ACTIVITIES OF NORWEGIAN OIL COMPANY SUBSIDIARY IN

C O N F I D E N T I A L SECTION 01 OF 03 BAGHDAD 004734

SIPDIS

SIPDIS

E.O. 12958: DECL: 12/28/2016
TAGS: EPET ENRG EFIN IZ PINR
SUBJECT: ACTIVITIES OF NORWEGIAN OIL COMPANY SUBSIDIARY IN
IRAQI KURDISTAN REGION

Classified By: RRT Leader James Yellin, reasons 1.4 (b) and (d)

This is a Kurdistan Regional Reconstruction Team (RRT) cable.


1. (C) SUMMARY. The General Manager of the oil company "DNO
Iraq AS" told RRT Off that DNO Iraq AS completed a number of
seismic studies in the Iraqi Kurdistan Region between May and
October 2006. He forecast a robust first quarter of oil
production and an ambitious plan to build 18 wells in 2007.
The General Manager highlighted that DNO Iraq AS cooperates
with the central government of Iraq. END SUMMARY.


BACKGROUND


2. (C) On December 18 and 23, RRT Officer talked with Tarik

A. Abdulah Chalabi, General Manager of DNO Iraq AS in Erbil.
DNO Iraq AS is a wholly-owned subsidiary of Det Norske
Oljeselskap (DNO) ASA, an independent oil and gas exploration
and production company based in Norway. It was one of the
first companies to drill for oil in Iraq after the fall of
Saddam Hussein in 2003. In 2004, DNO Iraq AS entered into
two Production Sharing Agreements -- in Erbil and Dohuk
Provinces -- with the Kurdistan Regional Government (KRG).


TAWKE WELLS, DOHOK PROVINCE


3. (C) Chalabi said that in November 2005 his company
started drilling their first well in Dohuk Province near
Zakho, 250 miles northeast of Baghdad and close to the
Turkish border. Chalabi provided the following information
on the two domes DNO Iraq AS operates in Dohuk:

-- Dome One contains the exploration well Tawke Three.
Drilling will commence in January 2007.

-- Dome Two comprises appraisal wells Tawke One, Tawke One A,
Tawke Two, and Tawke Four.

-- Tawke One has gross recoverable oil reserves estimated at
100 million barrels; its current flow rate is 5,000 barrels
of oil a day (b/d).

-- Tawke One A is a "twin well," located 20 meters from Tawke
One and has a flow rate of 5,000 b/d.

-- Tawke Two is located 1.8 km to the west of Tawke One and
has a flow rate of 5,200 b/d.


4. (C) Chalabi declined to provide production information
for Tawke Four but noted that DNO Iraq AS has started
drilling.


5. (C) DNO Iraq AS's growth plan, according to Chalabi, is
to drill 18 oil wells in 2007 in the Iraqi Kurdistan Region.
(Note: Unless DNO brings in additional drilling rigs,
drilling this many wells is unrealistic. IRMO Oil estimates
that they will need between 4 and 5 to meet this claim. End
note.)

SEISMIC STUDIES


6. (C) Chalabi confirmed that DNO Iraq AS completed the
following seismic studies for Dohuk and Erbil:

-- Two dimension (2D) seismic on Tawke, east Zakho, during
May 2005.

-- 2D seismic on Slivany, east of the Tigris river, Dohuk
Province, June-September 2005.
-- 2D seismic on the Erbil (Hawler) Structure, October 2005.
-- 3D seismic on Tawke structure, Erbil Province,
April-October 2006.

-- 2D seismic on Bastora structure, Erbil Province, October

2006.



7. (C) Chalabi added that DNO Iraq AS will complete 2D
seismic for the Dohuk structure in April 2007.


8. (C) Asked by RRT Off if the KRG has adequate geological
substructure information, Chalabi replied that the unexplored
northeast of the Iraqi Kurdistan Region has had few seismic
surveys. He said that there are more than 60 structures in
Erbil and Dohuk Provinces requiring geological and
geophysical studies. In contrast, he continued, there is
relevant substructure work covering western Sulaimaniyah

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Province dating back to the late 1970s and 1980s.


