October 20, 2015
There are still areas within its vast fields that Oryx Petroleum Corp. Ltd. staff would not venture for fear of an ISIL mortar attack, but, for the most part, its CEO Michael Ebsary feels safe in Kurdistan.
“I travel to lot of weird and wonderful locations, but you would not put Kurdistan high up on the curve in terms of personal safety,” Ebsary said in an interview from his head office in Geneva.
The Canadian-listed Oryx is one of several oil and gas companies that remain active in Kurdistan, an autonomous region in northern Iraq, despite the threat of the terrorist group ISIL in a geopolitical melting pot with many other unsavoury elements also lurking in the country.But the region is hard for companies to resist as Kurdistan is ranked “among the best basins in the world for large oil prospects,” according to energy consultancy IHS Inc.
The region sits on roughly 45 billion barrels of oil — greater than than the 24 billion remaining in the North Sea — and the Kurdistan Regional Government has shrewdly attracted companies with business-friendly legal and operational frameworks, in sharp contrast to southern Iraq where the central government in Baghdad presents an operational and bureaucratic nightmare for major oil players.
Ebsary, who grew up in Sydenham, in Kingston, Ont., says the size of the prospect and the cost of operating in the region remain the key attractions.
“It costs US$10 (a barrel) to produce in Kurdistan, with transportation it is an additional US$5,” Ebsary said. That low price keeps Kurdistan on the radar screens of oil companies even in a sub-US$50 oil world.
But the region is not without its significant challenges. Oryx’s Demir Dagh field in the Hawler region is on the border between Kurdistan and ISIL-controlled territory and was shut for a few weeks last year when the terrorist group launched an incursion. But with the help of U.S. air forces, the Kurd peshmerga forces repelled the terrorist group and have since fortified the border.
Ebsary, who was in the region six months ago, says he feels safe in the Kurd capital Erbil, which is a “mini-Dubai,” but a security detail does follow him.
“You do not feel you are in some backward country, you feel you are in a fairly advanced country. And the Kurds have always been very good at securing their own region.”
The optimism is vital for a company that has seen its shares lose 87 per cent of their value this year.
And Oryx’s problems are not just on the surface.
Companies operating in Kurdistan face a complex geology as the fractured carbonates pose a challenge. Oryx recently revised its so-called 2P — proved plus probable — reserves to 215 million barrels, a 21 per cent decline from its previous estimates.
“Every geologist would tell you they are the most difficult to predict. I have never seen anything like this,” said Ebsary, who once worked with Total SA. His company also has interests in Nigeria, Republic of Congo and Senegal.
Like most juniors, the company faces sizeable funding challenges, and cut its capital budget this year by 50 per cent to just under US$100 million.
David Dudlyke, an analyst with Dundee Capital Markets, says the company will require a US$50 million tranche of debt to meet its second half capex of $60 million, and another US$100 million in early 2016.
“We will need additional external capital to fund our business in 2016,” Scott Lewis, Oryx’s head of corporate finance, said in an email. “Bit of a chicken and egg … as ultimately our expenditure plans will be a function of capital available. The US$100 million estimate by Dundee is not far off for what we want to do. But probably a bit high.”
The company has already sunk US$500 million in its Kurdistan operations and plans to raise production to 40,000 barrels per day in the next two to three years, from its current level of 3,900 bpd.
Despite the shadow of ISIL looming large over the region, Oryx has been remarkably resilient, with total production at 550,000 bpd — and rising.
In a sign of optimism, the KRG has also released $75 million to key companies operating in Kurdistan and has pledged more significant payments in 2016.
However, Ayham Kamel, analyst with Eurasia Group, says KRG’s competing financial obligation will prevent the government from meeting its obligations to oil companies.
But companies remain committed, with oil services giants Schlumberger Ltd. and Halliburton Co. servicing the companies operating in the region.
The recent complexity of Russia attacking anti-Syrian forces — giving ISIL the opportunity to recaptures parts of Iraq — has further compromised the region’s safety, but Ebsary says ISIL gets more political mileage attacking southern Iraq than Kurdistan.
“I see zero change in the dynamics of Kurdistan,” Ebsary said. “ISI(L) will go away eventually and will go away from Kurdistan and it will be fine and easy at that point. But is that three months, six months or one year? I don’t really know.”
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