Oil Patch Insider

Kerr-McGee ‘deep’ in North Slope JV talks; Oil sands junior plays risk-reward game in Iraq

Kerr-McGee’s director of international relations said June 5 that the company is “deep into” discussions for a North Slope exploration joint venture.

Keith Jantz, speaking at the annual Alaska Oil and Gas Association luncheon in Anchorage, said the joint venture would lead to new seismic programs and exploration drilling.

He said he would be happy to talk about the deal when it is complete.

Kerr-McGee is operator of the Nikaitchuq unit on Alaska’s North Slope. The company has not yet said if it will proceed with development of the offshore unit.

—Kay Cashman

Oil sands junior plays risk-reward game in Iraq

Apparently not.

The Calgary-based company, whose primary asset is a 20 percent stake in Shell Canada’s Athabasca oil sands operation, is eying other northern regions.

This time Kurdistan in the north of war-ravaged Iraq.

That’s a shift from one of the petroleum world’s most stable areas to the most turbulent.

Through wholly owned WesternZagros, Western has signed an agreement with the Kurdistan regional government to explore for conventional oil and gas in the Zagros Fold Belt over the next four years at a cost of US$45 million. It plans to undertake geological studies followed by a drilling program.

Western has been talking over the past year about breaking out of its comfort zone and applying its expertise to heavy crude prospects around the globe.

But a leap into the Iraqi cauldron caught some observers off guard, although Western is not alone among Canadian companies who think a small investment now could turn a fat profit if ever Iraq stabilizes.

Heritage Oil, Addax Petroleum and Ivanhoe Energy have also signed agreements to probe Iraq’s vast resource potential, estimated at 112 billion barrels of oil and 110 trillion cubic feet of gas, and where only 17 of 74 discovered fields have been developed.

Nexen, Canadian Natural Resources and Talisman Energy — all of whom have operated in world hot-spots — also indicated they might pursue a share of the action after the U.S.-led overthrow of Saddam Hussein in 2003, but the deepening insurgency has put those ambitions on hold.

Western’s interest is stirred by its belief that Kurdistan “is by far the safest area in Iraq” and its conviction that the “current unrest will be resolved,” said Chief Executive Officer Jim Houck.

He told a conference call that Western has been negotiating with Kurdish authorities over the past two years and, initially, had “serious reservations” until intensive scientific studies left it with no doubt that a small capital investment could lead to a “compelling prize.”

Some analysts insist Kurdistan has no authority to sign exploration and production-sharing agreements, although Western said Iraq’s constitution gives regional governments the right to administer new oil development, overseen by Iraq’s oil ministry.

Robert DeLong from Grand-Jean Capital Management in San Francisco was among analysts openly skeptical of the strategy.

He challenged executives by suggesting that a company called Western Oil Sands was engaged in a “pretty material change in strategy” by exploring the Middle East for oil.

Houck said his company is confident it “can operate safely and securely in that part of Iraq.”

At first, investors didn’t react so positively, wiping more than 5 percent or C$275 million off Western’s market value on the Toronto Stock Exchange, but shares quickly rebounded to the C$33 range.

Created by former employees of Broken Hill Proprietary after the Australian giant pulled out of the Athabasca venture, Western had a setback in the first quarter, posting a net loss of C$21.58 million, including C$68.3 million in foreign exchange and hedging losses and saw its share of production drop to 25,945 barrels per day from an average 32,000 bpd in 2005 because of a plant breakdown.

But it has the option to participate in Shell Canada’s plans to grow production from 155,000 bpd to 500,000 bpd and exploit a gross undeveloped land base of 280,000 acres.

—Gary Park