Iraq Oil & Gas Outlook

M A Y 2 0 1 5

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2 Stability in can open up world class asset and acreage on revised terms

. Iraq has 144bn barrels of oil reserves and yet remains one of the world’s least explored major producing country . The giant fields of the south hold the majority of these reserves

. Crude oil production in 2014 was above 3.4 mmboepd, forecast to increase to over 7 mmboepd . Iraq will move to 4th largest oil producer, behind Saudi Arabia, Russia and the U.S. by 2017

. There has been a rapid widening of Iraq's sector to foreign participation in the last five years . More than 25 international oil companies now have a licence interest in Iraq

. Producing fields in Iraq are operated under Technical Services Contracts (TSC), offering some of the most stringent terms in the

. Most of the major IOCs hold strategic positions in Iraq, focussing on developing large-scale projects in the south and have to-date shown little interest in picking up exploration acreage due to non-friendly investor terms

. Ongoing restructuring of existing contracts and rumoured new investor friendly terms on new licensing rounds may reverse this trend

3 1. Oil Sector Overview ##

2. Infrastructure Overview ##

3. Upstream activity and licensing history ##

4. Political challenges ##

5. Future opportunities in Iraq ##

6. Appendix ## Iraqi oil reserves and production, in perspective

History of Iraqi fields discovery Global Oil Reserves

. Iraq’s first wells were drilled in Chia Surkh in 1902 and encountered oil 350 and gas shows, but were abandoned for more productive prospects 300 elsewhere 250 . In 1927, major oil exploration got underway, with huge deposits 200 144 bnboe discovered in Mosul province 150

. Two years later, the Iraqi Petroleum Company, comprising of No. of barrels (bn) 100 Anglo-Iranian (today British Petroleum), Shell, and Standard Oil of New Jersey (today ), began producing oil 50 0 . Super giant discoveries were soon be made, starting with field by the Turkish Petroleum Company in 1927, followed by: . Zubair was discovered by Basrah Petroleum Company, an affiliate of the , in 1949 Source: CIA –The World Factbook . Rumaila was discovered by Basrah Petroleum Company in 1953 . Majnoon field was discovered by Braspetro in 1975, under the Global Gas Reserves leadership of Bolivar Montenegro Guerra 60 . The super giant West Qurna field was discovered only 65 km away from 50 other Basra super giant fields by Soviet geologists in 1973 40 . With these discoveries, Iraq holds the fifth largest oil reserves in the world, behind only Saudi Arabia, Venezuela, Canada and Iran 30 20 . Iraq holds about 144 bnbbl of proved crude oil reserves, representing 18% of proved crude oil reserves in the Middle East Trillion cubic meters 10 112 TCF and almost 9% of total global reserves 0 . Most known oil and natural gas resources are concentrated in the Shiite areas of the south and the ethnically Kurdish region in the north, with significant prospectivity in the western and central parts of Iraq Source: CIA –The World Factbook

5 Iraq’s 144 billion barrels of reserves by province

5,804 6,000 600 Ta'mim 5,000 500 Field P+P Prod'n (mmboe) (mboe/d) 4,000 400 Bai Hassan 3,846 205 3,000 300

2,000 1,859 40 (mboe/d) Hamrin 886 0 (mmboe) 2,000 1,442 200

Jambur 1,803 71 Prod'n 2012E 484 Ninewa 1,500 30 P+P Commercial 1,000 100 500 40 Khabbaz 711 31 Field P+P Prod'n 0 0 400 (mmboe) (mboe/d) 1,000 20 Liquids Gas Salahuddin 30

(mboe/d) Field P+P Prod'n 300 Ain Zalah/West Butmah 301 5 (mmboe) 500 10 Prod'n 2012E (mmboe) (mboe/d) 20

Shaikan 1,500 8 P+P Commercial 200 134 (mboe/d)

0 (mmboe) Sufaya 58 0 Ajil 618 12 0 0 100 10 Prod'n 2012E Liquids Gas P+P Commercial 0 0 Dohuk Kurdistan Pipelines Liquids Gas

Erbil ISIS primary areas of activity 800 734 40 are not in the major oil Ninewa producing regions Diyala 600 30 Ta’mim Field P+P Prod'n (mmboe) (mboe/d) 400 20

Suleimaniyah East Baghdad 620 15 (mboe/d) 500 500 (mmboe)

200 10 Prod'n 2012E 377 Naft Khaneh 114 5 400 400 P+P Commercial 0 Anbar 0 0 300 300 Field P+P Prod'n Kurdistan Liquids Gas

(mmboe) (mboe/d) 200 200 Salahuddin Line of Control (mmboe) Akkas 468 0 91 (mboe/d)

100 100 Prod'n 2012E Commercial P+P P+P Commercial 0 0 Diyala Liquids Gas

Anbar 25,000 23,294 500 Misan 20,000 400 Wasit Field P+P Prod'n 1,918 Babil (mmboe) (mboe/d) 15,000 300 2,000 100 Karbala Halfaya 4,940 71

10,000 200 (mmboe) Wasit 1,500 75 Majnoon 16,978 100 (mboe/d) 5,000 100 Prod'n 2012E Field P+P Prod'n Qadisiyah Misan Group 2,500 104 P+P Commercial 1,124 1,000 50 Misan

(mmboe) (mboe/d) 0 0 (mmboe) Ahdab 1,163 60 (mboe/d) Liquids Gas 500 25 Badrah 755 0 Prod'n 2012E Commercial P+P P+P Commercial 0 0 0 Najaf Basrah Dhi-Qar Field P+P Prod'n Liquids Gas 71,823 (mmboe) (mboe/d) 80,000 4,000 Basrah Gas Project 3,497 105 Basrah 60,000 3,000 Iraq Pipelines Luhais and Subba 769 27 Nahr Umr 1,090 5 40,000 2,000 1,964 Muthanna

2,000 100 Ratawi 931 6 (mmboe)

Rumaila 31,058 1,300 20,000 1,000 (mboe/d) 2012E Prod'n 2012E

Dhi-Qar 1,500 75 Siba 118 0 P+P Commercial 4,444 Field P+P Prod'n Tuba 189 5 0 0 (mmboe) (mboe/d) 1,000 50 West Qurna One 14,932 377 Liquids Gas Gharraf 1,100 35

(mmboe) West Qurna Two 14,185 0 500 25 (mboe/d) Nasiriyah 864 6 Prod'n 2012E Zubair 9,498 300 Commercial P+P P+P Commercial 0 Commercial P+P (mmboe) 0 0 Liquids Gas 2012E Production (mboe/d)

Key oil producing provinces Key provinces for exploration Kurdistan provinces

6 Iraq political history plays a big role in oil & gas output

Background Historical crude oil production was sporadic…

mmboe/d . For most of recent history, Iraq was ruled by the 4 until where Iraq was passed to British control until the 3.5 was formed in 1932 3 . Oil prospecting in the county began almost immediately after WWI, 2.5 with the Iraqi Petroleum Company (IPC), an antecedent of British 2 oil giant BP, receiving prospecting rights for nearly 100% of Iraqi 1.5 territory 1 . A coup was launched in 1958, ushering in an ear of Baathist rule 0.5 when in the late 1960’s, IPC was nationalized and the state 0

cemented its control of the oil industry

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 . came to power in 1979 as the chosen successor, launching wars against neighbours and alienating the international community … with significant drops in the 80’s-90’s limiting investment . Sanctions were placed on Iraq in 1990 and lasting until 2003, limiting any western investment or activity in Iraq’s oil sector mmboe/d 4 . Following the in 2003, a new constitution was passed in 3.5 2005 and public licensing rounds for the oil sector commenced 3 . The outcome of these licensing rounds has been underwhelming 2.5 as significant commercial challenges still exist and most of Iraq’s 2 oil infrastructure is outdated and in need of significant repair 1.5 . After reaching an all-time high in December 1979 at 3.7mmboepd, 1 production collapsed in the 80’s and again in the 90’s after a short 0.5 rebound in the early 90’s 0 . Iraqi 3 biggest fields (Rumaila, West Qurna I and II) account for 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 c. 55% of the total Iraq production capacity Source: U.S. Energy Information Administration as of January 2015 With reclusive political leadership, Iraq struggled to attract investment and maintain production

7 Key milestones in Iraq’s oil and gas history

Key milestones Oil from Babylon to Iraq

1902 First oil exploration well (drilled in Chia Surkh)

1927 Discovery of the “super-giant”

1938 Exploration terminated due to war preparation

1948 Exploration re-started, discovery of Zubair and Nahr Umr fields

1953 Rumaila field is discovered

1961 Termination of activities by IOCs according to law No. 80

1964 Iraq National Oil Company (INOC) established

70’s / Many new fields discovered (including West Qurna and Majnoon) 80’s

1979 Iraq oil production peaks

80’s / Decline in activity due to sanctions, Iran–Iraq war and two Gulf wars 90’s

2007 KRG develops its own PSC and begins licensing

2008 / First, Second and Third licensing rounds announced and awarded 2010

2012 Fourth licensing round announced April 2012 -only 3 blocks awarded

8 One of the biggest challenges is a nationalized sector with a large network of state-owned companies Ministry of Oil

Upstream Downstream Institutes

North Oil Co. North Gas Co. Petroleum Research and Development Centre

South Oil Co. South Gas Co. Baghdad Oil Training Institute

Missan Oil Co. North Refineries Co. Kirkuk Oil Training Institute

Midland Oil Co. South Refineries Co. Basrah Oil Training Institute

Oil Exploration Co. Midland Refinery Co. Baiji Oil Training Institute

Iraq Drilling Co. Oil Pipelines Co.

