Sunday, Dec 28, 2003
Not everyone can survive in the desert. It takes determination, specialist skills and perseverance. Good contacts can be a help, too.
Petrel Resources, a small Irish oil explorer, has all these attributes. It has become an expert at playing the waiting game that offers Iraqi oil as the prize. Petrel's future is intimately tied to the changing fortunes of strife-torn Iraq. It is the only western oil company to have maintained an active presence there for four years, even during the war.
Iraq accounts for 15 per cent of the world's proven oil reserves. Most of the country's acreage is unexplored, with only 2,000 wells drilled compared with 1m in similarly-sized Texas.
With lifting costs at about $1 a barrel, Iraq is one ofthe world's lowest-cost producers.
The going has not been easy as there are numerous obstacles delaying the transformation of paper agreements into barrels of oil.
In November, a rebel rocket attack destroyed important data rooms in the oil ministry building.
Poor communications systems, widespread fuel shortages and power cuts are also a problem. But the irrepressible John Teeling, 57-year-old founder and chairman of Petrel, is confident that drilling will start next year. "It is darkest just before dawn," he says.
The stock market has so far reflected his optimism. The market value of Petrel, which trades on Aim, was GBP3m at the beginning of the year but now stands at just short of GBP13m. Its shares have climbed from about 4p in the lead-up to the war to a year high of 24p in early December. They closed on Christmas Eve at 22p.
In 2002, Petrel signed an agreement with Iraq's oil ministry to explore Block 6 of the western desert, a 10,000 sq km area about half way between Baghdad and the Jordanian border. As the dust of battle settled, Petrel returned to find many of its key contacts in place and ready to honour pre-war agreements. But it also found widespread destruction and looting of equipment and data.
According to David Horgan, Petrel's managing director, the oil ministry has retrieved about 40 per cent of geological information lost during the war. Some contributions came from Petrel, which duplicated and safeguarded key data on the western block.
Pertamina, the Indonesian state company, Petronas of Malaysia and ONGC of India had all taken blocks in the area but Petrel says it is so far the only to reopen for business.
Having raised GBP1m through a share placing in November, Petrel is now reinterpreting and reprocessing seismic data, conducting geological sampling and studying and building upon previously secret large-scale maps.
On invitation, Petrel is preparing a tender to rebuild and expand fields in northern Iraq. It also wants to push ahead with a development near Basra, where in 1999 it conducted a GBP160,000 feasibility study into rehabilitating the Subba and Luhais fields damaged in 1981 during the Iran-Iraq war.
But almost seven months since President George W. Bush declared the war over, Iraq, plagued by crime and terrorism, may be more dangerous than ever.
Mr Horgan, 44, who like Mr Teeling is a Harvard graduate, admits that he risks his life every time he travels to Baghdad to assess progress on the ground and liaise with 12 local employees.
But he believes that as an Irish company with first-mover advantage and no political conflict of interest, Petrel stands to gain far more than it could lose.
Douglas Wright, a private investor, says he is growing "more and and more confident" in his 2 to 3 per cent holding in Petrel.
"I think Iraq is going to be major," he says. "Petrel, which has been in there from day one, will get a good slice. For a small company, they only need to get a small slice."
Maurice Cassidy, a long-time investor in oil, gas, and mining companies, says Petrel's involvement in Iraq is the main attraction for him. "I like the play. If Petrel is able to bring current negotiations to fruition and start to develop some of the wells, what will the share price be then?"
Joanna Chung
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