The potential for Iraq’s and Basra’s energy reserves is obvious; Basra Governorate is home to 70% of Iraq proven gas reserves, estimated at almost 112tn cubic feet – the 12th largest in the world according to the US Energy Information Administration. Basra also contains 59% of the Iraq oil reserves.
However, Basra’s fields have suffered from years of neglect, sanctions and war.
But there is a renewed determination to realise the potential of these fields once more.
Basra Council – the political authority for Iraq’s economic capital – has announced that it is in the process of establishing Basra Company, to attract foreign direct investment in key sectors, including oil, gas and infrastructure.
Speaking at the Basra Oil, Gas and Infrastructure Conference, officials from Basra Council and Basra Governorate announced plans to develop under-utilised and degraded oil and gas fields, as well as a range of new infrastructure projects.
In his first interview since the announcement, Oil & Gas Middle East spoke with Ali Al Faris, chairman of Oil and Gas Committee at Basra Council.
Could you discuss in detail about your plans about this new company? Is this new company going to be exclusively focused on oil and gas and its production?
Initially, the focus of Basra Company will be on the development of Basra’s energy sector (oil, gas and electricity) and related activities including production, refining, transport, distribution and marketing. In the future, we plan to invest in renewable energy such as solar and wind.
Beyond the initial focus on energy, there is a need to invest in infrastructure across the board, including water desalination, roads and highways, sewage, highways and specialised hospitals and education, as well as transport and construction.
Finally, we are looking to inject investment in underperforming factories and industrial facilities and restructure them so that they are managed efficiently and can become commercially viable.
Given the current downturn, do you think this is a good time for the Basra Council to enter the oil market?
Absolutely. The federal government is currently moving to adopt new economic policies to encourage decentralisation and privatisation, so we need to put the right legislation and infrastructure in place to meet that change.
Basra Company is the vehicle through which the provincial government will optimise resource utilisation (e.g. increase oil productivity) for the benefit of the all Iraqis.
What kind of investment are you talking about for this new company?
We don’t have official figure at the moment. However, the size of the investment will depend on the appetite of investors who wish to partner with us. Economic and financial feasible studies will have a key role to play in predicting the size of the financial investments Basra Company requires to achieve its desired goals.
Initially, we expect that we will be looking at investments of $100mn USD at the low end – going up to $700mn or even USD $800mn.
What is your biggest source of finance? Is this company going to be funded by the government, namely the Basra government or Iraq’s federal government; in other words a publicly-owned company?
We are studying a range of options for financing, including partnerships with local and international investors to finance the projects of Basra Company, which could be wholly owned by the council or in partnership with South Oil Company and South Gas Company, as well as other local companies.
An IPO is also being considered to allow Basrawis to own shares in the company.
Are you looking at partnerships with private enterprises and corporations? There are a number of them operating in the region. Are you looking at a Public-Private Partnership (PPP) model?
Yes. At the moment we are exploring all possibilities. Basra has enormous advantages in terms of geographic location and resource availability. We also have huge needs if we are going to meet the needs of Basra citizens. It makes it a very attractive proposition for investors.
Are you looking to float the company’s shares on any of Iraq’s stock markets? If yes, which one?
Again, we are exploring all possibilities at the moment and looking at the best way to structure investments. An IPO would certainly enable us to ensure that Basrawis are able to have some ownership over and benefits from the company.
I am sure Basra is an energy-rich region, hence this plan of forming a new company. So how much of oil and gas reserves does Basra have?
Basra Governorate is home to 70% of Iraq’s proven gas reserves, estimated at almost 112trn cubic feet – the 12th largest in the world according to the US Energy Information Administration (EIA). Basra also contains 59% of Iraq’s oil reserves estimated at 67.7trn barrels.
So is this new company going to drill just oil or produce gas as well? What will be your focus?
Initially the company will develop the oil fields operated by South Oil and gas fields that are not yet subject to licensing rounds.
How do you plan to tackle competition from regional rivals? Saudi Arabia, the GCC as a whole and now even Iran joining the party in its post-sanctions era?
We exist in an increasingly competitive global landscape. But that can actually bring advantages. Much of the world’s energy infrastructure is already geared around the Gulf, so our geographic location is a huge benefit. Nonetheless, we recognise that we need to build a world-class company, which is why we are so keen to partner with the world’s most respected companies and experts.
We believe that Basra Company can help to position Basra as a leading hub for business and trade in the region.
How about the security factor? ISIS has already cast its eyes on Basra, attacked it several times. They are also known to have a key interest in oil-rich regions to fund their war machine. How would you counter the ISIS threat and build confidence among your investors and customers alike?
The security situation in Basra has been stable for some time. As economic initiatives, like the establishment of Basra Company, come to fruition, the situation will only improve.
On countering ISIS and other terrorists specifically, our armed forces are taking the necessary steps to counter all attacks and are achieving remarkable success in their efforts to ensure stability and security in Basra.
Oil & Gas Middle East has seen a report yesterday that Iran is planning to export gas to Kuwait through Basra. How far is it true? Could you elaborate? Is this part of a larger Iraqi stance to help its neighbour Iran in recovering its lost oil market share?
I’m not party to the deal, so cannot comment on the specifics, but it is certainly great news for Basrawis and Iraqis to be involved in positive economic development projects with our neighbouring countries. We have a long history of constructive political, economic and social ties. We welcome cooperation which serves all parties.
What is your opinion of the oil and gas industry’s future? Any predictions? Many believe that oil prices will pick up in 2016, while others maintain that it will remain the same or even fall further; your opinion?
Regardless of current market conditions, there is a consensus that oil and gas will remain important commodities and major sources of energy for the world. That is why many producers are still injecting investments in oil and gas industry. We need to invest in developing the capabilities of our current fields to increase productivity.
Why is Iraq, or the OPEC as a whole, not cutting its oil output? What is the strategy behind this?
The production ceiling is under the jurisdiction of the Federal Government. Iraq’s target oil output is 12mn barrels per day by 2020. Basra Company’s planned activities to invest in oil and gas will be in accordance with the strategy and plans of the federal government to meet this target.
Which GCC countries, or for that matter countries in the MENA region, are you planning to do business in?
We will work with everyone in order to achieve our goals in developing Basra province. We will not veto any party from investing, unless there is a legal impediment that prevents us from dealing with them or prevents them from entering Iraq.
