{"id":27380,"date":"2012-02-14T12:20:34","date_gmt":"2012-02-14T17:20:34","guid":{"rendered":"http:\/\/countingpips.com\/fx\/2012\/02\/14\/investing-in-iraqi-oil\/"},"modified":"2012-02-14T12:20:34","modified_gmt":"2012-02-14T17:20:34","slug":"investing-in-iraqi-oil","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2012\/02\/14\/investing-in-iraqi-oil\/","title":{"rendered":"Investing in Iraqi Oil"},"content":{"rendered":"<div align=\"left\"><script type=\"text\/javascript\">\ntweetmeme_style = 'compact';\n<\/script><br \/>\n<script type=\"text\/javascript\" src=\"http:\/\/tweetmeme.com\/i\/scripts\/button.js\"><\/script>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-27398\" title=\"Discover the secrets to investing in Iraqi oil on Investment U\" src=\"http:\/\/www.investmentu.com\/wp-content\/uploads\/2012\/02\/iraqi-oil.jpg\" alt=\"Iraqi Oil\" width=\"600\" height=\"184\" \/><\/p>\n<p>In Douglas Adams\u2019 iconic <em>The Hitchhiker\u2019s Guide to the Galaxy<\/em>, Deep Thought tells us the ultimate answer to the ultimate question of life, the universe and everything is \u201c42.\u201d<\/p>\n<p>The origin and meaning of that number has always intrigued fans.<\/p>\n<p>But Douglas Adams explained that there was no real rhyme or reason why he chose \u201c42.\u201d It just popped in his head and he went with it.<\/p>\n<p>I always liked Deep Thought\u2019s answer because 42 is a key number for people in the oil business \u2013 it\u2019s the number of gallons in a standard barrel of oil.<\/p>\n<p>Now, I don\u2019t think there are any sectors as exciting as oil, particularly now. We had a record year in 2011 in terms of prices. This year will be another record year as companies spend $598 billion on E&amp;P<em>.<\/em> And next year looks like it will be a record year in its own right in terms of price, and it\u2019s not even here yet.<\/p>\n<p>Why? The U.S. Energy Information Administration (EIA) revealed last week that it expects the price of West Texas Intermediate (WTI) crude to average $104 per barrel in 2013.<\/p>\n<p>That\u2019s an astonishingly high yearly average, particularly in a time where Europe and the United States are trying to pull their economies out of the toilet. So a lot of energy investors are looking for opportunities to cash in.<\/p>\n<h2>Oil, Oil Everywhere<\/h2>\n<p>Right now, the price of NYMEX benchmark crude is over $100 per barrel. And it\u2019ll likely stay above that threshold for most of 2012. The Iran nuclear standoff is providing a psychological updraft to price. And this is on top of the number of \u201cblack swan\u201d events that drove the commodity markets in 2011.<\/p>\n<p>The Arab Spring movement that began in late 2010 led to upheavals across the Middle East, impacting oil supply from countries such as Libya. And ongoing conflicts in Nigeria, Sudan and South Sudan are also weighing in.<\/p>\n<p>But we\u2019re about to see major supply bumps in the crude market\u2026 And some of the biggest bumps will come from countries that have seemingly fallen off investors\u2019 radars.<\/p>\n<ul>\n<li>Next year, the first production from Norway\u2019s Barents Sea will start flowing.<\/li>\n<\/ul>\n<ul>\n<li>Post-Ghadaffi Libya expects to double production by 2014.<\/li>\n<\/ul>\n<ul>\n<li>The Kazakhstan Kashagan field will see its first commercial output in 2013.<\/li>\n<\/ul>\n<ul>\n<li>Plus, we have all those rich shale plays in North America ramping up production, as well as continuing strength from the Canadian oil sands.<\/li>\n<\/ul>\n<p>But possibly the most notable is the number of major projects in Iraq coming online. Over the next few years these projects may propel its oil industry to rival that of Saudi Arabia in terms of output.<\/p>\n<h2>The Power Struggle Looming As An Industry is Reborn<\/h2>\n<p>After nine years of conflict, the United States troops finally left Iraq late last year. It marked the official end of the war.