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Kurdistan Oil: My Property Tour with Western Zagros Resources

Flying into Erbil is deceiving. This capital city of semi-autonomous Kurdistan province in Iraq has a modern but very small airport-not what you would expect, by western standards, for a capital city of nearly 1 million people. And the flat rocky desert surrounding the airport makes you think you flew into a small Nevada mining town, not the capital city of one of the newest and fastest growing countries in the world.

Kurdistan isn’t recognized as a country yet by anyone, but it exists in all but name.

Canadian-listed Western Zagros Resources Ltd. (WZR-TSX) had arranged a security pick-up for me at the airport in advance of their three day property tour, which was attended by 20-some fund managers, analysts, key shareholders and me.

Driving out of the airport, the two gentlemen taking me to my hotel did a quick left turn into a parking lot, where the front passenger, clearly the boss, strode into a trailer, and returned two minutes later checking and holstering his pistol.

No pistols allowed at the airport. I thought that was a good idea.

Security was never an issue for me while in Kurdistan, though their April 2012 property tour was cancelled due to an unnamed security issue. WZR has a full time security staff of at least three ex-pats and hire over 100 local Kurds who are part of their police force to patrol and watch their sites.

One of the speakers Zagros had come in to present to us was an ex-American diplomat who now was helping broker energy deals in Erbil, and was a geopolitical expert. He said he and many other expats walk around the city free of fear, and hang out drinking in the bars in the evening.

The drive to the Rotana hotel was a surprise for me-we drove by several new gated communities (which are titled English Village, Italian Village, American Village, etc.) — very modern and neat.

The amount of construction said how much and how fast this city is growing. There is a large number of buildings in various states of construction, though some looked stalled. But there is a lot of money pouring into Kurdistan-almost all of it because of oil.

A lot of it is Turkish money. Turkey wants an independent Kurdistan. They have their own disgruntled terrorists/freedom fighters wanting their own Kurdish break-away state in eastern Turkey. Now they can tell those Kurds to quite fighting and go home. So they are giving soft help to Kurdistan. And now the first Kurdistani oil is leaving Iraq via Turkey-infuriating Baghdad.

And a lot of the money coming into Kurdistan is black market Iraqi money. There are obvious strains between Erbil and Baghdad as Erbil tries to become a breakaway independent state. There is corruption in both places, but it’s on a much larger scale in Baghdad. These people have few places now to launder the money they skim off contracts etc…..so they put their ill-gotten gains into Kurdistan.

The hotels have a rudimentary form of security, where you must pass through an airport style gate and get patted down with a wand if you set off the alarm. From my 8th floor room that first evening I had a great view of a HUGE city park-with trees!-across the street, with the core of the city in the background beyond.

Driving out the next morning, I was told that the reason I didn’t see a lot of trees in the countryside around there was that deposed Iraqi dictator Saddam Hussein just burned the ground so the Kurds couldn’t hide. And in 55 degree Celsius summer heat, not much grows back.

That next day we all piled into a big bus-with two internal security people on board-and headed out on a four lane highway down to Sulaimaniyah, the southern regional centre. It quickly turned into two lanes.

My first impression was that Kurdistan is a rocky country-almost prehistoric–especially in the north near Erbil. You drive past rocky outcrops for miles, then out of nowhere I would see tilled lines of rocky soil for literally just tens of metres, then more rock. Mountain ranges jutted straight up out of the valleys.

October is the end of the dry season, and the land was all shades of brown-and none of it made for rich looking soil. I grew up in a farming community southwest of Toronto, and I have an idea of what good soil should look like. This wasn’t it. Evidently they had a drought last year and in a lot of places, didn’t even bother trying to taking the crops out of the field.

Driving south to Suli, about an hour south of Erbil, Zagros’ staff told us to look on the other side of the road to see…a pile of rocks. But that pile of rocks is where a Kurdish village used to be before Saddam Hussein brought in bulldozers and backhoes and demolished it. He did this to over 1400 Kurdish villages and displaced tens of thousands of people.

We stopped just a few miles past that abandoned village and looked across to a far mountain range to view London-listed Genel Energy Plc’s, 75,000 bopd Taq Taq operation. It’s the largest Kurdistan producer-and all their production is trucked by over 300 trucks a day to a pipeline. That’s a lot of trucks for those skinny roads.

