepdhigher than the previous year
Asia (led by China, India, and South Korea) is the main destination for Iraq's crude oil, importing 58% of the total in 2014
The U.S. is the third-largest importer of Iraq's crude, although the volume has fallen over the past decade
The U.S. imported an average of 355kbpd of crude from Iraq in 2014, 30% lower than the volume received 10 years before in 2005
The growth in U.S. oil production has resulted in a sizable decline in U.S. imports of crude grades of similar quality
Key buyers of Iraqi crude
Iraq’s crude oil exports by destination (2014)
13
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2014 2015 2016 2017 2018 2019 2020
Exp
ort
Cap
acit
y (m
mb
bls
/d)
Oil
Pro
du
ctio
n (
kbb
ls/d
)
Rumaila Kirkuk Zubair West Qurna One Kurdistan
West Qurna Two Majnoon Other fields Halfaya Bai Hassan
Badra Basra Gas Project Ajil East Baghdad Gharraf
Jambur Khabbaz Luhais and Subba Misan Group
China
22%
India
19%
South Korea
9%Other Asia
8%
Greece
6%
Italy
4%
Other Europe
9%
United States
14%
Other Americas
3%
Asia
58%Europe
19%
Americas
17%
Other
6%
Source: U.S. Energy Information Administration based on Lloyd’s List Intelligence (APEX tanker database)
Ongoing successful drilling activity is spurring a new interest in exploration
A remarkable feature of Iraqi oil reserves is the majority lie within 10,000 ft of the surface, with 30-40% lying within 2,000-5,000 ft
The majority of oil production comes from Cretaceous reservoirs (76%), with the remainder coming from Tertiary reservoirs (24%)
The Iraq-Iran War in stopped new exploration activity in Iraq from 1980-1988
Subsequent sanctions placed on Iraq from 1991 until 2003, restricted technology and materials imperative for oil production
Ruled out many imports of mud chemicals for drilling and well logging
Only 248 wells drilled from 1991 until the beginning of 2005
The vast majority of wells are vertical, with no horizontal or multilateral technology employed
Use of horizontal and multilateral technology, can easily give a 10% uplift in the recovery factor
Iraq’s exploration success rate is 2 in 3 (about 67%), compared to the world average of 1 in 10, confirming the region’s prospectivity
Iraq holds great promise for substantial undiscovered resources
Consistent access to rigs supports drilling activity…
Increasing wells being drilled in Iraq and Kurdistan
…resulting in significant projected production growth
14
Source: Wood Mackenzie
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Liquid Gas
mmboe
0
20
40
60
80
100
120
No
v-1
1D
ec-1
1Ja
n-1
2F
eb-1
2M
ar-1
2A
pr-
12M
ay-1
2Ju
n-1
2Ju
l-12
Au
g-12
Sep
-12
Oct
-12
No
v-1
2D
ec-1
2Ja
n-1
3F
eb-1
3M
ar-1
3A
pr-
13M
ay-1
3Ju
n-1
3Ju
l-13
Au
g-13
Sep
-13
Oct
-13
No
v-1
3D
ec-1
3Ja
n-1
4F
eb-1
4M
ar-1
4A
pr-
14M
ay-1
4Ju
n-1
4Ju
l-14
Au
g-14
Iraq Oil RigsSource: Manaar Energy, IHS
kboepd
1 3 515
22 1924
910
14
27
4057
36
0
10
20
30
40
50
60
70
80
2008 2009 2010 2011 2012 2013 2014
Iraq KRG
New attractive fiscal terms may spur companies to expand presence in Iraq
Reserves by field
Iraq has one of the world’s largest petroleum reserves in the world with the world’s largest IOCs and OFS companies, with:
Significant underexplored areas offering world-class exploration potential, and
Many sizable discoveries from recent tender rounds already under development and about to bring production to market
Safety and ability to operate in the southern oil provinces of Iraq has remained despite security concerns in the west and north of Iraq
The corporate landscape in Iraq has been evolving since 2008 and with the country’s new Prime Minister and Minister of Oil reviewing changes to the oil licensing regime, a new investor landscape may be evolving again soon
Recent renegotiations on existing contracts reveals the potential for further contract renegotiations to sweeten the terms for the contractors
Such agreements would set the stage for future licensing rounds to offer more investor friendly terms and bring business back into Iraq
Shell and CNPC are the private companies with the largest reserves
15
Source: Wood Mackenzie and IHS
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
No
rth
Oil
Shel
l
CN
PC
LU
KO
IL BP
Sou
th O
il
Pet
roch
ina
Pet
ron
as
Mis
an O
il
Oil
Exp
lora
tio
n C
omp
any
Exx
onM
obil
Stat
oil
En
i
Ko
gas
Nin
eveh
Oil
Occ
iden
tal
Per
tam
ina
CN
OO
C
To
tal
SOM
O
Iraq
NO
C
Mid
lan
d O
il
JAP
EX
TP
AO
Iraq
Dri
llin
g C
o.
KR
G
Gaz
pro
m
Ku
wai
t E
ner
gy
mmboe
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Ru
mai
la
Wes
t Q
urn
a O
ne
Wes
t Q
urn
a T
wo
Maj
no
on
Zu
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Iraq National Oil Companies
1. Oil Sector Overview ##
2. Infrastructure Overview ##
3. Upstream activity and licensing history ##
4. Political challenges ##
5. Future opportunities in Iraq ##
6. Appendix ##
Iraq pipelines infrastructure overview
Overview Map
17
Source: U.S. Energy Information Administration, Energy Intelligence Group, Iraq Oil Report, Middle East Economic Survey
Iraq faces many challenges in meeting its planned timetable for oil production
Inadequate pipeline, storage and pumping capacity has led to the only option of crude being exported from Basra
Planned pipelines to energy hungry neighbours Syria and Jordan have never materialized
Existing Iraq-Turkey Pipeline (IPT) has a constant target for sabotage and has been shut down due to constant attacks by ISIS
Current production of c. 150kbpd from Northern Iraqi fields is being diverted into the KRG’s export pipeline to Turkey
To support crude exports in Basra, export facilities' capacity was expanded in recent years by adding on three single point moorings (SPMs) near the Basra and Khor al-Amaya ports with two additional SPMs planned
The SPMs have a design capacity of 900kbpd each, but have been operating below that amount
The SPMs have added much needed shipping capacity to the south, as the Basra and Khor al-Amaya ports are operating well below capacity after enduring three wars and poor maintenance
Export capacity has expanded at a faster rate than midstream infrastructure, inhibiting the ability of oil companies to meet their production goals (often contractually required)
Poor oil production growth in 2013 is attributed to infrastructure bottlenecks in the south and an increase in supply disruptions to northern fields because of frequent attacks on the Iraq-Turkey pipeline
ITPCapacity: 600kbpdNot operating
Strategic pipelineCapacity: 800kbpdNot operating
Kurdistan – CeyhanCapacity: 1,500kbpd
Khurmala Dome - FishkaburCapacity: 300kbpd
Tawke - FishkaburCapacity: 100kbpd
Iraq export pipeline network is in severe need of rehabilitation and repair
Currently, the only working major pipelines in northern Iraq are two pipelines built by the KRG and its international partners: KRG's main pipeline and the DNO/Tawke pipeline, which both link to the Turkey pipeline to the Ceyhan port.