<\/p>\n<p>During most of the post-war U.S. occupation of Iraq, the country\u2019s oil production averaged about two million barrels per day (bpd) \u2013 the highest it had been in two decades. But that output is growing. It now stands at 2.9 million bpd with plans to hit 3.4 million bpd in 2012.<\/p>\n<p>Projects coming online in 2013 could skyrocket Iraq\u2019s oil output to nine million bpd.<\/p>\n<p>By 2017, Baghdad has set what many see as an overly ambitious goal of having Iraq\u2019s <a title=\"North Dakota Oil Production Rivals OPEC\" href=\"http:\/\/www.investmentu.com\/2011\/November\/north-dakota-oil-production-rivals-opec.html\">oil productio<\/a>n top 12 million bpd. That would rival the Middle East\u2019s juggernaut Saudi Arabia.<\/p>\n<p>It\u2019s a boom time for the Iraqi <a title=\"Investors Should Take Note of U.S. Oil and Gas \u201cBoom\u201d\" href=\"http:\/\/www.investmentu.com\/2011\/December\/us-oil-and-gas-boom.html\">oil industry<\/a>.<\/p>\n<p>Over the weekend, Iraq cut the ribbon on the first of five new single-point mooring export terminals that will ultimately handle five million bpd of export capacity.<\/p>\n<p>Like Libya, decades under the thumb of a corrupt dictator, war and international sanctions hamstrung Iraq\u2019s oil industry potential. But it\u2019s entered a whole new era.<\/p>\n<p>Though this new era isn\u2019t without some controversy\u2026 The international race to tap Iraq\u2019s massive 143 billion barrels in oil reserves has sparked a power struggle between Baghdad and the semi-autonomous Kurdistan Regional Government (KRG).<\/p>\n<p>And international oil companies (IOCs) now find themselves stuck between a rock and a hard place.<\/p>\n<h2>The Difference is R=X\/Y<\/h2>\n<p>The central Iraq government and KRG are competing for companies to come in and develop resources. But there\u2019s tension brewing as Baghdad doesn\u2019t formally recognize contracts IOCs ink with the KRG Ministry of Natural Resources.<\/p>\n<p>For example, on Monday, <strong>Exxon Mobil <\/strong>(NYSE: <a href=\"http:\/\/www.google.com\/finance?q=XOM\" rel=\"nofollow\">XOM<\/a>) was barred from competing for contracts in Iraq\u2019s fourth oil and gas licensing auction in May. This is because Exxon signed six deals with the KRG.<\/p>\n<p><strong>Hess Corp <\/strong>(NYSE: <a href=\"http:\/\/www.google.com\/finance?q=HES\" rel=\"nofollow\">HES<\/a>) was barred last year by the Iraqi government from working anywhere else in the country after it had done the same. And now France\u2019s <strong>Total S.A. <\/strong>(NYSE: <a href=\"http:\/\/www.google.com\/finance?q=TOT\" rel=\"nofollow\">TOT<\/a>) is debating whether to negotiate with the Kurds, meaning it could end up blacklisted, as well.<\/p>\n<p>But over the weekend, Total\u2019s CEO said that the company won\u2019t likely participate in the upcoming Iraqi auction anyway, citing the opportunities with the KRG are more attractive.<\/p>\n<p>The biggest hurdle for IOCs is that if they work with the central Iraq government to develop fields in the country, they actually don\u2019t own any of the oil they produce. Instead, they\u2019re paid a service fee on each barrel they pump out.<\/p>\n<p>Under the <a href=\"http:\/\/www.krg.org\/uploads\/documents\/KRG_Model_PSC_20071112__2008_07_17_h15m59s45.pdf\" rel=\"nofollow\">KRG contracts<\/a> the companies share profits from oil sold with the KRG.<\/p>\n<p>Kurdistan claims to hold 40% of Iraq\u2019s oil reserves. So it\u2019s a difficult choice \u2013 take a smaller return on a larger resource base or a larger return on a smaller one.<\/p>\n<h2>How to Play Three Recoveries At Once<\/h2>\n<p>I\u2019m always on the hunt for opportunities in beaten-down neighborhoods of the markets \u2013 Japan, Europe, sectors affected by disaster, etc.<\/p>\n<p>This why I think Total provides a really intriguing opportunity. And not just because it might go forward with some Kurdistan development.