Has Japan really succeeded in its long-term effort to secure a foothold in Iraq's oil and gas industry? Apparently so, especially after a consortium led by Japan Petroleum Exploration Co. (Japex) won the rights to develop Gharaf oil field.
In Japan, the news was met with elation. The Nikkei Business Daily (NBD) said the deal gives Japex the chance to become "a player to be reckoned with in an industry that has been dominated by Western energy giants."
NBD said the prize is a result of 10 years of effort led by Japex Chairman Yuji Tanahashi that may lay the foundation for the formation of a Japanese major and make Japex a driving force of industry consolidation.
"We have built strong ties based on mutual trust with Iraq," said Tanahashi, whose effort to win oil rights in Iraq started soon after he assumed the Japex presidency in 2001.
Tanahashi first visited Iraq to seek cooperation from the regime of Saddam Hussein. Then, following the end of the US-led war on Iraq, Tanahashi started contacting the new Iraqi government.
Developing ties
In 2005, Japex agreed with the Iraqi Oil Ministry over technological cooperation, conducted geological research of oil fields in the country, and provided training for 550 Iraqi oil and gas engineers.
As a result of such efforts, Japex got its reward: The deal on Gharaf field, which is expected to produce 230,000 b/d and, according to NBD, represents "a gigantic boost to Japex's stature in the industry."
Despite the estimated investment of about $7 billion needed to develop the field, the business will be adequately profitable, according to one Japex official. Under the 20-year service contract, up to 60% of produced oil will be used to recoup the investment.
Altogether, Japex and its partner Petronas will receive a fee of $1.49/bbl of produced oil, adding up to $2.5 billion of income for the two firms in 20 years—assuming no problems in the development.
Problems ahead?
But there could indeed be problems, as pointed out by Moody's Investors Service, which placed the A1 long-term issuer ratings of Japex under review for possible downgrade after the Gharraf announcement.
Compared to Japex's average production of 42,000 boe/d for the fiscal year ending March 2009, Moody's said, "the initial investment will have a significant impact on the company's financial metrics."
Moody's said its review will focus on the impact the total investment needed to develop Garraf field will have on the company's business and financial risk profile, the possible aid provided by the Japanese government and government entities, and Japex's financial and business strategy going forward.
Still, the cheers in Tokyo could not be denied.
"Japex has bet big on the country's massive and largely undeveloped oil reserves, and its first big success in its Iraq quest has made the firm a potentially powerful force," NBD concluded.
More Oil & Gas Journal Current Issue Articles
More Oil & Gas Journal Archives Issue Articles
View Oil and Gas Articles on PennEnergy.com