Oil Project Co. Iraqi oil Tankers Co.

Oil Marketing Co.

Gas Filling Co.

Oil Product Distribution Co.

Heavy Engineering Equipment Co.

State Org for Marketing Oil (“SOMO”)

State Co for Oil Projects (“SCOP”)

9 But, Iraq oil and gas outlook is starting to look more promising…

Key recent developments in Iraq Blocks awarded by region

1990 Economic (through 2003) No. blocks Kurdistan Northern Iraq Southern Iraq Western Desert 18 2005 National Assembly commences drafting constitution 16 st 2009 1 federal Iraqi bid round: TSC structure 14 2nd federal Iraqi bid round: TSC structure 12 2010 3rd federal Iraqi bid round: First exploration licenses 10 8 2011 Kurdistan production reaches 150 kboepd (from nil in 2007) ExxonMobil signs 6 PSCs in Kurdistan Region 6 4 4th federal Iraqi bid round fails to attract IOCs 2012 2

2015 Iraq hits highest exports of 3.7 mmboepd in January - 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Reserves and production by province Historical and forecast production

kboe/d 2P by Province 2014 Production by Province 2014-2023E Production CAGR: 6% 7,000 14% 6% 1% 6% 2% 5% 6,000 12%

9% 5,000 10%

17% 8% 4,000 8% 53% 12% 63% 3,000 6% 18% 2,000 4%

1,000 2%

Basrah Erbil Misan Basrah Erbil Misan 0 0%

Ta'mim Dhi-Qar Other Ta'mim Suleimaniyah Other

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Total: 144bnboe Total: 3.4mmboe Liquid Gas % Gas Source: Wood Mackenzie Source: Wood Mackenzie

10 … with significant infrastructure in-place to support production targets

Oil fields Partners Prod. Capacity (kbpd) Export outlet Iraq capacity Rumaila BP, CNPC 1,430 West Qurna-1 ExxonMobil, Petrochina, Shell 550 West Qurna-2 220 Zubair , Occidental 360 Basra port including 3 SPM systems and Khor al- Majnoon Shell, 200 Amaya port Garraf Petronas, Japex 100 Missan fields (Fakka, Abu Gharb, Bazergan) CNOOC 135 Halfaya CNPC, Total, Petronas 110 Other fields 215 S. Iraq capacity 3,320 Ahdab CNPC 140 Badra Gazprom Neft, Kogas, Petronas 15 Connected to southern export infrastructure Other fields 25 C. Iraq capacity 180 Kirkuk (Avana & Baba) 220 Bai Hasan 185 Iraq (Kirkuk) to (Ceyhan) pipeline Jambur 40 (Flows stopped in March 2014 and the pipeline Khabbaz 30 is currently unusable.) Other fields 50 N. Iraq capacity 525 Iraq Total capacity 4,025

Kurdistan capacity Khurmala Dome (northern of Kirkuk) 110 Tawke DNO, Genel Energy 130 KRG pipelines that connect to Turkey Ceyhan) Taq Taq Genel Energy, Sinopec 130 pipeline; some oil trucked to ports in Turkey Shaikan Gulf Keystone 21 Mersin, Dortyol, & Toros) and to Iran Other fields 36 Total KRG capacity 427

Total capacity 4,452

Source: U.S. Energy Information Administration, Energy Intelligence Group, Iraq Oil Report, Middle East Economic Survey; Note: Iraq's actual production is much lower than capacity as most oil fields are producing below capacity because of infrastructure constraints; A portion of northern production is not being produced commercially and is considered a supply disruption

11 Most Iraqi oil is being exported from the ports in Basra

Map Iraq maintains significant and consistent oil production

mmbpd 3.5 550kboepd 3.0 2.5 2.0 1.5 1.0 0.5 0.0

150kboepd

Jul-13 Jul-14

Jan-13 Jan-14

Jun-13 Jun-14

Sep-13 Sep-14

Feb-13 Feb-14

Oct-13 Oct-14

Apr-13 Apr-14

Dec-13 Dec-14

Aug-13 Aug-14

Mar-13 Mar-14

Nov-13 Nov-14

May-13 May-14 Southern exports Northen exports (Iraq-Turkey pipeline) Northen exports (KRG-Turkey pipeline) Source: Iraqi Ministry of Oil, Lloyd’s List Intelligence (APEX tanker database) Exports overview

2.7mmboepd . About 95% of Iraq's crude oil exports came from the country's southern export terminals along the in 2014, which export Iraq's Basra crude grade, compared with 2013 when it was slightly below 90% . Northern seaborne exports from the Turkish Ceyhan port via the Iraq- Turkey pipeline averaged 260 kbpd in 2013 . Northern exports in Iraq fell substantially after the Iraq-Turkey pipeline went out of service in March 2014 . The KRG started to export crude via its independent pipeline for the first time in May 2014 Northern exports (KRG-Turkey pipeline) . The pipeline flows have reached more than 300 kbpd, but this flow Northern exports (Iraq-Turkey pipeline) Non-operational level has not been maintained on a sustained basis Southern exports . Iraq previously exported about 10 kbpd of crude to Jordan by truck, but due to insecurity in the Anbar province, those exports were halted in early 2014 . The KRG trucks about 50 kbpd to 100 kbpd of crude and condensate to Note: Exports shown only include oil transported via pipeline to a seaport, not crude trucked to a the Turkish ports of Mersin, Dortyol, and Toros, and to Iran seaport 12 …And a majority of the oil is coming from the four super giant fields

Iraq’s daily production by field Key buyers of Iraqi crude

. China was the largest importer of Iraq's crude oil, followed by India and the United States in 2014 8,000 8.0 . Total Iraqi crude oil exports averaged 2.6mmboepd in 2014, 0.2 mmboepd higher than the previous year

7,000 7.0 . Asia (led by China, India, and South Korea) is the main destination for Iraq's crude oil, importing 58% of the total in 2014 . The U.S. is the third-largest importer of Iraq's crude, although the volume 6,000 6.0 has fallen over the past decade . The U.S. imported an average of 355kbpd of crude from Iraq in 2014, 30% lower than the volume received 10 years before in 2005 5,000 5.0 . The growth in U.S. oil production has resulted in a sizable decline in U.S. imports of crude grades of similar quality

4,000 4.0 Iraq’s crude oil exports by destination (2014)

Oil Oil Production (kbbls/d) 3,000 3.0 Export Export Capacity (mmbbls/d)

Other Americas 3% 2,000 2.0 China Other 22% United States 6% 14% Americas 1,000 1.0 17% Other Europe Asia Europe 9% 58% 19% India Italy 19% - - 4% 2014 2015 2016 2017 2018 2019 2020 Greece 6% Rumaila Kirkuk Zubair West Qurna One Kurdistan Other Asia South Korea West Qurna Two Majnoon Other fields Halfaya Bai Hassan 8% 9% Badra Basra Gas Project Ajil East Baghdad Gharraf Jambur Khabbaz Luhais and Subba Misan Group Source: U.S. Energy Information Administration based on Lloyd’s List Intelligence (APEX tanker database) 13 Ongoing successful drilling activity is spurring a new interest in exploration

Iraq holds great promise for substantial undiscovered resources Increasing wells being drilled in Iraq and Kurdistan