Given lack of available infrastructure and strategic location of super giant fields to Basra export infrastructure, a majority of Iraq’s crude is exported via Basra
2.7 mmboepd is exported via Basra
With 600 kbpd that used to be exported through the ITP now unable to be exported due to sabotage on the pipeline, Baghdad reached an agreement with the Kurdish Government to export some of Iraqi crude through Kurdish infrastructure
Under the existing framework, 300 kbpd of Iraqi crude is to be exported via the Kurdistan-Ceyhan pipeline
Significant plans to pipe oil & gas to energy starved neighbours has never materialized
But storage capacity has grown significantly in Basra with four new storage tanks recently added (6.5 mmbbls) and exports going through the three tanker terminals of:
Basra, Khor-al-Amaya and Khor al-Zubair
Overview Iraq existing major export pipelines
KRI existing major pipelines
18
Most crude oil is exported via Basra, as pipelines have been constantly subject to attacks in the North
Description Direction LocationCapacity
(kbpd)Status
Iraq-Turkey Pipeline (ITP) Kirkuk to Fishkhabur N. Iraq 600 Not operating
Kirkuk-Banias/Tripoli Pipeline
Kirkuk to Banias (Syria) and to Tripoli (Lebanon)
N. Iraq 700 Not operating
Strategic Pipeline Kirkuk to Persian GulfNorth-South (Iraq)
800 Not operating
Iraq Pipeline to Saudi Arabia (IPSA)
Southern Iraq to port of Mu'ajjiz in Saudi Arabia
S. Iraq & Saudi Arabia
1,650Not operating (Iraq portion)
Description Direction LocationCapacity
(kbpd)Status
Kurdistan-Ceyhan Pipeline (KCP)
Fishkhabur to port of Ceyhan
S. Turkey 1,500 Operating
Khurmala Dome-Fishkhabur Pipeline
Tie-in Khurmala and Kirkuk crude to KCP
N. Iraq 300 Operating
Tawke-Fishkabur PipelineTie-in DNO/Genel fields to KCP
N. Iraq 100 Operating
Source: U.S. Energy Information Administration, Energy Intelligence Group, Iraq Oil Report, Middle East Economic Survey
Old infrastructure is in need of rehabilitation, but high costs and delays have plagued the refining sector
Refining sector overview Location of existing and planned refineries
19
Source: U.S. Energy Information Administration, Energy Intelligence Group, Iraq Oil Report, Middle East Economic Survey
Iraq has 13 refineries most of which do not produce the products the local market needs
Iraqi refineries produce more heavy fuel oil than is needed domestically and not enough of other refined products, such as gasoline
In June 2014, ISIS attacked the Baiji refinery, brining operation to a halt
The Baiji refinery was the key refinery that produced diesel and gasoil for the local market
Although the Iraqi government regained control of Baiji, the refinery is still not operational causing a near halt to commercial production in northern Iraq (not including the Iraqi Kurdistan Region)
Total designed capacity of Iraq’s refineries is estimated at 1.1 mmbpd, although estimates vary because effective capacity has fallen below designed capacity in most cases
Before the June 2014 ISIL attack on the Baiji refinery, effective refining capacity in Iraq (incl. KRI) was 800kboepd, but with the Baiji refinery not being operational, Iraq's total effective capacity is now estimated below 600kboepd
Iraq has plans to build four new refineries and expand capacity at the Daura and Basra refineries, targeting an increase in refining capacity to 1.5 mmbpd
Government expected these new projects to come online starting in 2018
Baiji refinery(230kbpd)
Kirkuk refinery(30kbpd)
Sininya refinery(30kbpd)
Hadeetha refinery(16kbpd)
Qayara refinery(16kbpd)
Daura refinery(140kbpd)
Najaf refinery(30kbpd)
Samawah refinery(30kbpd)
Diwaniyah refinery(20kbpd)
Basrah refinery(135kbpd)
Maysan refinery(30kbpd)
Nassiriya refinery(30kbpd)
Nassiriya refinery(300kbpd)
Karbala refinery(140kbpd)
Kirkuk refinery(150kbpd)
Maysan refinery(150kbpd)
Planned refinery
With ageing infrastructure, Iraq needs to spur the development of new refineries
Iraq’s refineries operate significant under designed capacity New refineries have been planned for the past four years…
… but new refineries are in operation in Kurdistan
20
Source: U.S. Energy Information Administration, Energy Intelligence Group, Iraq Oil Report, Middle East Economic Survey
Iraq refineries Capacity (kbpd) Comments
Baiji 310 Effective capacity is 230 kbpd
Kirkuk 30
Sininya 30
Hadeetha 16
Qayara 16
Kasak 10
North Refineries 412
Daura 210 Effective capacity is 140 kbpd
Najaf 30
Samawah 30
Diwaniya 20
Midland Refineries 290
Basrah 210 Effective capacity is 135 kbpd
Maysan 30
Nassiriya 30
South Refineries 270
Iraq Total (excl. KRI) 972
Future refineries Capacity (kbpd) Comments
Nassirya 300 (est. $6.83bn cost)
Karbala 140 (est. $5bn cost)
Kirkuk 150 (est. $4.24bn cost)
Maysan 150 (est. $5.76bn cost)
Planned Refinery Total 740
Kurdistan refineries Capacity (kbpd) Owner Comments
Kalak (near Erbil) 80 KAR Group
Effective capacity is 80kbbl/d; plans to add 95kbbl/d of processing capacity by 2018
Bazian (near Sulaimanya)34 Qaiwan Group
Effective capacity is 20kbbl/d; plans to add 66kbbl/d of processing capacity by 2018
Kurdistan Total 114
Iraq refined product demand is underserved and growing
Plans need to be developed to meet local demand
21
Importing refined products is the only short-term solution to meet growing demand
Source: Manaar Energy Consulting, June 2014
0
100
200
300
400
500
600
700
800
2007 2008 2009 2010 2011 2012 2013 2014 2030
Consumption Import
Refining capacity (below 600kbpd) runs at 50% capacity and produces heavy fuels—not the products consumers need
Four new refineries have been under planning since 2007 and none are expected to come online after 2018 at the earliest
$20 billion is required to fund new refinery construction but limited investor interest and delays continue to stall projects
Dom
esti
c re
fin
ing
cap
acit
y
Pro
ject
ed f
utu
re c
onsu
mp
tion
28% growth in consumption
Domestic Refining Capacity
1. Oil Sector Overview ##
2. Infrastructure Overview ##
3. Upstream activity and licensing history ##
4. Political challenges ##
5. Future opportunities in Iraq ##
6. Appendix ##
Iraq licensing process overview
Iraq nationalized the oil sector in 1972 and all oil production was being handled and operated by various Iraqi NOCs
After the Second Gulf war, the Iraqi government needed to ramp-up production and spur investment in ageing super-giant fields
General strategy was to use a highly competitive licensing round system to promote the rehabilitation, redevelopment and appraisal of Iraqi oil fields
The Government awarded technical services contracts (TSC) and development and production service contracts (DPSC) to oil companies
TSCs are operated by a remuneration fee (between $1.15 – 6.00/bbl, adjusted downwards as the ration of cumulative revenue to cumulative costs increases) mechanism alongside cost recovery
Iraq launched a first public bid process in 2008 with a TSC structure to remunerate oil companies a flat fee for each barrel they produce
The process attracted offers from 31 firms including US and European giants ExxonMobil and Shell but also an array of Asian companies from China, India, South Korea and Indonesia