<\/p>\n<p>Total is Europe\u2019s third-largest oil company. Like most <a title=\"European Turmoil Stalls the Emerging Market Growth Trend\" href=\"http:\/\/www.investmentu.com\/2011\/December\/european-turmoil-stalls-the-emerging-market-growth-trend.html\">European companies<\/a>, it took one on the chin in 2011, off about 16% from the highs it set in the spring. And the start of the year hasn\u2019t been spectacular yet, with the company\u2019s stock up about 3%.<\/p>\n<p>Last year, its earnings rose 17%, but that was primarily due to the high price of Brent, because its output declined 1.3%. Fortunately, management wants to rectify this. And has an aggressive strategy to take on more risks in the oil and gas sector this year to bolster production.<\/p>\n<p>A deal with the KRG would exemplify this move. As well as its recent deals in Uganda, Kenya and the Ivory Coast. It\u2019s also looking to construct a crude processing plant in Saudi Arabia to reduce its overall exposure to European refineries. The company is going to spend more than $20 billion this year to expand its resource base. So, it\u2019s building up a head of steam.<\/p>\n<p>Even more intriguing is that it just inked a $34-billion deal with Japan\u2019s Inpex \u2013 which sells natural gas to Tokyo Electric Power \u2013 to build one of the world\u2019s largest liquefied natural gas (LNG) facilities in Australia.<\/p>\n<p>So, we have a company not only involved in the ongoing recovery in Iraq, but also looking to capitalize on Japan\u2019s increasing reliance on <a title=\"Invest in solar energy\" href=\"http:\/\/www.investmentu.com\/2012\/February\/investing-in-solar-energy.html\">energy sources<\/a> other than nuclear.<\/p>\n<p>Plus, from a technical standpoint, Total\u2019s inching closer to that coveted \u201cgolden cross\u201d where the 50-day moving average crosses above the 200-day moving average. That\u2019s one of those ultimate bullish signals.<\/p>\n<p>Good Investing,<\/p>\n<p>Matthew Carr<\/p>\n<div>\n<a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=PmN0rJPy7sc:kQIqZIEPsqU:yIl2AUoC8zA\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?d=yIl2AUoC8zA\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=PmN0rJPy7sc:kQIqZIEPsqU:V_sGLiPBpWU\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=PmN0rJPy7sc:kQIqZIEPsqU:V_sGLiPBpWU\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=PmN0rJPy7sc:kQIqZIEPsqU:qj6IDK7rITs\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?d=qj6IDK7rITs\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=PmN0rJPy7sc:kQIqZIEPsqU:gIN9vFwOqvQ\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=PmN0rJPy7sc:kQIqZIEPsqU:gIN9vFwOqvQ\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=PmN0rJPy7sc:kQIqZIEPsqU:F7zBnMyn0Lo\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=PmN0rJPy7sc:kQIqZIEPsqU:F7zBnMyn0Lo\" border=\"0\"><\/img><\/a>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~r\/InvestmentU\/~4\/PmN0rJPy7sc\" height=\"1\" width=\"1\" \/><\/p>\n<p>Article by <a href=\"http:\/\/www.investmentu.com\/\" target=\"_blank\">Investment U<\/a> <\/p>\n","protected":false},"excerpt":{"rendered":"<p>In Douglas Adams\u2019 iconic The Hitchhiker\u2019s Guide to the Galaxy, Deep Thought tells us the ultimate answer to the ultimate question of life, the universe and everything is \u201c42.\u201d The origin and meaning of that number has always intrigued fans. But Douglas Adams explained that there was no real rhyme or reason why he chose &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/www.investmacro.com\/fx\/2012\/02\/14\/investing-in-iraqi-oil\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Investing in Iraqi Oil&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-27380","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/27380","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=27380"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/27380\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=27380"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=27380"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=27380"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}