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Oil companies earmark investment for Iraq's liberated areas

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Oil companies earmark investment for Iraq's liberated areas

London — Oil companies have earmarked a significant amount of capital to invest in areas of Iraq that have recently been liberated from the control of Islamic State militants. The reconstruction of such areas will prove vital for rebuilding the Iraqi economy, but Iraq's worsening security issues could mean slow progress.

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"We believe that the solution [to rebuilding] is in this area of the governorate, which is rich from oil and gas," Amar Jabr Khaleel, governor of Iraq's Salaheddin province, said in London during a recent oil conference. "There is an urgent need to open up investment for oil and gas, which matches the needs for liberated areas that need to recover from destruction."

The liberated provinces include Diyala, Salaheddin, Nasiri, Dhi Qar, which Iraqi officials believe could contain unexploited hydrocarbons. Some foreign oil companies are also bullish on the matter.

The UAE-based Crescent Petroleum was recently awarded three concessions under Iraq's fifth bidding round -- two in Diyala and another in Basra. The company has already set aside investment for its projects as soon as it is given the final go-ahead from the Iraqi authorities, and a source close to the company said the investment figure will be several hundred million dollars.

"[The contracts] were initialed in June last year, so we are waiting for those to be signed and then we will hit the ground running," Crescent Petroleum CEO Majid Jaffar told Platts. "These areas, especially in Diyala, need the investment and the gas."

Investing in Iraq's liberated areas could prove crucial for Iraq's aim of weaning off dependency on Iranian gas imports.

At the moment, there is already one power station built in Nasiriyah by a company affiliated with Crescent Petroleum, which supplies power for the local community. But the plant relies on imported Iranian gas in order to function, and Iraq is under continual pressure from the US to diversify its gas sources, including through exploiting domestic reserves.

Meanwhile, Angola's state-owned Sonangol is mulling the creation of a 100,000-150,000 b/d complex crude refinery in Mosul, the former Islamic State stronghold. But Sonangol's head of Iraq operations, Richard Wadsworth, said that logistical challenges persist, such as the shutdown of a bridge that connects Diyala to other parts of Iraq and which is vital for delivering goods.

SECURITY CONCERNS PERSIST

With security across Iraq becoming more stable, an increasing number of employees in the oil sector, who had previously been hired in Basra, are now looking for opportunities to return to their home provinces, which means a greater availability of skilled workers for new projects.

"It's important to note that in some of these areas that we call liberated, they are liberated during the day but not in the night," Michael Knights, head of the Iraq and Kurdistan program at the Washington Institute for Near East Policy, said in London in June. "That's important because [IOCs] will need to operate all day and all night."

Insurgency-style attacks in Diyala and elsewhere in Iraq have surged in recent months, and Iraq's prime minister Haider al-Abadi visited Diyala province on Monday to discuss the rising security issues.

IOCs will need to weigh up the high risks of provinces such as Diyala against the the potential reserves of hydrocarbons, and their decision to invest will be central to the growth or plateau of Iraq's liberated areas.

-- Miriam Malek, miriam.malek@spglobal.com

-- Edited by James Leech, newsdesk@spglobal.com