ACTIVITIES OF WESTERNZAGROS IN IRAQI KURDISTAN

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 002278 SIPDIS SIPDIS E.O. 12958: DECL: 07/09/2017 TAGS: EPET ENRG ECON IZ SUBJECT: ACTIVITIES OF WESTERNZAGROS IN IRAQI KURDISTAN Classified By: Classified by: Acting RRT Team Leader Ann Patterson for reasons 1.4 (b) and (d). This is a Kurdistan Regional Reconstruction Team (RRT) cable. ¶1. (C) SUMMARY: The Canadian-based petroleum exploration and development company, WesternZagros, has been operating in the Iraqi Kurdistan Region since 2005. It signed an Exploration and Production Sharing Agreement (EPSA) with the Kurdistan Regional Government (KRG) that was ratified on March 2, 2007. The WesternZagros concession includes three reservoirs. One reservoir is estimated to have one billion of barrels of oil reserves. By 2010, WesternZagros anticipates completion of ten wells. Politics has slowed down the operation. END SUMMARY. -------------- BACKGROUND -------------- ¶2. (SBU) WesternZagros is a wholly-owned subsidiary of Western Oil Sands, a consortium from Alberta, Canada. It started working with the KRG in 2005 and signed an EPSA that was ratified by the KRG on March 2, 2007. Nerchivan Barzani, Prime Minister of Iraqi Kurdistan, confirmed the agreement as part of the ratification process. ¶3. (C) The head office of WesternZagros in Calgery worked with the Minister of Natural Resources of the KRG, Dr. Ashti Hawrami to negotiate the EPSA. (Note: WesternZagros' website claims the key terms of the EPSA comply with the draft petroleum legislation.) In a meeting with RRT in Sulaimaniyah on May 22, the acting CEO and Security Manager of WesternZagros, Dan Davies, said that in the negotiation process, there had been power struggles between the Talabani family and the KRG in Erbil. The Talabani family, in particular, Bafel Talabani, the British educated counterintelligence officer who is the son and assistant of Jalal Talabani, the President of Iraq, facilitated the parties reaching an agreement. (Note: Erbil Province is dominated by the Kurdistan Democratic Party and the Patriotic Union of Kurdistan controls Sulaimaniyah Province.) -------------- PRODUCTION SHARING AGREEMENT AREA -------------- ¶4. (C) The WesternZagros EPSA area spans 2,120 square kilometers and is located in the Garmian district, between Kefri and Kalar cities, in the Sulaimaniyah Province of Iraqi Kurdistan. The concession also includes a separate area for PetPrime Company (Turkish-American) since February 2007. WesternZagros undertook an exploration program that involved geophysical and geological studies. ¶5. (C) The WesternZagros concession includes three reservoirs. The WesternZagros representative said they plan to complete five exploration wells by 2007. He said one reservoir is estimated to have one billion of barrels of oil reserves. By 2010, he added, WesternZagros anticipates completion of ten wells. ¶6. (C) WesternZagros has not addressed the issue of locating a refinery, the company's representative said. He mentioned the following options: Basrah, North to Turkey, West to Syria, or East to Iran. (Note: There are no major refineries in Sulaimaniyah Province.) The WesternZagros representative added that his company was searching for a partner to overcome this problem. ¶7. (C) The WesternZagros representative said that KRG officials have not been as direct as they could be during the establishment of WesternZagros in Sulaimaniyah Province. He said that the WesternZagros deal with the KRG is about defining profitable business practices that can also improve the quality of life for the local population. Although WesternZagros has managed to pursue its project despite the lack of a developed banking system, he added that foreign investors like WesternZagros will not stay in the Kurdistan Region if politics creates too many roadblocks to establishing an operation and getting the work done. -------------- SECURITY -------------- ¶8. (C) The WesternZagros representative told RRT Off that security was not an impediment to doing business in Iraqi Kurdistan, at this time. -------------- WesternZagros Operations -------------- BAGHDAD 00002278 002 OF 002 ¶9. (C) According to the WesternZagros representative, the company currently employs in their Sulaimaniyah office three to four expatriates and expects a total of five by August. WesternZagros recruited 12 local staff for its operations and 44 security personnel. WesternZagros told RRT Off that the intelligence service of the KRG (Asayish) was initially involved in the local recruitment process. It had asked for too much information on local personnel, and the WesternZagros representative felt its requests needed more justification and were thus refused. ¶10. (C) As part of its community development program associated with the exploration wells, the WesternZagros representative told RRT off of its plans to build schools and medical clinics in the neighboring area of its operation. ¶11. (SBU) The WesternZagros representative told RRT Off that the company will follow the Canadian environmental code. ¶12. (C) The future ownership of WesternZagros is under review, the company's representative noted, and selling the company is one of the options. CROCKER