And it’s an example of how the booming oil sector here is both straining and funding this semi-state of Kurdistan. Other than some sections of the main highway, the roads, bridges and tunnels are all narrow, and get quite windy in the back country. With the economy booming, all the truck drivers are in a hurry and there is no Ministry of Transport-no licenses, brake checks, etc.

Our second stop was just the other side of a mountain range-where we drove up tight switchbacks behind, and then passed, an oil tanker. It was not a road I would want to go up in December, when the mountain passes are icy.

On the other side we could see the Zagros Mountains…where at one point in the last century, 10% of the world’s known oil resources were located. Looking south towards Sulaimaniyah, the mountains stood straight up out of a valley, and narrowed to jagged peaks. It had a stark beauty-like I said, almost pre-historic.

Of course, Zagros staff talked about it being of this and that geologic age belonging to this and that western company and how hard it would be shoot 3D seismic or drill it…it all turned into a foreign language when you stare down the valley.

The valley down to Suli was more fertile than up near Erbil, and it’s a drive I would really like to do in April, at the end of the rainy season, when the crops are ready to be harvested. Because when I was there, you really had to use your imagination to think what all that flat brown rocky ground could really look like with some moisture. Even the tilled lines of soil had LOTS of rocks.

(I did a lot of stonepicking myself in my teenage summers so I can understand wanting to leave them in the field. But this is the cradle of civilization-6000 years of stonepicking should have done a better job than that ;-).)

Suli is booming as well, but not as much as Erbil. The hotel we stayed at had only been open for a short time. While the food was good, the tap water wasn’t. It was the only place I’ve ever been to where I gagged after I brushed my teeth. Even after boiling it in a kettle I had to immediately spit it out.

Next day, during the three hour drive even further south to their Sarqala-1 well site, I again had to use my imagination to see how all these fields of stones I saw would support crops. But then you would cross a bridge over a “wadi”-now an empty, gravel river bed, but in winter it’s where the torrential rains drain into and create a rushing river.

We were on a plateau in the valley, with mountains on other side but you could see for 15 km down the valley floor to the east, where that mountain range rose up to the Iranian border.

Everyone on the bus looked at it like it was Mordor, House of Sauron, from Lord of the Rings. It’s funny how we get politicized.

As a segue, I met one of Zagros’ staff-an Iranian-at a “social club” in Suli on the last night-an engaging young man with two kids and wife in Iran. He commutes to Suli on a work rotation same as everybody does from the UK or Canada-four weeks in, three weeks out.

I asked him if him working here in Iraq/Kurdistan caused him any issues. He said no, that it’s just the government that everybody hates-the people actually all get along. He said he’s worked in other MENA (Middle East North Africa) countries and never had an issue with anyone, and no one ever had had an issue with him or his nationality. It was so refreshing to hear that people are people, and only governments are jerks.

The Sarqala-1 wellsite was just a big, flat piece of nothing where they had put up a compound holding many trailers to accommodate everyone. The onsite Kurdish security people stayed there, along with the expat staff that rotated in and out.

Security is treated very seriously here. They have been shot at in the past; no injuries. They built a large berm around the compound (the actual wellsite is 500 metres away) and there were three cement bunkers with sandbags covering them in case of attack.

But there isn’t much to do around there when you’re not working. No internet, TV etc. The nearest town, Kalar, doesn’t have anything like bowling lanes or that kind of entertainment. It’s a small group of expats there for 35 day rotations. You have to be a certain kind of person to live like that-even if it’s just for 35 days. (Then imagine doing it in their heat!)

There’s not much to see at the Sarqala wellsite itself-pipes, tanks and one unloading facility. There are elevated guard posts on the immediate hills around the site where contracted local security stare out at…nothing…all day. The visually exciting stuff is when the rig is on site.

The village right beside the wellsite has clear signs of prosperity-a few new and colourful homes made of cement blocks, not the regular mud bricks-all thanks to wages earned by working for Zagros. I wondered what people did in these villages, but it turns out that most people have a house in Kalar as well, where they work, and then also have the home place in the village where they grew up.

The next day we drove around the countryside, up to a viewpoint where we could see the Kurdamir-2 well. As I said, Talisman was testing the well so we weren’t allowed in. The backroads on this trip took us past some stunning mountains with gorgeous vistas into the valley where K-2 was being drilled. This is where I was impressed with the fresh pavement and new telephone polls and colourful homes in an area that was far away from everything. Booney-ville.

It’s a good sign when prosperity is reaching out that far into the country.

by +Keith Schaefer

Editor/Publisher
Oil and Gas Investments Bulletin

 



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