. A remarkable feature of Iraqi oil reserves is the majority lie within 10,000 ft of mmboe the surface, with 30-40% lying within 2,000-5,000 ft 80 . The majority of oil production comes from Cretaceous reservoirs (76%), with the remainder coming from Tertiary reservoirs (24%) 70 . The Iraq-Iran War in stopped new exploration activity in Iraq from 1980-1988 60 . 50 Subsequent sanctions placed on Iraq from 1991 until 2003, restricted technology 57 and materials imperative for oil production 40 40 36 . Ruled out many imports of mud chemicals for drilling and well logging 30 . Only 248 wells drilled from 1991 until the beginning of 2005 27 20 . The vast majority of wells are vertical, with no horizontal or multilateral technology employed 14 22 24 10 10 19 9 15 . Use of horizontal and multilateral technology, can easily give a 10% uplift in 0 1 3 5 the recovery factor 2008 2009 2010 2011 2012 2013 2014 . Iraq’s exploration success rate is 2 in 3 (about 67%), compared to the world Iraq KRG average of 1 in 10, confirming the region’s prospectivity Consistent access to rigs supports drilling activity… …resulting in significant projected production growth

kboepd 120 7,000

100 6,000

80 5,000

60 4,000 3,000 40 2,000 20 1,000 0

0

Jul-12 Jul-13 Jul-14

Jan-12 Jan-13 Jan-14

Jun-12 Jun-13 Jun-14

Sep-12 Sep-13

Feb-12 Feb-13 Feb-14

Oct-12 Oct-13

Apr-12 Apr-13 Apr-14

Dec-11 Dec-12 Dec-13

Aug-12 Aug-13 Aug-14

Mar-12 Mar-13 Mar-14

Nov-11 Nov-12 Nov-13

May-12 May-13 May-14 Liquid Gas Iraq Oil Rigs Source: Manaar Energy, IHS Source: Wood Mackenzie

14 New attractive fiscal terms may spur companies to expand presence in Iraq

. Iraq has one of the world’s largest petroleum reserves in the world with the world’s largest IOCs and OFS companies, with: . Significant underexplored areas offering world-class exploration potential, and . Many sizable discoveries from recent tender rounds already under development and about to bring production to market

. Safety and ability to operate in the southern oil provinces of Iraq has remained despite security concerns in the west and north of Iraq

. The corporate landscape in Iraq has been evolving since 2008 and with the country’s new Prime Minister and Minister of Oil reviewing changes to the oil licensing regime, a new investor landscape may be evolving again soon

. Recent renegotiations on existing contracts reveals the potential for further contract renegotiations to sweeten the terms for the contractors

. Such agreements would set the stage for future licensing rounds to offer more investor friendly terms and bring business back into Iraq

Reserves by field Shell and CNPC are the private companies with the largest reserves mmboe mmboe 18,000 10,000 16,000 9,000 14,000 8,000 12,000 7,000 10,000 6,000 8,000 5,000 4,000 6,000 3,000 4,000 2,000 2,000 1,000 0

-

Ajil

Siba

BP

Eni

Tuba

Badra

Akkas

KRG

Shell

Ahdab

Zubair

Total

Ratawi

Jambur

Kogas

Halfaya

Gharraf

Kormor

CNPC

TPAO

Statoil

Rumaila

JAPEX

SOMO

Khabbaz

Summail

Majnoon

Nasiriyah

CNOOC

LUKOIL

Nahr Nahr Umr

Petronas

Gazprom

Bai Hassan Bai

South Oil South

Iraq NOC Iraq

North Oil North

Misan Oil Misan

Pertamina

Miran West Miran Mansuriyah

Occidental

Petrochina

Naft KhanehNaft

Misan Group Misan

East Baghdad East

Midland Oil Midland

ExxonMobil

Nineveh Oil Nineveh

Iraq other fields otherIraq

Kuwait Energy Kuwait

West Qurna West One Qurna

West Qurna West Two Qurna

Luhais and Subba and Luhais

Iraq Drilling Co. Drilling Iraq Basrah Gas ProjectGas Basrah

Source: Wood Mackenzie and IHS Liquids Gas Butmah Ain Zalah/West

Sarqala Development Development Area Sarqala Iraq National Oil Companies Oil Exploration Company Oil Exploration

15 1. Oil Sector Overview ##

2. Infrastructure Overview ##

3. Upstream activity and licensing history ##

4. Political challenges ##

5. Future opportunities in Iraq ##

6. Appendix ## Iraq pipelines infrastructure overview

Overview Map

. Iraq faces many challenges in meeting its planned timetable for oil production Kurdistan – Ceyhan . Inadequate pipeline, storage and pumping capacity has led to Capacity: 1,500kbpd Tawke - Fishkabur the only option of crude being exported from Basra Capacity: 100kbpd . Planned pipelines to energy hungry neighbours and Jordan Khurmala Dome - Fishkabur have never materialized Capacity: 300kbpd ITP . Existing Iraq-Turkey Pipeline (IPT) has a constant target for Capacity: 600kbpd Not operating sabotage and has been shut down due to constant attacks by ISIS . Current production of c. 150kbpd from Northern Iraqi fields is being diverted into the KRG’s export pipeline to Turkey

. To support crude exports in Basra, export facilities' capacity was expanded in recent years by adding on three single point moorings (SPMs) near the Basra and Khor al-Amaya ports with two additional SPMs planned . The SPMs have a design capacity of 900kbpd each, but have been operating below that amount . The SPMs have added much needed shipping capacity to the south, as the Basra and Khor al-Amaya ports are operating well Strategic pipeline below capacity after enduring three wars and poor maintenance Capacity: 800kbpd Not operating . Export capacity has expanded at a faster rate than midstream infrastructure, inhibiting the ability of oil companies to meet their production goals (often contractually required) . Poor oil production growth in 2013 is attributed to infrastructure bottlenecks in the south and an increase in supply disruptions to northern fields because of frequent attacks on the Iraq-Turkey pipeline

Source: U.S. Energy Information Administration, Energy Intelligence Group, Iraq Oil Report, Middle East Economic Survey 17 Iraq export pipeline network is in severe need of rehabilitation and repair

Overview Iraq existing major export pipelines

Capacity . Currently, the only working major pipelines in northern Iraq are Description Direction Location Status (kbpd) two pipelines built by the KRG and its international partners: KRG's main pipeline and the DNO/Tawke pipeline, which both link to the Turkey pipeline to the Ceyhan port. Iraq-Turkey Pipeline (ITP) Kirkuk to Fishkhabur N. Iraq 600 Not operating

. Kirkuk-Banias/Tripoli Kirkuk to Banias (Syria) Given lack of available infrastructure and strategic location of super N. Iraq 700 Not operating giant fields to Basra export infrastructure, a majority of Iraq’s crude Pipeline and to Tripoli () is exported via Basra North-South Strategic Pipeline Kirkuk to Persian Gulf 800 Not operating . 2.7 mmboepd is exported via Basra (Iraq)

. Iraq Pipeline to Saudi Southern Iraq to port of S. Iraq & Not operating (Iraq With 600 kbpd that used to be exported through the ITP now unable 1,650 to be exported due to sabotage on the pipeline, Baghdad reached an Arabia (IPSA) Mu'ajjiz in Saudi Arabia Saudi Arabia portion) agreement with the Kurdish Government to export some of Iraqi crude through Kurdish infrastructure . Under the existing framework, 300 kbpd of Iraqi crude is to be exported via the Kurdistan-Ceyhan pipeline KRI existing major pipelines

. Significant plans to pipe oil & gas to energy starved neighbours has never materialized Capacity Description Direction Location Status . But storage capacity has grown significantly in Basra with four new (kbpd) Kurdistan-Ceyhan Pipeline Fishkhabur to port of storage tanks recently added (6.5 mmbbls) and exports going through S. Turkey 1,500 Operating (KCP) Ceyhan the three tanker terminals of: Khurmala Dome- Tie-in Khurmala and N. Iraq 300 Operating . Basra, Khor-al-Amaya and Khor al-Zubair Fishkhabur Pipeline Kirkuk crude to KCP Tie-in DNO/Genel fields to Tawke-Fishkabur Pipeline N. Iraq 100 Operating KCP

Most crude oil is exported via Basra, as pipelines have been constantly subject to attacks in the North

Source: U.S. Energy Information Administration, Energy Intelligence Group, Iraq Oil Report, Middle East Economic Survey 18 Old infrastructure is in need of rehabilitation, but high costs and delays have plagued the refining sector

Refining sector overview Location of existing and planned refineries

. Iraq has 13 refineries most of which do not produce the products the local market needs . Iraqi refineries produce more heavy fuel oil than is needed domestically and not enough of other refined products, such as gasoline Qayara refinery (16kbpd) . Kirkuk refinery In June 2014, ISIS attacked the Baiji refinery, brining operation to a (150kbpd) halt Sininya refinery (30kbpd) Kirkuk refinery . The Baiji refinery was the key refinery that produced diesel and (30kbpd) Baiji refinery gasoil for the local market (230kbpd) . Hadeetha refinery Although the Iraqi government regained control of Baiji, the (16kbpd) refinery is still not operational causing a near halt to commercial production in northern Iraq (not including the Iraqi Kurdistan Region)

