When I was closely following the Iraq war when I was in college, I couldn’t help but think about the investment opportunities that a country at war could provide once things settle down. I remember reading reports speculating about the appreciation of the Iraqi Dinar which was basically worthless in 2003. Looking at the charts it was at around 1600 IQD/USD now trading at just above 1100, a 30% price appreciation.
Today and tomorrow Iraq is holding the first energy exploration auction since Saddam Hussein has been out of power. Bloomberg reports that the auction includes drilling rights to twelve areas and 47 companies are scheduled to participate, two of which are BP and Shell who already have production facilities at two of Iraq’s largest oil fields (more details in the article here)
Iraq currently has the fourth largest known oil reserves in the world and is currently the number three top producer in OPEC and by the looks of it there is a lot of room for upside. The first wave of international countries into Iraq and a few years of operation without being interrupted by events stemming from violence or any other Iraq specific issues should pave the way for further economic development of a place where as recently as five years ago, violent fighting between religious sects, militias, international forces, and other factions were a daily occurrence.
A lot of the issues that are still a barrier to companies wanting to do business in the Iraqi energy sector are the failure of the Iraqi government to properly reward the exploration teams for the risk they are taking, the infrastructure of the country, and what is considered a less stable political environment than what companies are used to being comfortable with.
Should be interesting to see how this develops over the next few years. With Iraq being so rich in the oil and gas sector there are profits to be had by whoever is willing to take the risks and start developing their operations there. It is also amusing to see how this ”nation building experiment” is proving to be rather successful in a relatively short time frame.
I would measure a "nation building experiment" in broader terms than the profitability of the oil and gas sector (although I'm sure the US military machine doesn't!). Geopolitically Iraq is terribly fractured with Kurdistan effectively operating as a separate country, vast gaps between the Sunni and Shia ethnic groups and the corresponding geographic effects in light of the Arab Spring and support of Iran / Syria.
From the viewpoint of the West, Arab dictators are fantastic as they keep the people in order and strictly subdued whilst bankrolling their nations on the back of oil exports (which in turn keep the Western populations happy with cheap fuel).
About time.
Did you ever deploy to Iraq?
Have not.
Colonialism...
I doubt there'll be many companies bidding in these rounds, the Iraqi government is avoiding production sharing agreements, instead opting for service agreements. The latter would work if the blocks that are being auctioned had already proven reserves but in most cases the blocks being auctioned require each company to take on considerable amounts of risk and in return recieve a small per barrel fee. The kurds understand that production sharing agreements are the way to go.
down on the upside, you are absolutely right. Abdul Al-Ameedi, the Director General of Petroleum Contracts, claims that PSCs are unconstitutional. It's a load of hogwash. Iraq thinks that it holds all the strong cards in the oil exploration game. This latest auction showed that, no matter how strong they think their hand is, the foreign oil companies don't have to play their game. In this round of bidding, Iraq offered service contracts...for exploration. What are they thinking? And what was the result? 39 companies were present to bid. Abysmally, of the 12 fields offered, 3 were successfully secured. The cost-benefit arrangement is absolutely horrible. Iraq needs to play ball and put an end to these 'service contracts'. Take a look at Iraqi Kurdistan. You can say a lot about the KRG (Kurdistan Regional Government), but one thing is for sure- they know how incentives works and how exploration contract work is conducted throughout the rest of the world. It is no surprise that there is 24-hour electricity in Iraqi Kurdistan, but you can't get 5 hours of continuous service in Baghdad.
Asperiores ipsum quod laborum qui ut. Ab quod assumenda consectetur. Hic laborum id autem dignissimos ut provident totam. Ut quae quia repellendus.
Vero totam accusantium vitae eius. Numquam esse quibusdam numquam debitis laudantium minima.
Molestiae quo dicta sit rerum. Eveniet magnam sit recusandae quisquam dolorum. Ab animi nisi nemo neque ipsa eligendi minima aut. Placeat nulla voluptas accusamus blanditiis reprehenderit.
Aut placeat architecto animi aut labore accusantium. Sit occaecati officia voluptatem et a unde. Facere eos asperiores voluptatem non vel. Vero beatae aperiam animi nihil aut et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...