April 18, 2008

Kurdistan oil: small intreresting item

Zagros left off Iraq list

Calgary firm unable to bid on energy projects

Shaun Polczer, Calgary Herald

Published: Thursday, April 17, 2008

A small Calgary company exploring for oil in Kurdistan is in limbo after it was left off a list of eligible companies to work in Iraq.

Tiny Western Zagros Ltd. was omitted from a group of 35 oil and gas companies invited to bid on projects tendered by the Iraqi oil ministry.

Simon Hatfield, Western's president and CEO, said he was disappointed his firm didn't make the list, but vowed to press on with an exploration well later this month in the northern part of the country.

Simon Hatfield, president and CEO of Western Zagros, says he's eager to do work in Iraq.

"Size seems to matter," he said of the list, which includes a cross section of the largest majors, independents and national oil companies in the world.

"It's not surprising to me that it's large companies that come out on the top of that list. Our hope is over time they (Iraqi officials) realize the value small to medium-sized companies like ours can bring."

Western Zagros was spun out of Western Oil Sands Inc. when it was bought by Marathon Corp. last year.

The company gained its Iraq concession about two years ago when it negotiated a contract with the Kurdistan autonomous authority.

Iraqi officials have said in the past they won't honour deals outside the central government, but Hatfield said there has been no indication that existing agreements will be revoked.

The Kurdish Globe, the region's only English newspaper, reported that Kurdish Prime Minister Nechirvan Barzani is in Baghdad to discuss the status of the contracts, which have been negotiated with 20 foreign firms.

The talks were reported to be "good and positive," according to the newspaper's website.

Hatfield said the Kurdish government has obtained a legal opinion in a British court that the deals are legal agreements, and expressed hope the dispute will be resolved before the end of the year.

"We did not enter into it lightly,"
he said.
"A lot of statements out of Baghdad are highly political. Some of the rhetoric surprises us sometimes."

About 120 companies applied for pre-bid screening. Nexen Inc. was the only Canadian producer to make the cut, although the Iraqi ministry said more companies could qualify in later licensing rounds.

Michael Harris, Nexen's vice-president of investor relations, said the company has no immediate plans to invest in Iraq. Rather, the pre-bid qualification allows it to "take a peek" at opportunities as they arise.

Harris speculated that Nexen was chosen for international experience in countries such as Yemen, where it maintains a sizable presence.

"It's a natural extension of our strategy to grow in the area," he said.

Steve Calderwood, who covers Nexen for Raymond James in Calgary, said Nexen's selection speaks to its experience and contacts in the international arena.

"If you had any dealings with the Kurdish regional authority, you didn't show up on this list. You have to have patience and deal with the right people."

Vincent Lauerman, who heads Calgary-based Geopolitics Central, said Iraq remains "extremely dangerous" even compared with Yemen, which has also experienced civil war and terrorism. Last week, Nexen evacuated dependents from the country following a pair of rocket attacks linked to al-Qaeda.

Despite progress by the U.S. military, Lauerman said it could be years before security has improved enough in Iraq for western oil majors to begin rebuilding the oil industry.

"It's going to take a long time with the American occupation if we're going to see Iraq as we know it. If the Americans were to pull out relatively quickly there's a chance you'd see the disintegration of the Iraqi state into three distinct pieces, maybe even more."

Nexen shares rose 59 cents in Toronto on Tuesday, to close at $33.99. Western Zagros added two cents to finish at $2.55.

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