. Total designed capacity of Iraq’s refineries is estimated at 1.1 Daura refinery mmbpd, although estimates vary because effective capacity has fallen (140kbpd) below designed capacity in most cases Karbala refinery Maysan refinery . Before the June 2014 ISIL attack on the Baiji refinery, effective (140kbpd) Diwaniyah refinery (30kbpd) refining capacity in Iraq (incl. KRI) was 800kboepd, but with (20kbpd) the Baiji refinery not being operational, Iraq's total effective Najaf refinery Maysan refinery capacity is now estimated below 600kboepd (30kbpd) (150kbpd) Samawah refinery . Iraq has plans to build four new refineries and expand capacity at (30kbpd) the Daura and Basra refineries, targeting an increase in refining Basrah refinery (135kbpd) capacity to 1.5 mmbpd Nassiriya refinery . Government expected these new projects to come online (30kbpd) starting in 2018 Nassiriya refinery (300kbpd)

Planned refinery

Source: U.S. Energy Information Administration, Energy Intelligence Group, Iraq Oil Report, Middle East Economic Survey 19 With ageing infrastructure, Iraq needs to spur the development of new refineries

Iraq’s refineries operate significant under designed capacity New refineries have been planned for the past four years…

Iraq refineries Capacity (kbpd) Comments Future refineries Capacity (kbpd) Comments Baiji 310 Effective capacity is 230 kbpd Nassirya 300 (est. $6.83bn cost) Kirkuk 30

Sininya 30 Karbala 140 (est. $5bn cost)

Hadeetha 16 Kirkuk 150 (est. $4.24bn cost) Qayara 16 Maysan 150 (est. $5.76bn cost) Kasak 10

North Refineries 412 Planned Refinery Total 740

Daura 210 Effective capacity is 140 kbpd

Najaf 30 … but new refineries are in operation in Kurdistan

Samawah 30 Kurdistan refineries Capacity (kbpd) Owner Comments Diwaniya 20 Effective capacity is Midland Refineries 290 80kbbl/d; Kalak (near Erbil) 80 KAR Group plans to add 95kbbl/d of Basrah 210 Effective capacity is 135 kbpd processing capacity by 2018 Maysan 30 Effective capacity is Bazian (near Sulaimanya) 20kbbl/d; Nassiriya 30 34 Qaiwan Group plans to add 66kbbl/d of South Refineries 270 processing capacity by 2018

Iraq Total (excl. KRI) 972 Kurdistan Total 114

Source: U.S. Energy Information Administration, Energy Intelligence Group, Iraq Oil Report, Middle East Economic Survey

20 Iraq refined product demand is underserved and growing

Plans need to be developed to meet local demand

800 28% growth in consumption

700

600

500

400

300

200 Domestic refining capacity Projected future consumption Projected future

100

0 2007 2008 2009 2010 2011 2012 2013 2014 2030

Consumption Import Domestic Refining Capacity

. Refining capacity (below 600kbpd) runs at 50% capacity and produces heavy fuels—not the products consumers need

. Four new refineries have been under planning since 2007 and none are expected to come online after 2018 at the earliest . $20 billion is required to fund new refinery construction but limited investor interest and delays continue to stall projects

Importing refined products is the only short-term solution to meet growing demand

Source: Manaar Energy Consulting, June 2014

21 1. Oil Sector Overview ##

2. Infrastructure Overview ##

3. Upstream activity and licensing history ##

4. Political challenges ##

5. Future opportunities in Iraq ##

6. Appendix ## Iraq licensing process overview

. Iraq nationalized the oil sector in 1972 and all oil production was being handled and operated by various Iraqi NOCs

. After the Second , the Iraqi government needed to ramp-up production and spur investment in ageing super-giant fields

. General strategy was to use a highly competitive licensing round system to promote the rehabilitation, redevelopment and appraisal of Iraqi oil fields . The Government awarded technical services contracts (TSC) and development and production service contracts (DPSC) to oil companies . TSCs are operated by a remuneration fee (between $1.15 – 6.00/bbl, adjusted downwards as the ration of cumulative revenue to cumulative costs increases) mechanism alongside cost recovery

. Iraq launched a first public bid process in 2008 with a TSC structure to remunerate oil companies a flat fee for each barrel they produce . The process attracted offers from 31 firms including US and European giants ExxonMobil and Shell but also an array of Asian companies from China, India, South Korea and . However, bids were underwhelming based on the remuneration fee awarded by the Iraqi government

. Subsequent rounds have seen fewer and fewer bidders due to a combination of: . Inadequate incentive to counter the geological, political and logistical risks associated with the acreage and the most recent licensing round in Iraq failed to attract interest . Tight fiscal terms and low remuneration fees . Difficulty in operations (importing materials and securing work visas on time) . Slow responses from the Ministry of Oil

. However, in the Kurdistan Region, a different system was used whereby: . Licence awards on an ad-hoc basis based on standard PSC contracts (5 years exploration + 25 years development period) . Establishment of oil and gas law in 2007, whereby PSCs operate with a fixed royalty (except for heavy oil), cost recovery (up to a ceiling), and proportion of profit oil

23 Iraq first licensing round ushered in the world’s biggest oil companies

First round (2008-2009) Map

Maximum Remuneration Signature Project remuneration fee fee bid bonus Contractor (US$/barrel) (US$/barrel) (US$mm) 1 . CNOOC (63.75%) Maysan $2.30 $21.40 $300 . Iraq Drilling Co. (25%) . TPAO (11.25%) . BP (47.6%) 2 Rumaila $2.00 $3.99 - $4.80 $500 . CNPC (46.4%) . SOMO (6%) . ExxonMobil (25%) . North Oil (25%) 3 West Qurna 1 $1.90 $2.60 - $19.30 $100 . Petrochina (25%) . Shell (15%) 8 . Pertamina (10%) 4 . Eni (32.81%) Maysan . Occidental (23.44%) 5 Zubair $2.00 $4.09 - $9.90 $100 . Missan Oil (25%) . Kogas (18.75%)

7

11 10 9 6 12

West Qurna 1 Zubair Rumaila

Licensed blocks Oil field Provincial license blocks Gas field KRG blocks Pipeline Source: Wood Mackenzie Open blocks Refinery

24 Iraq second licensing round sees investors shift to NOCs due to tighter fiscal terms

Second round (2009) Map

Maximum Signature Project remuneration fee bonus Contractor (US$/barrel) (US$mm) 1 . LUKOIL (56.25%) West Qurna 2 $1.15 $100 . Oil Exploration Company (25%) . Statoil (18.75%) . Shell (45%) Majnoon $1.39 $150 . Petronas (30%) 2 . Misan Oil (25%) . PetroChina (37.5%) . South Oil (25%) Halfaya $1.40 $150 . Petronas (18.75%) 3 . Total (18.75%) 8 . Petronas (45%) 4 Gharraf $1.49 $100 . JAPEX (30%) Badra . North Oil (25%) 5 . Gazprom (30%) . Midland Oil (25%) Badra $5.50 $100 . KOGAS (22.5%) Gharraf . Petronas (15%) Halfaya . TPAO (7.5%) 7 . Sonangol (75%) Majnoon Qaiyarah1 $5.00 $100 . Nineveh Oil (25%) 10 9 . Sonangol (75%) 11 Najmah1 $6.00 $100 6 . Nineveh Oil (25%) 12

West Qurna 2

Licensed blocks Oil field Provincial license blocks Gas field Source: Wood Mackenzie KRG blocks Pipeline 1Field has been relinquished Open blocks Refinery 25 Iraq third licensing round sees limited interest and poor bidder turn out

Third round (2010) Map

Maximum remuneration fee Project Contractor (US$/barrel) 1 . KOGAS (37.5%) 1 Akkas $5.50 . KazMunaiGas (37.5%) . Iraq state equity partner (25%)

. TPAO (37.5%) 2 . Kuwait Energy (22.5) Mansuriyah $7.00 . KOGAS (15%) . Iraq state equity partner (25%) Mansuriyah 3 . Kuwait Energy (45%) Siba $7.50 . TPAO (30%) 8 . Iraq state equity partner (25%) 4

5

7

10 9 11 Siba 6 12

Licensed blocks Oil field Provincial license blocks Gas field Source: Wood Mackenzie KRG blocks Pipeline 1 Field has been relinquished Open blocks Refinery

26 Iraq fourth licensing round for exploration sees few blocks awarded again

Fourth round (2012) Map

Maximum Signature Block Acreage (km2) remuneration fee bonus Contractor (US$/barrel) (US$mm) 1

