COMPANIES UK & IRELAND: Petrel fate hangs on Iraq deals
By John Murray Brown
Financial Times; May 10, 2003


In a room in Dublin, developments in Iraq are being followed with particular interest.

John Teeling, founder and chairman of Petrel Resources, a small Irish oil and gas exploration company, is keeping his fingers crossed that the exploration licence signed last year on a block in Iraq's western desert, and the work done on rehabilitating two fields in the Basra area, will survive the change of regime.

Pertamina, the Indonesian state company, Petronas of Malaysia and ONGC of India have all taken blocks in the western desert.

But Petrel, which has a market capitalisation of 5m, is the only western oil company to have maintained an active presence in Iraq, even as the threat of war loomed.

It is also keen to push ahead with the development project near Basra, where in 1999 it conducted a 160,000 feasibility study into rehabilitating two fields damaged in 1981 during the Iran-Iraq war.

The shares, which are traded on Aim, have already doubled in the past month from 3p to about 6p, reflecting optimism that, with the speedy end to hostilities, Petrel could soon realise its investment.

Gervaise Williams, who runs Gartmore's UK and Irish small companies fund, says the key test now is whether the administration that emerges recognises Petrel's claims.

Gartmore owns 8 per cent of Petrel. It and Scottish Value Managers are the largest institutional holders.

Mr Williams says: "It was important that they managed to secure a licence in the western desert. Under civil law, I think that would be enforceable. There will probably be much more competition in the Basra area."

Douglas Wright, a private investor who owns 2 per cent of Petrel, estimates the company could be worth 10 a share if it gets the go-ahead on the Basra fields.

However, Barrie Newton, of Rowan Dartington, Petrel's broker, is more cautious. "There are so many question marks. This is a very small company with virtually no assets. It has very good contacts in Iraq but there has been a major political change. We just don't know what the attitude of the new administration is going to be. It's foolish to speculate."

David Horgan, Petrel's managing director, who like Mr Teeling is a Harvard graduate, plans to travel to Baghdad later this month.

If the UN sanctions are lifted, allowing the company to import key equipment, he wants to conduct fresh seismic studies in September.

By early next year, Petrel could be drilling what would be the first well in the western desert for more than two decades.

Today, Petrel's immediate task is to make contact again with its key local advisers, using all possible means. "Our travel agent in Jordan has actually been very helpful tracking people down," says Mr Teeling.

The oil ministry was quickly secured by the advancing US troops, unlike the archaeological museum.

Petrel says much of the data had been moved for safe-keeping to a different location before hostilities began.

Mr Horgan says many of the company's key contacts in the oil ministry are now back at their desks.

"Mazen al Jumiraah, the man now in charge, I knew when he was the director-general in the technical department," he says. "He's an oily, not a party official."

The two fields near Basra - Subba and Luhais - were producing 180,000 barrels a day before 1981. To return them to full production will cost $350m (218m) and take three years.

Mr Horgan says: "We deliberately picked two fairly smallish fields. We didn't want to provoke the super-majors. I think there's going to be plenty of room for everyone in Iraq. Opening a market like this only happens once in a lifetime."

Certainly, Petrel's title to the two fields in Basra is tentative, as unlike Lukoil, the Russian oil company which has a contract to develop the much larger west Qurna field nearby, Petrel never agreed terms.

The company claims the reason was the contract the Iraqis wanted it to sign would have been in breach of UN rules.

But Mr Teeling says: "Even if we assume the worst, and we lose out to the larger oil companies, we've been there and done the work. We're 18 months to two years ahead of everybody else."

Mr Williams at Gartmore believes Petrel should be in a strong position to talk to partners.

Indeed, this week Mr Horgan was in Houston, the US oil capital, doing just that, in a series of meetings with oil executives.

I see John Teeling is also Chirman of Pan Andean Resources..

still waiting to hear the good news. hopefully in the next couple of weeks

Does anybody out there know the other companies who also put in tenders?