However, bids were underwhelming based on the remuneration fee awarded by the Iraqi government
Subsequent rounds have seen fewer and fewer bidders due to a combination of:
Inadequate incentive to counter the geological, political and logistical risks associated with the acreage and the most recent licensing round in Iraq failed to attract interest
Tight fiscal terms and low remuneration fees
Difficulty in operations (importing materials and securing work visas on time)
Slow responses from the Ministry of Oil
However, in the Kurdistan Region, a different system was used whereby:
Licence awards on an ad-hoc basis based on standard PSC contracts (5 years exploration + 25 years development period)
Establishment of oil and gas law in 2007, whereby PSCs operate with a fixed royalty (except for heavy oil), cost recovery (up to a ceiling), and proportion of profit oil
23
Iraq first licensing round ushered in the world’s biggest oil companies
First round (2008-2009) Map
24
ProjectMaximum
remuneration fee(US$/barrel)
Remuneration fee bid
(US$/barrel)
Signature bonus
(US$mm)Contractor
Maysan $2.30 $21.40 $300 CNOOC (63.75%) Iraq Drilling Co. (25%) TPAO (11.25%)
Rumaila $2.00 $3.99 - $4.80 $500 BP (47.6%) CNPC (46.4%) SOMO (6%)
West Qurna 1 $1.90 $2.60 - $19.30 $100
ExxonMobil (25%) North Oil (25%) Petrochina (25%) Shell (15%) Pertamina (10%)
Zubair $2.00 $4.09 - $9.90 $100
Eni (32.81%) Occidental (23.44%) Missan Oil (25%) Kogas (18.75%)
Source: Wood Mackenzie
Licensed blocksProvincial license blocksKRG blocksOpen blocks
Oil field
Gas fieldPipeline
Refinery
10 9
8
6
7
3
5
4
1
2
11
12
Maysan
Rumaila
West Qurna 1
Zubair
Iraq second licensing round sees investors shift to NOCs due to tighter fiscal terms
Second round (2009) Map
25
Source: Wood Mackenzie1Field has been relinquished
ProjectMaximum
remuneration fee(US$/barrel)
Signature bonus
(US$mm)Contractor
West Qurna 2 $1.15 $100 LUKOIL (56.25%) Oil Exploration Company (25%) Statoil (18.75%)
Majnoon $1.39 $150 Shell (45%) Petronas (30%) Misan Oil (25%)
Halfaya $1.40 $150
PetroChina (37.5%) South Oil (25%) Petronas (18.75%) Total (18.75%)
Gharraf $1.49 $100 Petronas (45%) JAPEX (30%) North Oil (25%)
Badra $5.50 $100
Gazprom (30%) Midland Oil (25%) KOGAS (22.5%) Petronas (15%) TPAO (7.5%)
Qaiyarah1 $5.00 $100 Sonangol (75%) Nineveh Oil (25%)
Najmah1 $6.00 $100 Sonangol (75%) Nineveh Oil (25%)
Licensed blocksProvincial license blocksKRG blocksOpen blocks
Oil field
Gas fieldPipeline
Refinery
10 9
8
6
7
3
5
4
1
2
11
12
West Qurna 2
Majnoon
HalfayaGharraf
Badra
Iraq third licensing round sees limited interest and poor bidder turn out
Third round (2010) Map
26
ProjectMaximum remuneration fee
(US$/barrel)Contractor
Akkas1
$5.50 KOGAS (37.5%) KazMunaiGas (37.5%) Iraq state equity partner (25%)
Mansuriyah $7.00
TPAO (37.5%) Kuwait Energy (22.5) KOGAS (15%) Iraq state equity partner (25%)
Siba $7.50 Kuwait Energy (45%) TPAO (30%) Iraq state equity partner (25%)
Licensed blocksProvincial license blocksKRG blocksOpen blocks
Oil field
Gas fieldPipeline
Refinery
10 9
8
6
7
3
5
4
1
2
11
12
Source: Wood Mackenzie1Field has been relinquished
Mansuriyah
Siba
Iraq fourth licensing round for exploration sees few blocks awarded again
Fourth round (2012) Map
27
Source: Wood Mackenzie
Block Acreage (km2)Maximum
remuneration fee(US$/barrel)
Signature bonus
(US$mm)Contractor
1 7,300 No bid $15 No award
2 8,000 No bid $25 No award
3 7,000 No bid $20 No award
4 7,000 No bid $20 No award
5 7,000 No bid $20 No award
6 9,000 No bid $20 No award
7 6,000 No bid $20 No award
11 8,000 No bid $15 No award
8 6,000 $5.38 $15 Pakistan Petroleum (100%)
9 900 $6.24 $25
Kuwait Energy (40%) TPAO (30%) Dragon Oil (30%)
10 5,500 $5.99 $25 LUKOIL (60%) Inpex Corporation (40%)
12 8,000 $5.00 $15 Bashneft (70%) Premier Oil (30%)
Licensed blocksProvincial license blocksKRG blocksOpen blocks
Oil field
Gas fieldPipeline
Refinery
10 9
8
6
7
3
5
4
1
2
11
12
Provinces have begun to license exploration acreage to spur new investment
In 2011, Oryx Petroleum acquired a 66.67% shareholding in KPA which through its subsidiary AmiraKPO holds a 75% participating interest in 3 contracts with the Wasit Provincial Government, involving:
Asphalt Exploration Contract
Exclusive rights to mine heavy oil, asphalts, tar and bitumen (less than 25°API) throughout the Wasit province
Non-exclusive rights to acquire 2D seismic data over any part of the Wasit province up to a total of 7,000km
Seismic Option Agreement
Initial term of 5 years, expiring in 2016, with an option to extend for an additional 5 years
Risk Exploration Contract (“REC”)
Right to conduct all exploration, gas marketing, development, production and decommissioning operations relating to petroleum operations in the contract areas
Amira holds a 25% carried interest, and the WPG is granted Back-In Right to acquire up to a 20% participating interest in each Contract Area
Wasit province
In 2010, Sonoro and its partner, Berkeley signed a license with the Provincial Government securing the exclusive right to explore for asphalt/bitumen up to 25⁰ in the Province
The area of the License is approximately 24,000 km2 and is situated within the Tigris River Valley, between the Western Desert and the foothills of the Zagros fold and thrust belt
Key terms of the license:
The exclusive rights to explore, develop and produce asphalt/bitumen within the entire Province and to sell the asphalt/bitumen produced (and/or the by-products after processing) domestically and/or internationally;
The Licensee (Sonoro Iraq 40%; Geopetrol 40%; Berkeley 20%) is required to make an investment of US$1.5mm on exploration activities and construct a topping facility having a minimum 1kbpd capacity within 18 months from making a commercial discovery
An initial exploration period of 5 years commencing April 14, 2011, followed by a 30 year exploitation period with extensions for any carved out exploitation areas to develop asphalt/bitumen
The Licensee is entitled to 50% of the revenues from the sale of asphalt/bitumen (and its by-products after processing), after tax and after cost recovery
A total of 80% of revenues are available for cost recovery
Crown Energy which acquired Tigris Oil in 2013, also claims to have a license with the Provincial Government following the PSC agreement signed by Tigris Oil with the Salah ad Din province in 2012
Salah ad Din province
28
Source: Oryx Petroleum IPO prospectus Source: Sonoro
Wasit and Salah ad Din provincial contract details
Given claims from provinces over poor distribution of oil revenues, Wasit and Salah ad Din provinces signed contracts directly with oil companies using the framework under the Iraqi constitution that the KRG had used
The deals signed to-date have yielded little material activity due to inability to mobilize equipment and get the required import permits from the Federal Government
Some concerns remain as Salah ad Din Province is rumoured to have awarded two provincial contracts to two different companies for the same location
In the face of delays, the companies have continued to review geological data in preparation for seismic programs