1 7,300 No bid $15 . No award 2 8,000 No bid $25 . No award 3 7,000 No bid $20 . No award 2 4 7,000 No bid $20 . No award 5 7,000 No bid $20 . No award 3 6 9,000 No bid $20 . No award 8 $20 . No award 7 6,000 No bid 4 11 8,000 No bid $15 . No award 5 8 6,000 $5.38 $15 . Pakistan Petroleum (100%)

. Kuwait Energy (40%) 9 900 $6.24 $25 . TPAO (30%) . Dragon Oil (30%) 7

. LUKOIL (60%) 10 5,500 $5.99 $25 10 9 . Corporation (40%) 11 6 12 . Bashneft (70%) 12 8,000 $5.00 $15 . Premier Oil (30%)

Licensed blocks Oil field Provincial license blocks Gas field KRG blocks Pipeline Source: Wood Mackenzie Open blocks Refinery

27 Provinces have begun to license exploration acreage to spur new investment

Wasit province Salah ad Din province

. In 2011, Oryx Petroleum acquired a 66.67% shareholding in KPA . In 2010, Sonoro and its partner, Berkeley signed a license with the which through its subsidiary AmiraKPO holds a 75% participating Provincial Government securing the exclusive right to explore for interest in 3 contracts with the Wasit Provincial Government, asphalt/bitumen up to 25⁰ in the Province involving: . The area of the License is approximately 24,000 km2 and is situated . Asphalt Exploration Contract within the River Valley, between the Western Desert and the foothills of the Zagros fold and thrust belt . Exclusive rights to mine heavy oil, asphalts, tar and bitumen (less than 25°API) throughout the Wasit province Key terms of the license: . Non-exclusive rights to acquire 2D seismic data over any . The exclusive rights to explore, develop and produce part of the Wasit province up to a total of 7,000km asphalt/bitumen within the entire Province and to sell the asphalt/bitumen produced (and/or the by-products after processing) . Seismic Option Agreement domestically and/or internationally; . Initial term of 5 years, expiring in 2016, with an option to . The Licensee (Sonoro Iraq 40%; Geopetrol 40%; Berkeley 20%) is extend for an additional 5 years required to make an investment of US$1.5mm on exploration . Risk Exploration Contract (“REC”) activities and construct a topping facility having a minimum 1kbpd capacity within 18 months from making a commercial discovery . Right to conduct all exploration, gas marketing, development, production and decommissioning operations . An initial exploration period of 5 years commencing April 14, 2011, relating to petroleum operations in the contract areas followed by a 30 year exploitation period with extensions for any carved out exploitation areas to develop asphalt/bitumen . Amira holds a 25% carried interest, and the WPG is granted Back-In Right to acquire up to a 20% participating interest in each Contract . The Licensee is entitled to 50% of the revenues from the sale of Area asphalt/bitumen (and its by-products after processing), after tax and after cost recovery . A total of 80% of revenues are available for cost recovery . Crown Energy which acquired Tigris Oil in 2013, also claims to have a license with the Provincial Government following the PSC agreement signed by Tigris Oil with the Salah ad Din province in 2012

Source: Oryx Petroleum IPO prospectus Source: Sonoro

28 Wasit and Salah ad Din provincial contract details

Overview of activity Block Map (licenses in yellow)

. Given claims from provinces over poor distribution of oil revenues, Wasit and Salah ad Din provinces signed contracts directly with oil companies using the framework under the Iraqi constitution that the KRG had used

. The deals signed to-date have yielded little material activity due to 1 inability to mobilize equipment and get the required import permits from the Federal Government . Some concerns remain as Salah ad Din Province is rumoured to have awarded two provincial contracts to two different 2 companies for the same location

. In the face of delays, the companies have continued to review Salah Ad Din geological data in preparation for seismic programs 3 Province 8 . Baghdad has not come out directly against the contracts but has not 4 been directly supportive to get work done in the provinces Wasit 5 Province

7

11 10 9 6 12

Licensed blocks Oil field Provincial license blocks Gas field KRG blocks Pipeline Open blocks Refinery

29

Iraq company asset exposure

Oil

Eni

Co.

PPL

Oryx

KRG

Shell Total

Total

Inpex

Wasit

Amira

TPAO

Statoil

CNPC Kogas

SOMO

JAPEX

Sonoro

LUKOIL

North Oil North Bashneft

Block/Field Operator Petronas

South South Oil

Gazprom

Misan

Sonangol NOCIraq

Company

Geopetrol

Pertamina

Occidental

Dragon Oil Dragon

Petrochina

Premier Oil Premier

Midland Oil

Iraq DrillingIraq

Nineveh Oil Nineveh

ExxonMobil

Government

KazMunaiGas

Kuwait Energy Kuwait Oil Oil Exploration Wasit Province Oyrx 39 ------78 ------39 - 195 Salah ad Din Province Sonoro 42 ------42 ------56 ------141 1 N/A ------26,134 2 N/A ------7,237 3 N/A ------1,959 4 N/A ------1,421 5 N/A ------1,421 6 N/A ------2,754 7 N/A ------850 8 PPL ------12,028 ------12,028 9 Kuwait Energy - - - - - 207 ------276 ------207 - - 691 10 LUKOIL ------379 ------568 ------947 11 N/A ------2,737 12 Bashneft - 1,549 ------664 ------2,213 Ahdab North Oil - - - - 853 ------284 ------1,137 Ain Zalah/West Butmah North Oil ------40 ------40 Ajil Iraq NOC ------681 681 Akkas Kogas ------374 ------125 ------498 Badra Gazrpom ------284 - - - - - 213 - - - 237 ------142 ------71 - - 946 Bai Hassan North Oil ------2,138 ------2,138 East Baghdad Midland Oil ------438 ------438 Gharraf Petronas ------489 ------408 - - - - - 734 ------1,630 Halfaya PetroChina ------1,373 - - 2,059 1,030 ------1,030 - - - 5,491 Iraq other fields N/A ------316 Jambur North Oil ------1,299 ------1,299 Khabbaz North Oil ------536 ------536 Kirkuk North Oil ------430 - - - - - 1,291 ------1,721 Luhais and Subba South Oil ------613 - - - - - 613 Majnoon Shell ------3,258 ------3,909 - - 5,864 ------13,031 Mansuriyah TPAO ------72 - 108 ------180 - 120 481 Misan Group CNOOC - - - 1,105 ------434 ------195 - - 1,734 Naft Khaneh N/A ------23 Nahr Umr South Oil ------5,150 - - - - - 5,150 Najmah Sonangol ------923 ------923 Nasiriyah South Oil ------803 - - - - - 803 Qaiyarah Sonangol ------855 ------855 Ratawi South Oil ------431 - - - - - 431 Rumaila BP - - 7,385 - 7,199 ------931 ------15,515 Siba Kuwait Energy ------55 ------37 - 31 123 Tuba South Oil ------176 - - - - - 176 West Qurna One ExxonMobil ------3,826 ------3,826 - - - 1,530 3,826 - - - 2,296 ------15,304 West Qurna Two LUKOIL ------8,009 - - - - - 3,560 ------2,670 - - - - 14,239 Zubair Eni ------2,447 ------1,399 - - - - 1,865 - - 1,748 ------7,459 Total (2P + 2C) (mmboe) 81 1,549 7,385 1,105 8,052 207 2,447 3,826 284 42 379 434 489 - 2,057 430 440 8,578 675 5,123 1,778 9,946 1,748 4,933 78 1,530 5,885 5,814 12,028 664 8,160 931 - 56 7,173 2,670 1,030 691 39 832 154,460 Total 2P (mmboe) - - 7,385 1,105 8,052 - 2,447 3,826 284 - - 434 489 - 2,057 430 164 8,009 675 5,123 1,778 9,946 1,748 4,933 - 1,530 5,885 5,814 - - 8,160 931 - - 7,173 2,670 1,030 483 - 832 93,731

Source: Wood Mackenzie, IHS, Company data ## Oil & Gas ## Gas ## Oil

30 1. Oil Sector Overview ##

2. Infrastructure Overview ##

3. Upstream activity and licensing history ##

4. Political challenges ##

5. Future opportunities in Iraq ##

6. Appendix ## Iraq maintains strict government controls over oil and gas activities

. The Iraqi Constitution creates a federal state, comprising a federal government, and regional or governorate governments

. There are 18 governorates (sometimes referred to as ‘provinces’), but three of them merged to form the Kurdistan Region

. The Kurdistan Regional Government (“KRG”) is the first of its kind on the governorate level

. The Constitution allocates powers and authorities between the federal and regional authorities . Additionally, the Constitution gives regions and governorates power and authority over all matters that are not expressly stated to be exclusive federal powers

1. Control of oil fields

. Article 112 (First) establishes the petroleum power of the federal government, stating that, “…the federal government, with the producing governorates and regional governments, shall undertake the management of oil and gas extracted from current fields…”