KHANKE WELLS, DOHUK PROVINCE


9. (C) Chalabi remarked that in July 2006 DNO Iraq AS
started drilling in Khanke, east of Mosul Lake, referred to
as Khanke One, in Dohuk Province. Testing is ongoing, he
added, and Khanke One is expected to produce 3,500 b/d.


PIPELINE CONSTRUCTION


10. (C) Chalabi noted the company is building a 43-kilometer
pipeline from Tawke to the Northern Pipeline. He predicted
this new pipeline will be completed in the first quarter of

2007. (Note: The Northern Pipeline transports oil from the
oil center at Kirkuk to refineries in Beiji, thence to the
port of Ceyhan, Turkey. Chalabi said that DNO Iraq AS has
agreed to pay all transit fees. (Note: The Northern
Pipeline has been frequently targeted by insurgent sabotage
since the U.S.-led invasion in 2003.)


STOCK PRICE LEVELS


11. (C) When queried on the financial health of DNO Iraq AS,
Chalabi had no comment and referred RRT Off to the company
website. (Note: DNO Iraq SA stock price went from
approximately 16 dollars in April to 8 dollars in October.
As of December 21, the price is 12.52 dollars. Some industry
sources believe that falling stock prices motivated the
company to put a positive spin on investments in the
Kurdistan Region to attract capital and investors.)


RELATIONS WITH THE CENTRAL GOVERNMENT IRAQI AUTHORITIES


12. (C) Chalabi had no comment on the planned KRG and
central government hydrocarbon laws, but he said DNO Iraq AS
and the central government have a cooperative relationship.
(Note: DNO Iraq AS emphasized to its stock holders that
commercial agreements made in Iraq between 1992 and 2004 --
before the Iraqi Interim Government took control -- will be
respected. DNO Iraq AS signed its Production Sharing
Agreement with the KRG in June 2004.)


TRAINING


13. (C) Supporting his claim of good cooperation with the
central government, Chalabi made reference to a Memorandum of
Understanding (MOU) signed by his company and the Ministry of
Oil in Baghdad in April 2005. The MOU provides for training
of officials in the KRG Ministry of Natural Resources:
-- Four geologists, one mud engineer, two drilling engineers,
four geophysicists will receive long-term training in seismic
studies.

-- 103 trainees will undergo short-term training abroad (one
to three weeks) in the People,s Republic of China, Jordan,
and Spain on specific aspects of petroleum drilling and
exploration.

-- Five officials will pursue a Masters of Science in Cairo -
three will major in petroleum geology and two in petroleum
engineering.


PROVEN OIL RESERVES IN IRAQ


14. (C) Responding to a statement by RRT Off that Iraq holds
an estimated 115 billion barrels of proven oil reserves,
mainly in the south, Chalabi put forward the figure of 215
billion, including unexplored structures in the western
desert and eastern border of Iraq. (Note: IRMO Oil believes
this number is unrealistic for "proven" reserves. The most
recent figure out of the Iraqi Ministry of Oil is 110 billion
barrels. End note.)

BIOGRAPHICAL NOTE AND COMMENT


15. (C) Biographical Notes: Chalabi is a Turkey-educated
geologist and geophysicist who spent 26 years at the Iraqi
National Oil Company. He has been with DNO Iraq AS since its
arrival in Iraq 2003. An ethnic Turkman, he speaks Turkish,
Turkman, Kurdish, and English. He says his background
facilitates communication with the management of other
Turkey-based oil companies in the Iraqi Kurdistan Region,

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including Gannell-Addax and PetOil.


16. (C) Comment: DNO Iraq AS is a medium-sized company that
is taking an aggressive stance on oil exploration in the
Iraqi Kurdistan Region although the legal and regulatory
framework is still not clear. Chalabi is confident that
coordination with Baghdad under the principles of the Iraqi
national constitution will ensure his company's contract with
the KRG will be honored. He appears to believe that
negotiations over the federal hydrocarbon law will conclude
favorably for the KRG.
SCOBEY