Baghdad has not come out directly against the contracts but has not been directly supportive to get work done in the provinces
Overview of activity Block Map (licenses in yellow)
29
Licensed blocksProvincial license blocksKRG blocksOpen blocks
Oil field
Gas fieldPipeline
Refinery
10 9
8
6
7
3
5
4
1
2
11
12
Salah Ad Din Province
WasitProvince
Iraq company asset exposure
30
Source: Wood Mackenzie, IHS, Company data## Gas ## Oil ## Oil & Gas
Block/Field Operator
Am
ira
Bas
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t
CN
PC
Dra
gon
Oil
Eni
Exx
onM
obil
Gaz
prom
Geo
petr
ol
Inpe
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Iraq
Dril
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Co.
JAP
EX
Kaz
Mun
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Kog
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KR
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Kuw
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LUK
OIL
Mid
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Oil
Mis
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Nin
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Oil
Nor
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Occ
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Oil
Exp
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Com
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Per
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Pet
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Pet
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PP
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Pre
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She
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Son
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Son
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Sou
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Sta
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Tot
al
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Was
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Gov
ernm
ent
Iraq
NO
C
To
tal
Wasit Province Oyrx 39 - - - - - - - - - - - - - - - - - - - - - - - 78 - - - - - - - - - - - - - 39 - 195
Salah ad Din Province Sonoro 42 - - - - - - - - 42 - - - - - - - - - - - - - - - - - - - - - - - 56 - - - - - - 141
1 N/A - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 26,134
2 N/A - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7,237
3 N/A - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,959
4 N/A - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,421
5 N/A - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,421
6 N/A - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,754
7 N/A - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 850
8 PPL - - - - - - - - - - - - - - - - - - - - - - - - - - - - 12,028 - - - - - - - - - - - 12,028
9 Kuwait Energy - - - - - 207 - - - - - - - - - - 276 - - - - - - - - - - - - - - - - - - - - 207 - - 691
10 LUKOIL - - - - - - - - - - 379 - - - - - - 568 - - - - - - - - - - - - - - - - - - - - - - 947
11 N/A - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,737
12 Bashneft - 1,549 - - - - - - - - - - - - - - - - - - - - - - - - - - - 664 - - - - - - - - - - 2,213
Ahdab North Oil - - - - 853 - - - - - - - - - - - - - - - - 284 - - - - - - - - - - - - - - - - - - 1,137
Ain Zalah/West Butmah North Oil - - - - - - - - - - - - - - - - - - - - - 40 - - - - - - - - - - - - - - - - - - 40
Ajil Iraq NOC - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 681 681
Akkas Kogas - - - - - - - - - - - - - - 374 - - - - - - 125 - - - - - - - - - - - - - - - - - - 498
Badra Gazrpom - - - - - - - - 284 - - - - - 213 - - - 237 - - - - - - - - 142 - - - - - - - - - 71 - - 946
Bai Hassan North Oil - - - - - - - - - - - - - - - - - - - - - 2,138 - - - - - - - - - - - - - - - - - - 2,138
East Baghdad Midland Oil - - - - - - - - - - - - - - - - - - 438 - - - - - - - - - - - - - - - - - - - - - 438
Gharraf Petronas - - - - - - - - - - - - 489 - - - - - - - - 408 - - - - - 734 - - - - - - - - - - - - 1,630
Halfaya PetroChina - - - - - - - - - - - - - - - - - - - - - - - 1,373 - - 2,059 1,030 - - - - - - - - 1,030 - - - 5,491
Iraq other fields N/A - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 316
Jambur North Oil - - - - - - - - - - - - - - - - - - - - - 1,299 - - - - - - - - - - - - - - - - - - 1,299
Khabbaz North Oil - - - - - - - - - - - - - - - - - - - - - 536 - - - - - - - - - - - - - - - - - - 536
Kirkuk North Oil - - - - - - - - - - - - - - - 430 - - - - - 1,291 - - - - - - - - - - - - - - - - - - 1,721
Luhais and Subba South Oil - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 613 - - - - - 613
Majnoon Shell - - - - - - - - - - - - - - - - - - - 3,258 - - - - - - - 3,909 - - 5,864 - - - - - - - - - 13,031
Mansuriyah TPAO - - - - - - - - - - - - - - 72 - 108 - - - - - - - - - - - - - - - - - - - - 180 - 120 481
Misan Group CNOOC - - - 1,105 - - - - - - - 434 - - - - - - - - - - - - - - - - - - - - - - - - - 195 - - 1,734
Naft Khaneh N/A - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 23
Nahr Umr South Oil - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,150 - - - - - 5,150
Najmah Sonangol - - - - - - - - - - - - - - - - - - - - 923 - - - - - - - - - - - - - - - - - - - 923
Nasiriyah South Oil - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 803 - - - - - 803
Qaiyarah Sonangol - - - - - - - - - - - - - - - - - - - - 855 - - - - - - - - - - - - - - - - - - - 855
Ratawi South Oil - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 431 - - - - - 431
Rumaila BP - - 7,385 - 7,199 - - - - - - - - - - - - - - - - - - - - - - - - - - 931 - - - - - - - - 15,515
Siba Kuwait Energy - - - - - - - - - - - - - - - - 55 - - - - - - - - - - - - - - - - - - - - 37 - 31 123
Tuba South Oil - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 176 - - - - - 176
West Qurna One ExxonMobil - - - - - - - 3,826 - - - - - - - - - - - - - 3,826 - - - 1,530 3,826 - - - 2,296 - - - - - - - - - 15,304
West Qurna Two LUKOIL - - - - - - - - - - - - - - - - - 8,009 - - - - - 3,560 - - - - - - - - - - - 2,670 - - - - 14,239
Zubair Eni - - - - - - 2,447 - - - - - - - 1,399 - - - - 1,865 - - 1,748 - - - - - - - - - - - - - - - - - 7,459
Total (2P + 2C) (mmboe) 81 1,549 7,385 1,105 8,052 207 2,447 3,826 284 42 379 434 489 - 2,057 430 440 8,578 675 5,123 1,778 9,946 1,748 4,933 78 1,530 5,885 5,814 12,028 664 8,160 931 - 56 7,173 2,670 1,030 691 39 832 154,460
Total 2P (mmboe) - - 7,385 1,105 8,052 - 2,447 3,826 284 - - 434 489 - 2,057 430 164 8,009 675 5,123 1,778 9,946 1,748 4,933 - 1,530 5,885 5,814 - - 8,160 931 - - 7,173 2,670 1,030 483 - 832 93,731
1. Oil Sector Overview ##
2. Infrastructure Overview ##
3. Upstream activity and licensing history ##
4. Political challenges ##
5. Future opportunities in Iraq ##
6. Appendix ##
Iraq maintains strict government controls over oil and gas activities
The Iraqi Constitution creates a federal state, comprising a federal government, and regional or governorate governments
There are 18 governorates (sometimes referred to as ‘provinces’), but three of them merged to form the Kurdistan Region