. Thus, since “current fields” is not further defined, non-producing or exploration areas would not be included within the joint management power of the federal government under Article 112 (First)

2. Current state of affairs

. On this basis, the KRG has been awarding rights for non-producing and exploration areas, with 51 contracts awarded to date

. Governorates have the same constitutional rights as the Kurdistan region with respect to petroleum, and are aiming to replicate the success of the regional contract model

32 Political climate in Iraq

. In February 2007, the Oil and Energy Committee of the Council of Ministers developed a draft Oil and Gas Law with the goal of promoting federalism and decentralization in the industry, however this draft (nor any other) has yet to be enacted

. In the absence of a federal Oil and Gas Law as contemplated by the Constitution, the KRG has exercised its constitutional jurisdiction to award petroleum exploration and development rights

. General jurisdiction articles (2005 Iraqi Constitution) . Article 110: Lists the extent of the exclusive federal authority but omits the issue of petroleum jurisdiction completely . Article 114: Outlines the specific competencies that should be jointly shared between federal and provincial authorities; again no petroleum provisions . Article 115: States that all powers not specified under article 110 shall fall to regional authorities . In the event of a dispute between federal and regional shared powers, priority shall be given to the regional authorities

. Oil and Gas Specific Articles (2005 Iraqi Constitution) . Article 111: Oil and gas resources are owned by all the people of Iraq in all the regions and governorates . Article 112: The federal government with the producing governorates shall undertake the management of oil and gas extracted from current fields, provided that it distributes its revenue in a fair manner in proportion to the population distribution in all parts of the country . The federal government, with the producing regional governorate governments, shall together formulate the necessary strategic policies to develop the oil and gas wealth in a way that achieves the highest benefit to the Iraqi people using the most advanced techniques of market principles and encouraging investment

. The debate has been whether non “current” fields (discovered but not developed or yet to be discovered) fall under federal or regional jurisdiction

. The KRG asserts exclusive jurisdiction over the petroleum exploration and development as it relates to non-producing fields, which at the time of the Constitution included all of Kurdistan’s petroleum resources

. Governorates are now following the KRG model in light of the fact that their petroleum rights are the same for any region

33 Oil and Gas Legislation – Proposed New Laws

. Cabinet’s draft oil law thought to provide for significant federal oversight . Federal oil committee with broad powers, covering setting energy policy, approving oil and gas model contracts, awarding contracts and supervising and coordinating with federal, regional and provincial authorities . Federal committee would have power to assign fields for development and which should be developed by a national oil company, which would be created under a new law . Regional authorities (KRG) could have licensing rounds and award contracts, but only in accordance with procedures and models approved by the federal committee . Proposed national oil company would have right to sign contracts with IOCs to develop fields under its jurisdiction . Federal oil committee would have authority to determine whether existing federal contracts and KRG contracts are consistent with the new oil law . All new oil and gas contracts require committee approval

. Parliament’s draft oil law thought to provide for decreased federal control . Grants governorates similar jurisdiction over local petroleum resources as the KRG . Committee consisting of federal oil minister, KRG minister of natural resources and chairman of parliamentary oil and energy committee will resolve dispute over KRG contracts . Proposes lesser role for federal Ministry of Oil, INOC and Cabinet in managing upstream oil and gas industry, and expanded roles for regional authorities

. Enacting a federal hydrocarbon law was a precondition by the Kurdistan Alliance block in joining the al-Maliki government in December 2010

. Cabinet of Ministers spokesman stated that that all previous versions and drafts were to be regarded as cancelled and withdrawn, with the Cabinet’s version the only one to be considered by the Council of Representatives

. Presidency of the Kurdistan Region harshly condemned the substance and the timing of the submission of the Cabinet’s draft and called on the Council of Ministers to withdraw the draft. The Presidency of the Kurdistan Region called on parliament to reject the draft submitted by the Council of Ministers

34 A diverse population has created challenges in uniting under one political system

Iraq is striving to unify all ethnic groups Ethnic and religious break-up

. Under the leadership of former Prime Minister Nouri al-Maliki, Sunni and Shia tensions rose to an all time high with the ongoing Kurdish independence fight adding further conflict

. Ethnic groups began to focus on local politics and consolidate power in their regional home bases

. The ISIS conflict further exacerbated this crisis which lead to a change in power, ushering in a new Prime Minister Haider al-Abadi to reunite the parties under Iraq . Quick agreements were struck with the Kurds as a initial means to cooperate . A new budget was passed to further distribute wealth between the provinces and begin to address corruption Future challenges still exist

. Significant Sunni and Shia animosity exists between the Shia-led Federal Government and the Sunni strongholds in Iraq where ISIS has increased its regional presence . Uniting and fighting under the banner of a Federal Iraq will likely be the solution to root out ISIS and reintegrate society

. A final deal is still required to solve outstanding issues with the Kurdish Regional Government, including reparations for Saddam’s Anfals, budget sharing, oil licensing and production right, among others

35 Differing interpretations of Iraqi constitution at heart of dispute with the KRG

Debate over who should control (and profit) from oil & gas Significant events in Iraq/KRG dispute

. Much of the dispute stems from differing interpretations of Iraq’s Oct-05 Iraqi constitution adopted constitution. Until its enactment in 2005, the federal government’s Feb-07 Draft federal petroleum law written but not passed control over Iraq’s hydrocarbons sector, established with the Agreement on initial revenue sharing (17% of net oil revenue in Iraq Jun-07 nationalisation of 1972, was unassailable. go to Kurdistan) . But the new Iraqi constitution, passed in 2005, said authority over oil Aug-07 KRG petroleum law approved by KRG Parliament Iraqi Prime Minister announces Kurdistan PSCs will be respected. Oil production is split between federal and provincial levels, stating, “…the Feb-11 federal government, with the producing governorates and regional exports from Kurdistan resume via federal system (Ceyhan) governments, shall undertake the management of oil and gas extracted Iraqi Ministry of Finance confirms release of the first oil export May-11 from present fields…” payment to KRG contractor June . Since “present fields” is not defined, the KRG maintains that non- Kurdistan producers receive first two payments for oil exports from Sep-11 producing and/or exploration areas as of 2005 are not the exclusive the Iraqi Ministry of Finance province of the federal government Apr-12 KRG ceases oil export due to dispute with Baghdad . Under this premise the KRG has awarded 51 contracts for non- KRG resumes oil exports to progress reconciliation with Baghdad Aug-12 producing and exploration areas over oil and gas law Agreement signed with KRG and federal government to increase . Recently the federal government softened its legacy stance that all Sep-12 KRG’s oil exports; $500 million payment received from Baghdad petroleum contracts entered into by the KRG are unconstitutional and therefore invalid Dec-12 KRG ceases oil exports because of dispute with Baghdad KRG approves trucked oil exports from Taq Taq field to Turkey. Erbil Jan-13 . Baghdad maintains that the Iraqi State Oil Marketing Organisation building export pipeline to Turkey (SOMO) has the exclusive authority to export oil from Iraq, including Federal budget falls short of the KRG’s requested budget allocation any produced in the Kurdistan region. Mar-13 by nearly $3 billion. KRG halts most oil sales via Baghdad and began . Revenue from SOMO’s exports goes to the federal government for negotiations with Turkey for direct export disbursement to the Iraqi governorates and regions in accordance with the federal budget Nov-13 Construction complete on the Khurmala – Fish Khabur oil pipeline Oil export begins via pipeline to Turkey; Baghdad cuts all funding to . Based on this position, Baghdad generally has not transferred all of Jan-14 the proceeds from the sale of oil produced in Kurdistan leaving the KRG government KRG coffers dry and unable to pay to IOCs producing in the region May-14 KRG begins direct oil sales; Baghdad sues buyers their full share of cost and profit oil. Baghdad and KRG reach interim agreement that includes $500 . But an interim agreement with Baghdad in Nov 2014 Nov-14 million monthly payment to KRG in exchange for delivering 150,000 signalled an end to the long standing dispute bpd to Baghdad KRG agrees to make an initial payment of $75m to contractors Nov-14 exporting production; further regular payments to follow

36 The security situation continues to improve with coalition support

Recent events in the region support long-term stability prospects Map of security challenges

. The Islamic State of Iraq and Syria, the terrorist organization with roots in the Syrian uprising, began fighting Iraqi forces in western U.S. Iraq (Anbar Province) in early 2014 airbase at Harir . In June 2014, ISIS seized the northern Iraqi city of Mosul and began Airport threatening Kurdish territory and the capital of Erbil. This forced many oil companies operating in Kurdistan to temporarily evacuate personnel and suspend operations

. In August 2014, the U.S. formed an international military coalition to support Iraqi and Kurdish forces in the fight against ISIS . This proved that the U.S. and its international allies would not let insurgents gain control of Baghdad or KRG land

