Petrel Exec: Despite Unrest, Iraqi Project is on Track

Petrel Resources plc

Speaking at the company’s annual general meeting in Dublin on Wednesday, the managing director of Petrel Resources plc said that the Irish company remains focused on its long-standing objective of building an Iraq-centered oil and gas independent.

“The Subba & Luhais project is on track,” said David Horgan. “So far there have been no insuperable security problems. Suppliers continue to give strong support. Staff morale and commitment are excellent. International groups are interested in partnering with Petrel.”

Acknowledging that rising tensions in the Middle East have created problems, Horgan assured attendees that the company has prepared for the difficulties and is in a better position to confront them than are other western companies.

“We expected recent events and anticipate further challenges,” he said. “The commitment of industry players to Iraqi oil development has been tested. Most have folded. We continue to expand and deepen our involvement. What others see as difficulty, we see as opportunity. Events have driven the oil price to historic highs--increasing the potential value of our investment.”

Petrel’s priority is the $197 million Subba & Luhais oil field development services contract in southern Iraq. This is the biggest contract awarded by the Iraqi Ministry of Oil since 2003.

Noting that the project is on track and on budget, Horgan cited the following supporting evidence:

--Engineering design is underway: 75% of the basic design package is complete and a final review is expected in late-August, triggering a second milestone payment.
--Petrel’s design focus is now switching to technical data for major equipment orders. The company is finalizing a key order representing about 20% of the material supply budget.
--The company will soon survey field and pipeline routes, enabling it to finalize steel pipe quantities and secure payment for an additional 20% of the materials supply budget.
--Petrel reports that the joint venture with its Iraqi partner is running well: all bonds are in place and the partners have agreed on processing site layouts.
--The company has established “excellent” relations with the Trade Bank of Iraq (TBI), and the funds drawdown has started. TBI confirmed that it will issue letters of credit, subject to finalizing terms. This augurs well for future business.

In terms of its Iraqi oil exploration activities, Petrel signed a technical cooperation agreement on the Merjan oil field in central Iraq with the Ministry of Oil in October 2005. The Merjan oil field was discovered in 1983 but has not yet been brought into production because of extraneous circumstances--including OPEC ceilings.

The work program formally kicked-off in May 2006. Petrel has now received the data package and its technical staff and contractors have processed the seismic data. It is now being reinterpreted. The company hopes to complete the study by year’s end.

Horgan also reminded attendees that a fully sovereign government has taken office following successful elections with a high participation rate. A priority is to review the Hydrocarbon Law, establishing the basis for foreign participation in Iraqi oil and gas. The policy for downstream investment has been agreed upon, subject to parliamentary approval. The Iraqi minister has stated his desire to establish a legal framework for upstream investments by the end of 2006.

“Petrel is well-placed to seize the opportunities which will open up,” Horgan concluded.