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 BAGHDAD 00004734 002 OF 003 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, BAGHDAD 00004734 003 OF 003 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