. An international coalition of 21 countries are supporting Iraqi and Kurdish forces in Iraq and Syria, with dozens of others providing military, humanitarian and intelligence aid . The U.S. Military announced its decision to take control of Harir airport to support air operations against ISIS . Ongoing military operations have forced ISIS from the Baiji Refinery, the Mosul Dam and other strategic locations ISIS Control Zones throughout the Iraqi region ISIS Attack Zones . Oil companies have remobilized in Erbil to operate the oil fields and ISIS Support Zones continue exploration efforts Kurdistan

. The security has never effected oil operations in Basra, bringing production to record high levels in the past few months

37 1. Oil Sector Overview ##

2. Infrastructure Overview ##

3. Upstream activity and licensing history ##

4. Relations with the KRG ##

5. Future opportunities in Iraq ##

6. Appendix ## Early excitement of IOCs has been offset by low returns and challenging operations

Maysan Block 8 Siba

Rumaila Block 9

West Qurna 1 Mansuriyah Block 10

Zubair Block 12

2008 2009 2010 2011 2012 2015+

West Qurna 2 Licence awards Licence No new licenses awarded

Majnoon

Halfaya

Gharraf

Badra

Iraq needs to incentivise investments and attract companies back into Iraq 39 Baghdad has begun to renegotiate existing TSCs

BP/CNPC Rumaila CNPC – Halfaya

. BP and China's CNPC signed a revised contract for Iraq's Rumaila oilfield in Sep- . China National Petroleum Company (CNPC; 37.5%, operator) has renegotiated 14 the plateau production target for the Halfaya field in Missan Province in Sep-14 . The production plateau target has been reduced to 400 kbpd from 535 kbpd and . The original contract had BP holding a 38% stake in the Rumaila venture, while the duration of the field development contract has been extended from 20 years CNPC had a 37% share and Iraq's State Oil Marketing Organisation controlled the to 30 years remaining 25% . As of Dec-14, CNPC, with partners Total (18.75%) and Petronas (18.75%), is believed to have completed the drilling of 98 wells at the field . According to the revised deal, BP's share rose to 47.6% and CNPC's to 46.4%, while Iraq's stake was reduced to 6% . As of late 2014, oil production was averaging 200 kbpd after the second development phase was brought on-stream . Under the revised contract, BP has cut the planned output target for the . This second phase involves the drilling of 60 additional wells and construction of supergiant field to 2.1 mmboepd from 2.85 mmboepd and extended the life of the a processing facility and pipeline deal . Preliminary work has also commenced on the third phase of the development which will increase the production capacity to 400 kbpd . After signing a series of service agreements with foreign companies in 2009-2010 . The forward plan is to drill 300 wells at the field within 5 years to develop its giant southern oilfields, Iraq set an overall production capacity target of 12 mmboepd by 2020, which would rival the output capacity of top oil exporter Saudi Arabia at 12.5mmboepd Recent Re-negotiation of TSC/DPSCs . But crumbling infrastructure, red tape and a lack of clear legislation have stunted investor interest . Reductions in peak production targets and extensions of TSC/DPSC duration now . Baghdad has reduced its overall capacity target to 8.5-9 mmboepd and returned to being sought the negotiating table to discuss revised planned output targets, known as plateau production levels, with oil companies . LUKOIL–West Qurna2 (agreed on 17/1/13) –with further addendum in June 2014 for Tuba-Fao pipeline . Rumaila has estimated reserves of 17 bnboe . ENI–Zubair(agreed on 15/7/13) . It currently produces around 1.3 mmboepd to 1.4 mmboepd, almost half of Iraq's output . ExxonMobil –West Qurna1 (agreed on 30/1/14)

. Statement from ex-Deputy PM for Energy that all other 2009 TSC/DPSCs will need to be re-negotiated

While Baghdad previously did not entertain renegotiations, current action shows future potential for attractive terms

40 Prospects for new licensing round

. Iraq’s fifth licensing round for oil exploration will be held in the near future and will come from 10 oil blocks, its oil minister said in 2013

. Less attractive service contracts from Baghdad combined with a recent boom in natural gas supplies and gas finds elsewhere in the world may have further quashed investor interest in a tricky gas prospect like Iraq

. After Iraq's fourth energy auction ended with few foreign investors tendering bids, this could force Baghdad to ease tough contract terms to lure more oil explorers into a new bidding round that should focus on gas, while the oil will be used to boost reserves

. The Oil Ministry announced on May 27, 2013 that Iraq chose ten patches exploratory distinct gas to oil licensing round fifth coming that will be announced later after the completion of legal and technical procedures on it

. Delays on launching the 5th round is apparently due to work on the licensing round for the Nasiriyah project (oilfield and refinery) and ongoing contract renegotiations

. We expect an announcement on structure and terms during the next year

41 Huge potential for gas production…

Iraq gas assets overview Iraq has world class gas fields with massive reserves…

Bcf th . Iraq's proved natural gas reserves were the 12 largest in the world 9,000 at almost 112 TCF, but much of the gas is flared or not used 8,000 . Iraqi gross natural gas production was 724 Bcf in 2012, of which 7,000 423 Bcf (58%) was vented and flared 6,000 . In 2011, Iraq was ranked as the 4th largest gas flaring country in 5,000 the world 4,000 3,000 . 75% of Iraq's natural gas reserves are associated with oil, most of 2,000 which lie in the supergiant fields in the south 1,000 . Limited gas infrastructure has left gas-prone exploration untouched 0

Development has been hindered by a lack of infrastructure … and now Iraq wants to ramp up gas production

. Plans to export natural gas remain controversial because natural gas mmcf/d is needed as fuel for Iraq's electric power plants 1,800 . The current shortage of adequate gas has resulted in idle and 1,600 suboptimal electricity generation in Iraq 1,400

. Prior to the 1990-91 Gulf War, Iraq exported natural gas to Kuwait 1,200

. The gas came from the Rumaila field through a 105-mile, 400 1,000 mmcf/d pipeline to Kuwait's central processing center at Ahmadi 800 . The Ministry of Oil has discussed reviving the mothballed 600 pipeline, but no firm plans have been made to do this 400

. The Iraqi government has also considered proposals to build a 200 transcontinental pipeline to export natural gas to Europe via nearby countries, but there are no firm plans - 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

42 Source: Wood Mackenzie and U.S. Energy Information Administration, Iraq Oil Report, and Middle East Economic Survey …if gas processing facilities are built

Siba and Mansuriyah gas projects Basra Gas Project

. Kuwait Energy was awarded 20 year term gas development contracts for . The Basra Gas Company (BGC) is a $17.2 bn JV set up in Nov-11 to Siba (Basra Governorate) and Mansuriya (Diyala province)gas fields in gather and process gas from the three southern oilfields of Rumaila, Iraq’s third bidding round West Qurna 1, and Zubair . Kuwait Energy will be the operator of Siba, participating with a 60% . Owned by the Iraqi South Gas Company (51%), Shell (44%) and contractor share and TPAO participating with 40% Mitsubishi (5%) . Successful remuneration fee for Siba was $7.5/boe with a plateau . The plant began operations in Apr-13 year with an initial capacity to production target of 100 mmscfd produce 400mmcfpd, but once completed in 2017, the project will process 2bcfpd . TPAO will be the operator of Mansuriya, participating with a 50% contractor share, Kuwait Energy 30% and Korea Gas Corporation 20% . Successful bid was $7/boe with a plateau production target of 320 mmscfd . $400mm are being spent to drill wells and build pipelines and surface facilities at the gas fields Gulfsands Petroleum failed Maysan gas project Planned petrochemical facilities

. Gulfsands signed a MoU in Jan-05 with the Ministry of Oil in Iraq for . signed a MoU in 2012 with the Iraqi government to the Maysan Gas Project in Southern Iraq, following completion of a set up a major petrochemical facility in the city of Basra feasibility study on the project . In Jan-15, the deal was announced by Industry Minister Nasser al-Esawi . The project involved the engineering, procurement, construction and saying the complex would make Iraq the largest petrochemical producer operation of a gas gathering system, gas liquids plant and power plant to in the Middle East gather, process and transmit natural gas which would otherwise be flared as a waste by-product of oil production . The $11 bn ethane-cracking facility – entitled Nebras – would produce ethylene, which is used in making plastic and is expected to come on . Signature of a definitive contract has been delayed for years due to line within five to six years Ministry of Oil focussing on bid rounds for the development of super- giant oil fields in the south before being abandoned

