Dragon Oil successful in bid for exploration block in Iraq

Irish-registered oil company Dragon Oil has successfully bid on an exploration block in Iraq.

Dragon’s partners in the licence consortium are Kuwait Energy, operator of the block with 40%, and Turkish Petroleum Corporation with a 30% stake in the block.

Davy Stockbrokers analyst Caren Crowley said the area that the block was located is believed to have a good chance of returning oil.

“Block 9 is located in Basrah province on the border with Iran and covers an area of around 900 sq km. It is close to infrastructure and numerous producing and appraised oil fields, and is believed to be prospective for oil.”

The auction was the first for new exploration since Saddam Hussein was toppled. In its three previous bid rounds since 2003, Iraq auctioned rights to produce at oil fields already discovered or in operation.

In total Iraq had been attempting to auction exploration licenses for 12 oil and natural-gas prospects, but only successfully awarded three blocks, two for oil and one for gas.

Davy estimates that the consortium will have to commit to a work programme of €72m ($90m). If Dragon oil and its consortium partners strike commercially viable oil reserves, they can apply for a 20-year development licence.

In Davy’s view the auction represented good value for Dragon as the remuneration fees yield a positive return.

“While we concede there are risks in Iraq (mostly above ground), oil exploration and development is a long game. Furthermore, a simple calculation that assumes receipt of the remuneration fees eight years from now, taxed at a rate of 30%, yields a positive net present value when applying a discount rate of 20%.”