The Kurdistan Regional Government (“KRG”) is the first of its kind on the governorate level
The Constitution allocates powers and authorities between the federal and regional authorities
Additionally, the Constitution gives regions and governorates power and authority over all matters that are not expressly stated to be exclusive federal powers
1. Control of oil fields
Article 112 (First) establishes the petroleum power of the federal government, stating that, “…the federal government, with the producing governorates and regional governments, shall undertake the management of oil and gas extracted from current fields…”
Thus, since “current fields” is not further defined, non-producing or exploration areas would not be included within the joint management power of the federal government under Article 112 (First)
2. Current state of affairs
On this basis, the KRG has been awarding rights for non-producing and exploration areas, with 51 contracts awarded to date
Governorates have the same constitutional rights as the Kurdistan region with respect to petroleum, and are aiming to replicate the success of the regional contract model
32
Political climate in Iraq
In February 2007, the Oil and Energy Committee of the Council of Ministers developed a draft Oil and Gas Law with the goal ofpromoting federalism and decentralization in the industry, however this draft (nor any other) has yet to be enacted
In the absence of a federal Oil and Gas Law as contemplated by the Constitution, the KRG has exercised its constitutional jurisdiction to award petroleum exploration and development rights
General jurisdiction articles (2005 Iraqi Constitution)
Article 110: Lists the extent of the exclusive federal authority but omits the issue of petroleum jurisdiction completely
Article 114: Outlines the specific competencies that should be jointly shared between federal and provincial authorities; again no petroleum provisions
Article 115: States that all powers not specified under article 110 shall fall to regional authorities
In the event of a dispute between federal and regional shared powers, priority shall be given to the regional authorities
Oil and Gas Specific Articles (2005 Iraqi Constitution)
Article 111: Oil and gas resources are owned by all the people of Iraq in all the regions and governorates
Article 112: The federal government with the producing governorates shall undertake the management of oil and gas extracted from current fields, provided that it distributes its revenue in a fair manner in proportion to the population distribution in all parts of the country
The federal government, with the producing regional governorate governments, shall together formulate the necessary strategicpolicies to develop the oil and gas wealth in a way that achieves the highest benefit to the Iraqi people using the most advanced techniques of market principles and encouraging investment
The debate has been whether non “current” fields (discovered but not developed or yet to be discovered) fall under federal or regional jurisdiction
The KRG asserts exclusive jurisdiction over the petroleum exploration and development as it relates to non-producing fields, which at the time of the Constitution included all of Kurdistan’s petroleum resources
Governorates are now following the KRG model in light of the fact that their petroleum rights are the same for any region
33
Oil and Gas Legislation – Proposed New Laws
Cabinet’s draft oil law thought to provide for significant federal oversight
Federal oil committee with broad powers, covering setting energy policy, approving oil and gas model contracts, awarding contracts and supervising and coordinating with federal, regional and provincial authorities
Federal committee would have power to assign fields for development and which should be developed by a national oil company, which would be created under a new law
Regional authorities (KRG) could have licensing rounds and award contracts, but only in accordance with procedures and models approved by the federal committee
Proposed national oil company would have right to sign contracts with IOCs to develop fields under its jurisdiction
Federal oil committee would have authority to determine whether existing federal contracts and KRG contracts are consistent with the new oil law
All new oil and gas contracts require committee approval
Parliament’s draft oil law thought to provide for decreased federal control
Grants governorates similar jurisdiction over local petroleum resources as the KRG
Committee consisting of federal oil minister, KRG minister of natural resources and chairman of parliamentary oil and energy committee will resolve dispute over KRG contracts
Proposes lesser role for federal Ministry of Oil, INOC and Cabinet in managing upstream oil and gas industry, and expanded roles for regional authorities
Enacting a federal hydrocarbon law was a precondition by the Kurdistan Alliance block in joining the al-Maliki government in December 2010
Cabinet of Ministers spokesman stated that that all previous versions and drafts were to be regarded as cancelled and withdrawn, withthe Cabinet’s version the only one to be considered by the Council of Representatives
Presidency of the Kurdistan Region harshly condemned the substance and the timing of the submission of the Cabinet’s draft and called on the Council of Ministers to withdraw the draft. The Presidency of the Kurdistan Region called on parliament to reject the draft submitted by the Council of Ministers
34
A diverse population has created challenges in uniting under one political system
Under the leadership of former Prime Minister Nouri al-Maliki, Sunni and Shia tensions rose to an all time high with the ongoing Kurdish independence fight adding further conflict
Ethnic groups began to focus on local politics and consolidate power in their regional home bases
The ISIS conflict further exacerbated this crisis which lead to a change in power, ushering in a new Prime Minister Haider al-Abadito reunite the parties under Iraq
Quick agreements were struck with the Kurds as a initial means to cooperate
A new budget was passed to further distribute wealth between the provinces and begin to address corruption
Iraq is striving to unify all ethnic groups
Significant Sunni and Shia animosity exists between the Shia-led Federal Government and the Sunni strongholds in Iraq where ISIS has increased its regional presence
Uniting and fighting under the banner of a Federal Iraq will likely be the solution to root out ISIS and reintegrate society
A final deal is still required to solve outstanding issues with the Kurdish Regional Government, including reparations for Saddam’s Anfals, budget sharing, oil licensing and production right, among others
Future challenges still exist
35
Ethnic and religious break-up
Differing interpretations of Iraqi constitution at heart of dispute with the KRG
Much of the dispute stems from differing interpretations of Iraq’s constitution. Until its enactment in 2005, the federal government’s control over Iraq’s hydrocarbons sector, established with the nationalisation of 1972, was unassailable.