Ongoing gas projects have been slow to materialize

43 1. Oil Sector Overview ##

2. Infrastructure Overview ##

3. Upstream activity and licensing history ##

4. Political challenges ##

5. Future opportunities in Iraq ##

6. Appendix ## Key issues in Iraq

Concerns Mitigation

 Absence of unified position between KRG & Central Government leads to  Major changes in current policy post-2014 elections: review of fiscal erratic oil policies / Revenue-sharing issues (federal-Kurdistan-provinces) system, with possible entry of independent and specialized IOCs  Hesitancy in oil reforms contributes to increased corruption and insecurity  Pending oil law reforms

Legal / Prone to significant political uncertainties, incoherent and unpredictable policy directions

 Insecurity and sectarianism  US led coalition providing training and funding to Iraqi military to ensure

 Risk of involvement in political turmoil and violence safety Security

 Delays and downward revision to plateau targets  Power investment program started  Power shortages  Refinery investment program started  Gas flaring high  Absence of key infrastructure

Operational  Lack of downstream strategy  Lack of export competitiveness due to geography

 TSC Contract terms  New field exploration and development with sweeter economic terms  Struggle attracting foreign investment and IOCs  Largely successful achievements of around 60% of production targets since  Unsustainably low/misaligned contractor incentives given scope of 2010 development challenges  Attracted major IOCs under unprecedented levels of government take

Contractual  Poor regulatory networks ensure hegemony of NOC over IOC, through  Recent contract renegotiations with existing companies higher profit margins and lower risk and costs for the NOC

 Inefficient & bloated bureaucracy  New PM and Minister seeking to streamline bureaucracy  Long negotiation phase and project delays  New contractual and fiscal terms under review

 High government take –low attractiveness & mismatched incentives Governmental

45 WPG Contracts

. In Dec-11, Oryx Petroleum acquired a 50% shareholding in KPA . KPA has an indirect 75% participating interest, Amira Hydrocarbons holds the remaining 25% participating interest (Petrel Resources has acquired a 20% interest in Amira in Sep-13, giving it an effective 5% carried interest)

. Consideration for the 50% shareholding in KPA acquired by Oryx Petroleum included: . An agreement for KPA to fund Amira Hydrocarbons’ 25% share of all costs under the WPG Contracts until first production (with such carry to be repaid from cash flow from any future production) . Oryx Petroleum agreeing to fund KPA’s first $65mm of expenditures (inclusive of the 25% carried interest of Amira Hydrocarbons); . KPA paying Amira Hydrocarbons bonus payments upon achievement of key operational milestones of up to a total of $11mm

. Oryx Petroleum is the contract operator with regard to the 3 contracts with the WPG to explore and develop hydrocarbons in the Wasit province: . An Asphalt Exploration Contract, . A Seismic Option Agreement . A Risk Exploration Contract (“REC”)

. If Oryx Petroleum exercises the KPA Option and the WPG exercises the WPG Back-In Right, then as a result of its shareholding in KPA, Oryx Petroleum will have a 50% participating interest (40% working interest) in the WPG Contracts

. Pursuant to the KPA Option, if Amira Hydrocarbons subsequently obtains equivalent oil and gas contracts in another specified Iraqi province, then Oryx Petroleum must elect to either . relinquish the additional 16.66% shareholding obtained by it on the exercise of the KPA Option; or . retain its additional 16.66% shareholding but lose its right for KPA to participate in such specified province in Iraq

. The Seismic Option Agreement grants non-exclusive rights to acquire 2D seismic data on behalf of the WPG over any part of the Wasit province up to a total of 7,000km . The initial term of the Seismic Option Agreement is five years, expiring in September 2016, with an option to extend for an additional five years . Pursuant to the Seismic Option Agreement, KPA can nominate non-contiguous areas totalling up to 3,500 km2 to be “Contract Areas” governed by the terms of the REC . KPA also has a right of first refusal should the WPG offer to award any petroleum license in the Wasit province to third parties prior to the full 3,500 km2 being nominated by KPA . KPA is entitled to 50% of the revenues from any sale of the seismic data it acquires on behalf of the WPG up to a cap of 125% of the cost of acquiring the seismic data incurred by KPA

. The Wasit REC provides KPA with the right to conduct all exploration, gas marketing, development, production and decommissioning operations relating to petroleum in nominated Contract Areas . At present, no Contract Areas have been nominated by Oryx Petroleum . Each nominated Contract Area would be deemed to be a new REC, and the WPG is granted the WPG Back-In Right to acquire up to a 20% participating interest in each Contract Area so nominated by KPA . Existing producing regions within the Wasit province are excluded from the Wasit REC

. The Asphalt Exploration Contract provides KPA exclusive rights to mine heavy oil, asphalts tar and bitumen (less than 25°API) throughout the Wasit province . During the initial four year evaluation and pilot phase, KPA has committed to conduct studies, collect seismic data and potentially construct an asphalt production plant (if commercially feasible)

46 Source: Oryx Petroleum IPO Prospectus Wasit Province

Background Map

. The Wasit province is located in east central Iraq in close proximity to the super-giant East Baghdad field

. 17,153 km2 in size (representing 4% of the land mass of Iraq)

. There are several international oil companies operating in the Wasit province and some transport infrastructure is under development to connect fields in the Wasit province with pipelines in southern Iraq that connect to the port of Basra . OAO Gazprom, which was awarded development of the giant Badrah field, is tendering for a 165km, 24-inch, oil pipeline to the Garraf oil field in southern Iraq where it will connect to a pipeline to Basra, as well as a gas gathering and treatment station, a gas pipeline, infield pipelines and field infrastructure

. The Wasit province is underexplored, with only five exploration and appraisal wells drilled to date by third parties and limited vintage 2D Wasit License Area Development Plan seismic data

. All five exploration and appraisal wells drilled by third parties in the Wasit province to date have been successful: . The development of the leads in the Wasit . two wells on the Badrah field province would consist of 95 oil . two wells on the Ahdab field producing wells and . one well on the Dufriyah field 12 injection wells . The three discovered but undeveloped oil fields have an estimated . Gross Capex over the 1.3bnbbl of reserves life of the Wasit province license are . CNPC (Ahdab field), OAO Gazprom (Badrah field), Lukoil OJSC and estimated by NSAI to Pakistan Petroleum Limited are already present in the Wasit province be $9.5bn with average gross Opex of under contracts with the Iraqi Federal Government approximately $12/bbl . By contrast, Oryx Petroleum’s contracts in the Wasit province are with the WPG

47 Source: Oryx Petroleum IPO Prospectus Key contractual terms under the Wasit REC license

Oryx Petroleum Participating Interest 50% Oryx Petroleum Working Interest 40% Assuming Oryx Petroleum exercises the KPA Option and the WPG exercises the WPG Back-In Right WPG Working Interest 20% Assuming Oryx Petroleum exercises the KPA Option and the WPG exercises the WPG Back-In Right Exploration Period Initial Sub-Period 3 years from contract area nomination date Commitment Seismic/Studies, 1 well Second Sub-Period 2 years Commitment 1 well Extensions Two 1-year extensions Development Period 20 years + 5 years Regional/Provincial Royalty 10% Cost Recovery Limit Oil and associated gas 45% Non-associated gas 55% Cost Pools (100%) as at December 31, 2012 $6mm R<1: 40% Contractor Share of Profit Oi 1<=R<2.5: Straight line R>=2.5: 20% Annual Lease Payments per km2 Exploration Period $10 Production Period $100 Production Bonus Payment Start $1mm 10 mmbbl cumulative $2.5mm 25 mmbbl cumulative $5mm 50 mmbbl cumulative $10mm Other Payments to WPG per annum Exploration Period $50k to $150k $150k in the first year, $100kin each of the second and third years, and $50k per annum thereafter Development Period $100k Contingency Payments to Partners $11mm One time bonus payments by KPA to Amira Hydrocarbons upon achievement of certain operational milestones One time signature bonus and capacity building payments due within 30 days of acknowledgement of contract area nomination Both signature bonus and capacity building bonus are equal to the contract area nomination (km2) divided by the total Other Payments to Region/Province $7mm area (3,500 km2) and multiplied by $3.5mm Assuming nomination of the full area (3,500 km2), signature bonus and capacity building bonus are equal to $3.5mm each Payments will be reduced pro-rata if the full area is not nominated Government Carry KPA carries the WPG through to exploitation KPA funds Amira's 25% share of all costs under the WPG Contracts until first production Under the agreements with its partners, Oryx Petroleum is obliged to carry KPA’s first $65 million of expenditures (with such carry to be repaid from production) Partner Carry (inclusive of the Amira Carry) Oryx Petroleum’s remaining carry of KPA’s The $59 million shown is the remaining obligation of Oryx Petroleum as at December 31, 2012 expenditures (inclusive of the Amira Carry) is $59mm

48 Source: Oryx Petroleum IPO Prospectus