Oil Search Signs Kurdistan PSC

Oil Search Limited announced that it has signed a Production Sharing Contract (PSC) for the 632 square kilometer Shakal Block with the Kurdistan Regional Government (KRG) in Iraq.

The Shakal Block lies in the southeastern fairway of the prolific Zagros Fold belt of Kurdistan and lies immediately south east and on trend with the Pulkhana Field, which has reported proven reserves of around 300 million barrels of oil. Surface geology, digital terrain models and topography indicate that the Pulkhana structure could extend into the Shakal block. Oil Search estimates that the block has the potential to contain mean unrisked recoverable reserves of some 250 million barrels, either in a separate structure or as a continuation of the Pulkhana field.

200 kilometers of 2D seismic has recently been acquired over the structure and two exploration/appraisal wells are planned to test the Shakal structure in mid/late 2008.

The Shakal PSC fully conforms to the Model PSC required under new Iraqi oil and gas laws and has a seven year exploration period and a 20 year extendable production period.

Oil Search's Managing Director, Peter Botten, commented, "Kurdistan is one of the few places left in the world where independent oil companies can capture material exploration positions with large reserve potential and on satisfactory commercial terms. The region is lightly explored and contains some of the most prospective geology in the world, with relatively low sub-surface risk.

"A comprehensive risk assessment was undertaken prior to this acquisition. Although Iraq is clearly a high-risk area, the Kurdistan region is regarded as relatively stable from a business and security risk perspective with increasing foreign investment occurring as a consequence. To date, our experience in the Bina Bawi PSC confirms that the business environment in Kurdistan, encompassing operations, logistics, regulatory framework and law and order, is manageable.

"In line with the conclusions from the recent Strategic Review, Oil Search's position in the Middle East is being re-focused onto higher quality and more material assets. The Shakal Block fits very much into this profile. In the event of exploration success, the Shakal PSC has the potential to deliver significant reserves and production that would have a considerable impact on a company of Oil Search's size. In addition, the Kurdistan region represents an ideal area where we can leverage our PNG fold belt expertise, experience in operating in the Middle East and our ability to work in challenging environments, both geographically and culturally. Combined with our investment in the Bina Bawi PSC, this forms the basis of developing a niche position in Iraq's re-emerging oil and gas industry that has the potential to make a material contribution to production prior to the expected commencement of the PNG LNG Project in 2013/2014."