But the new Iraqi constitution, passed in 2005, said authority over oil production is split between federal and provincial levels, stating, “…the federal government, with the producing governorates and regional governments, shall undertake the management of oil and gas extracted from present fields…”
Since “present fields” is not defined, the KRG maintains that non-producing and/or exploration areas as of 2005 are not the exclusive province of the federal government
Under this premise the KRG has awarded 51 contracts for non-producing and exploration areas
Recently the federal government softened its legacy stance that all petroleum contracts entered into by the KRG are unconstitutional and therefore invalid
Baghdad maintains that the Iraqi State Oil Marketing Organisation (SOMO) has the exclusive authority to export oil from Iraq, including any produced in the Kurdistan region.
Revenue from SOMO’s exports goes to the federal government for disbursement to the Iraqi governorates and regions in accordance with the federal budget
Based on this position, Baghdad generally has not transferred all of the proceeds from the sale of oil produced in Kurdistan leaving the KRG coffers dry and unable to pay to IOCs producing in the region their full share of cost and profit oil.
But an interim agreement with Baghdad in Nov 2014 signalled an end to the long standing dispute
Debate over who should control (and profit) from oil & gas Significant events in Iraq/KRG dispute
36
Oct-05 Iraqi constitution adopted
Feb-07 Draft federal petroleum law written but not passed
Jun-07Agreement on initial revenue sharing (17% of net oil revenue in Iraq go to Kurdistan)
Aug-07 KRG petroleum law approved by KRG Parliament
Feb-11Iraqi Prime Minister announces Kurdistan PSCs will be respected. Oil exports from Kurdistan resume via federal system (Ceyhan)
May-11Iraqi Ministry of Finance confirms release of the first oil export payment to KRG contractor June
Sep-11Kurdistan producers receive first two payments for oil exports from the Iraqi Ministry of Finance
Apr-12 KRG ceases oil export due to dispute with Baghdad
Aug-12KRG resumes oil exports to progress reconciliation with Baghdad over oil and gas law
Sep-12Agreement signed with KRG and federal government to increase KRG’s oil exports; $500 million payment received from Baghdad
Dec-12 KRG ceases oil exports because of dispute with Baghdad
Jan-13KRG approves trucked oil exports from Taq Taq field to Turkey. Erbil building export pipeline to Turkey
Mar-13Federal budget falls short of the KRG’s requested budget allocation by nearly $3 billion. KRG halts most oil sales via Baghdad and began negotiations with Turkey for direct export
Nov-13 Construction complete on the Khurmala – Fish Khabur oil pipeline
Jan-14Oil export begins via pipeline to Turkey; Baghdad cuts all funding to KRG government
May-14 KRG begins direct oil sales; Baghdad sues buyers
Nov-14Baghdad and KRG reach interim agreement that includes $500 million monthly payment to KRG in exchange for delivering 150,000 bpd to Baghdad
Nov-14KRG agrees to make an initial payment of $75m to contractors exporting production; further regular payments to follow
The security situation continues to improve with coalition support
The Islamic State of Iraq and Syria, the terrorist organization with roots in the Syrian uprising, began fighting Iraqi forces in western Iraq (Anbar Province) in early 2014
In June 2014, ISIS seized the northern Iraqi city of Mosul and began threatening Kurdish territory and the capital of Erbil. This forced many oil companies operating in Kurdistan to temporarily evacuate personnel and suspend operations
In August 2014, the U.S. formed an international military coalition to support Iraqi and Kurdish forces in the fight against ISIS
This proved that the U.S. and its international allies would not let insurgents gain control of Baghdad or KRG land
An international coalition of 21 countries are supporting Iraqi and Kurdish forces in Iraq and Syria, with dozens of others providing military, humanitarian and intelligence aid
The U.S. Military announced its decision to take control of Harir airport to support air operations against ISIS
Ongoing military operations have forced ISIS from the BaijiRefinery, the Mosul Dam and other strategic locations throughout the Iraqi region
Oil companies have remobilized in Erbil to operate the oil fields and continue exploration efforts
The security has never effected oil operations in Basra, bringing production to record high levels in the past few months
Recent events in the region support long-term stability prospects Map of security challenges
37
ISIS Control Zones
ISIS Attack Zones
ISIS Support Zones
Kurdistan
U.S. airbase at HarirAirport
1. Oil Sector Overview ##
2. Infrastructure Overview ##
3. Upstream activity and licensing history ##
4. Relations with the KRG ##
5. Future opportunities in Iraq ##
6. Appendix ##
Early excitement of IOCs has been offset by low returns and challenging operations
39
2008 2009 2010 2011 2012 2015+
Lic
ence
aw
ard
s
Iraq needs to incentivise investments and attract companies back into Iraq
Block 8
Block 9
Block 10
Block 12
Siba
Mansuriyah
West Qurna 2
Majnoon
Halfaya
Gharraf
Badra
Maysan
Rumaila
West Qurna 1
Zubair
No new licenses awarded
Baghdad has begun to renegotiate existing TSCs
BP and China's CNPC signed a revised contract for Iraq's Rumaila oilfield in Sep-14
The original contract had BP holding a 38% stake in the Rumaila venture, while CNPC had a 37% share and Iraq's State Oil Marketing Organisation controlled the remaining 25%
According to the revised deal, BP's share rose to 47.6% and CNPC's to 46.4%, while Iraq's stake was reduced to 6%
Under the revised contract, BP has cut the planned output target for the supergiant field to 2.1 mmboepd from 2.85 mmboepd and extended the life of the deal
After signing a series of service agreements with foreign companies in 2009-2010 to develop its giant southern oilfields, Iraq set an overall production capacity target of 12 mmboepd by 2020, which would rival the output capacity of top oil exporter Saudi Arabia at 12.5mmboepd
But crumbling infrastructure, red tape and a lack of clear legislation have stunted investor interest
Baghdad has reduced its overall capacity target to 8.5-9 mmboepd and returned to the negotiating table to discuss revised planned output targets, known as plateau production levels, with oil companies
Rumaila has estimated reserves of 17 bnboe
It currently produces around 1.3 mmboepd to 1.4 mmboepd, almost half of Iraq's output
BP/CNPC Rumaila
China National Petroleum Company (CNPC; 37.5%, operator) has renegotiated the plateau production target for the Halfaya field in Missan Province in Sep-14
The production plateau target has been reduced to 400 kbpd from 535 kbpd and the duration of the field development contract has been extended from 20 years to 30 years
As of Dec-14, CNPC, with partners Total (18.75%) and Petronas (18.75%), is believed to have completed the drilling of 98 wells at the field
As of late 2014, oil production was averaging 200 kbpd after the second development phase was brought on-stream
This second phase involves the drilling of 60 additional wells and construction of a processing facility and pipeline
Preliminary work has also commenced on the third phase of the development which will increase the production capacity to 400 kbpd
The forward plan is to drill 300 wells at the field within 5 years
CNPC – Halfaya
Reductions in peak production targets and extensions of TSC/DPSC duration now being sought
LUKOIL–West Qurna2 (agreed on 17/1/13) –with further addendum in June 2014 for Tuba-Fao pipeline
ENI–Zubair(agreed on 15/7/13)
ExxonMobil –West Qurna1 (agreed on 30/1/14)
Statement from ex-Deputy PM for Energy that all other 2009 TSC/DPSCs will need to be re-negotiated
Recent Re-negotiation of TSC/DPSCs
40
While Baghdad previously did not entertain renegotiations, current action shows future potential for attractive terms
Prospects for new licensing round
Iraq’s fifth licensing round for oil exploration will be held in the near future and will come from 10 oil blocks, its oil minister said in 2013
Less attractive service contracts from Baghdad combined with a recent boom in natural gas supplies and gas finds elsewhere in the world may have further quashed investor interest in a tricky gas prospect like Iraq
After Iraq's fourth energy auction ended with few foreign investors tendering bids, this could force Baghdad to ease tough contract terms to lure more oil explorers into a new bidding round that should focus on gas, while the oil will be used to boost reserves
The Oil Ministry announced on May 27, 2013 that Iraq chose ten patches exploratory distinct gas to oil licensing round fifth coming that will be announced later after the completion of legal and technical procedures on it
Delays on launching the 5th round is apparently due to work on the licensing round for the Nasiriyah project (oilfield and refinery) and ongoing contract renegotiations
We expect an announcement on structure and terms during the next year
41
Huge potential for gas production…
Iraq's proved natural gas reserves were the 12th largest in the world at almost 112 TCF, but much of the gas is flared or not used
Iraqi gross natural gas production was 724 Bcf in 2012, of which 423 Bcf (58%) was vented and flared
In 2011, Iraq was ranked as the 4th largest gas flaring country in the world
75% of Iraq's natural gas reserves are associated with oil, most of which lie in the supergiant fields in the south
Limited gas infrastructure has left gas-prone exploration untouched
Iraq gas assets overview
Plans to export natural gas remain controversial because natural gas is needed as fuel for Iraq's electric power plants
The current shortage of adequate gas has resulted in idle and suboptimal electricity generation in Iraq
Prior to the 1990-91 Gulf War, Iraq exported natural gas to Kuwait
The gas came from the Rumaila field through a 105-mile, 400 mmcf/d pipeline to Kuwait's central processing center at Ahmadi
The Ministry of Oil has discussed reviving the mothballed pipeline, but no firm plans have been made to do this
The Iraqi government has also considered proposals to build a transcontinental pipeline to export natural gas to Europe via nearby countries, but there are no firm plans
Development has been hindered by a lack of infrastructure
Iraq has world class gas fields with massive reserves…
… and now Iraq wants to ramp up gas production
42
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Bcf
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
mmcf/d
Source: Wood Mackenzie and U.S. Energy Information Administration, Iraq Oil Report, and Middle East Economic Survey
…if gas processing facilities are built
Kuwait Energy was awarded 20 year term gas development contracts for Siba (Basra Governorate) and Mansuriya (Diyala province)gas fields in Iraq’s third bidding round
Kuwait Energy will be the operator of Siba, participating with a 60% contractor share and TPAO participating with 40%
Successful remuneration fee for Siba was $7.5/boe with a plateau production target of 100 mmscfd
TPAO will be the operator of Mansuriya, participating with a 50% contractor share, Kuwait Energy 30% and Korea Gas Corporation 20%
Successful bid was $7/boe with a plateau production target of 320 mmscfd
$400mm are being spent to drill wells and build pipelines and surface facilities at the gas fields
Siba and Mansuriyah gas projects
Gulfsands signed a MoU in Jan-05 with the Ministry of Oil in Iraq for the Maysan Gas Project in Southern Iraq, following completion of a feasibility study on the project
The project involved the engineering, procurement, construction and operation of a gas gathering system, gas liquids plant and power plant to gather, process and transmit natural gas which would otherwise be flared as a waste by-product of oil production
Signature of a definitive contract has been delayed for years due to Ministry of Oil focussing on bid rounds for the development of super-giant oil fields in the south before being abandoned
Gulfsands Petroleum failed Maysan gas project
Basra Gas Project
Royal Dutch Shell signed a MoU in 2012 with the Iraqi government to set up a major petrochemical facility in the city of Basra
In Jan-15, the deal was announced by Industry Minister Nasser al-Esawisaying the complex would make Iraq the largest petrochemical producer in the Middle East
The $11 bn ethane-cracking facility – entitled Nebras – would produce ethylene, which is used in making plastic and is expected to come on line within five to six years
Planned petrochemical facilities
43
Ongoing gas projects have been slow to materialize
The Basra Gas Company (BGC) is a $17.2 bn JV set up in Nov-11 to gather and process gas from the three southern oilfields of Rumaila, West Qurna 1, and Zubair
Owned by the Iraqi South Gas Company (51%), Shell (44%) and Mitsubishi (5%)
The plant began operations in Apr-13 year with an initial capacity to produce 400mmcfpd, but once completed in 2017, the project will process 2bcfpd
1. Oil Sector Overview ##
2. Infrastructure Overview ##
3. Upstream activity and licensing history ##
4. Political challenges ##
5. Future opportunities in Iraq ##
6. Appendix ##
Key issues in Iraq
45
Concerns Mitigation
Leg
al
Absence of unified position between KRG & Central Government leads to
erratic oil policies / Revenue-sharing issues (federal-Kurdistan-provinces)
Hesitancy in oil reforms contributes to increased corruption and insecurity
/ Prone to significant political uncertainties, incoherent and unpredictable
policy directions
Major changes in current policy post-2014 elections: review of fiscal
system, with possible entry of independent and specialized IOCs
Pending oil law reforms
Secu
rity Insecurity and sectarianism
Risk of involvement in political turmoil and violence
US led coalition providing training and funding to Iraqi military to ensure
safety
Op
erat
ion
al
Delays and downward revision to plateau targets
Power shortages
Gas flaring high
Absence of key infrastructure
Lack of downstream strategy
Lack of export competitiveness due to geography
Power investment program started
Refinery investment program started
Co
ntr
actu
al
TSC Contract terms
Struggle attracting foreign investment and IOCs
Unsustainably low/misaligned contractor incentives given scope of
development challenges
Poor regulatory networks ensure hegemony of NOC over IOC, through
higher profit margins and lower risk and costs for the NOC
New field exploration and development with sweeter economic terms
Largely successful achievements of around 60% of production targets since
2010
Attracted major IOCs under unprecedented levels of government take
Recent contract renegotiations with existing companies
Go
ver
nm
enta
l Inefficient & bloated bureaucracy
Long negotiation phase and project delays
High government take –low attractiveness & mismatched incentives
New PM and Minister seeking to streamline bureaucracy
New contractual and fiscal terms under review
WPG Contracts
In Dec-11, Oryx Petroleum acquired a 50% shareholding in KPA
KPA has an indirect 75% participating interest, Amira Hydrocarbons holds the remaining 25% participating interest (Petrel Resources has acquired a 20% interest in Amira in Sep-13, giving it an effective 5% carried interest)
Consideration for the 50% shareholding in KPA acquired by Oryx Petroleum included:
An agreement for KPA to fund Amira Hydrocarbons’ 25% share of all costs under the WPG Contracts until first production (with such carry to be repaid from cash flow from any future production)
Oryx Petroleum agreeing to fund KPA’s first $65mm of expenditures (inclusive of the 25% carried interest of Amira Hydrocarbons);
KPA paying Amira Hydrocarbons bonus payments upon achievement of key operational milestones of up to a total of $11mm
Oryx Petroleum is the contract operator with regard to the 3 contracts with the WPG to explore and develop hydrocarbons in the Wasit province:
An Asphalt Exploration Contract,
A Seismic Option Agreement
A Risk Exploration Contract (“REC”)
If Oryx Petroleum exercises the KPA Option and the WPG exercises the WPG Back-In Right, then as a result of its shareholding in KPA, Oryx Petroleum will have a 50% participating interest (40% working interest) in the WPG Contracts
Pursuant to the KPA Option, if Amira Hydrocarbons subsequently obtains equivalent oil and gas contracts in another specified Iraqi province, then Oryx Petroleum must elect to either
relinquish the additional 16.66% shareholding obtained by it on the exercise of the KPA Option; or
retain its additional 16.66% shareholding but lose its right for KPA to participate in such specified province in Iraq
The Seismic Option Agreement grants non-exclusive rights to acquire 2D seismic data on behalf of the WPG over any part of the Wasit province up to a total of 7,000km
The initial term of the Seismic Option Agreement is five years, expiring in September 2016, with an option to extend for an additional five years
Pursuant to the Seismic Option Agreement, KPA can nominate non-contiguous areas totalling up to 3,500 km2 to be “Contract Areas” governed by the terms of the REC
KPA also has a right of first refusal should the WPG offer to award any petroleum license in the Wasit province to third parties prior to the full 3,500 km2 being nominated by KPA
KPA is entitled to 50% of the revenues from any sale of the seismic data it acquires on behalf of the WPG up to a cap of 125% of the cost of acquiring the seismic data incurred by KPA
The Wasit REC provides KPA with the right to conduct all exploration, gas marketing, development, production and decommissioning operations relating to petroleum in nominated Contract Areas
At present, no Contract Areas have been nominated by Oryx Petroleum
Each nominated Contract Area would be deemed to be a new REC, and the WPG is granted the WPG Back-In Right to acquire up to a 20% participating interest in each Contract Area so nominated by KPA
Existing producing regions within the Wasit province are excluded from the Wasit REC
The Asphalt Exploration Contract provides KPA exclusive rights to mine heavy oil, asphalts tar and bitumen (less than 25°API) throughout the Wasit province
During the initial four year evaluation and pilot phase, KPA has committed to conduct studies, collect seismic data and potentially construct an asphalt production plant (if commercially feasible)
46 Source: Oryx Petroleum IPO Prospectus
Wasit Province
The Wasit province is located in east central Iraq in close proximity to the super-giant East Baghdad field
17,153 km2 in size (representing 4% of the land mass of Iraq)
There are several international oil companies operating in the Wasitprovince and some transport infrastructure is under development to connect fields in the Wasit province with pipelines in southern Iraq that connect to the port of Basra
OAO Gazprom, which was awarded development of the giant Badrah field, is tendering for a 165km, 24-inch, oil pipeline to the Garraf oil field in southern Iraq where it will connect to a pipeline to Basra, as well as a gas gathering and treatment station, a gas pipeline, infield pipelines and field infrastructure
The Wasit province is underexplored, with only five exploration and appraisal wells drilled to date by third parties and limited vintage 2D seismic data
All five exploration and appraisal wells drilled by third parties in the Wasit province to date have been successful:
two wells on the Badrah field
two wells on the Ahdab field
one well on the Dufriyah field
The three discovered but undeveloped oil fields have an estimated 1.3bnbbl of reserves
CNPC (Ahdab field), OAO Gazprom (Badrah field), Lukoil OJSC and Pakistan Petroleum Limited are already present in the Wasit province under contracts with the Iraqi Federal Government
By contrast, Oryx Petroleum’s contracts in the Wasit province are with the WPG
Background Map
Wasit License Area Development Plan
47
The development of the leads in the Wasit province would consist of 95 oil producing wells and 12 injection wells
Gross Capex over the life of the Wasit province license are estimated by NSAI to be $9.5bn with average gross Opex of approximately $12/bbl
Source: Oryx Petroleum IPO Prospectus
Key contractual terms under the Wasit REC license
48 Source: Oryx Petroleum IPO Prospectus
Oryx Petroleum Participating Interest 50%
Oryx Petroleum Working Interest 40% Assuming Oryx Petroleum exercises the KPA Option and the WPG exercises the WPG Back-In Right
WPG Working Interest 20% Assuming Oryx Petroleum exercises the KPA Option and the WPG exercises the WPG Back-In Right
Exploration Period
Initial Sub-Period 3 years from contract area nomination date
Commitment Seismic/Studies, 1 well
Second Sub-Period 2 years
Commitment 1 well
Extensions Two 1-year extensions
Development Period 20 years + 5 years
Regional/Provincial Royalty 10%
Cost Recovery Limit
Oil and associated gas 45%
Non-associated gas 55%
Cost Pools (100%) as at December 31, 2012 $6mm
Contractor Share of Profit OiR<1: 40%
1<=R<2.5: Straight lineR>=2.5: 20%
Annual Lease Payments per km2
Exploration Period $10
Production Period $100
Production Bonus Payment
Start $1mm
10 mmbbl cumulative $2.5mm
25 mmbbl cumulative $5mm
50 mmbbl cumulative $10mm
Other Payments to WPG per annum
Exploration Period $50k to $150k $150k in the first year, $100kin each of the second and third years, and $50k per annum thereafter
Development Period $100k
Contingency Payments to Partners $11mm One time bonus payments by KPA to Amira Hydrocarbons upon achievement of certain operational milestones
Other Payments to Region/Province $7mm
One time signature bonus and capacity building payments due within 30 days of acknowledgement of contract area nominationBoth signature bonus and capacity building bonus are equal to the contract area nomination (km2) divided by the total area (3,500 km2) and multiplied by $3.5mm Assuming nomination of the full area (3,500 km2), signature bonus and capacity building bonus are equal to $3.5mm eachPayments will be reduced pro-rata if the full area is not nominated
Government Carry KPA carries the WPG through to exploitation
Partner Carry
KPA funds Amira's 25% share of all costs under the WPG Contracts until first production(with such carry to be repaid from production)Oryx Petroleum’s remaining carry of KPA’s expenditures (inclusive of the Amira Carry) is $59mm
Under the agreements with its partners, Oryx Petroleum is obliged to carry KPA’s first $65 million of expenditures (inclusive of the Amira Carry)The $59 million shown is the remaining obligation of Oryx Petroleum as at December 31, 2012
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