This article is a guest contribution by Dr. Kent Moors, The Oil and Energy Investor.
After a long period of speculation, the Ministry of Mines in Kabul finally acknowledged the extent of newly discovered oil fields in northern Afghanistan. According to the ministry, there are about 1.8 billion barrels.
But the geological studies won't be completed until January, and thus far, the U.S. Geological Survey (USGS) is not committing to a volume of extractable oil beyond one billion barrels.
No matter.
Whether it is the one billion the USGS now claims or the some two billion the same agency suggested a few years ago, this is big news for the war-torn country.
One of the prevailing assumptions has pointed to the lack of economic prospects as a major impediment against post-war reconstruction in Afghanistan. The oil finds, therefore, may be just the ticket to begin some discussions of political stability ... or to tear the country apart.
Only Foreign Companies Can Develop This $1 Trillion Field
Afghanistan has other deposits, primarily in the south, in the Amu Darya River basin on the joint Uzbek, Tajik, Afghan border. That one has an estimated 1.6 billion barrels of oil equivalent. And given the known development on the other side of the Uzbek border, it has prospects for some hefty recovery volume.
That earlier discovery is primarily gas. This new discovery in the north is basically oil, with some associated gas thrown in for good measure. In short, Kabul is looking at the possibility of diversified hydrocarbons production and the likelihood of exporting both. The daily domestic demand will remain well below 150,000 barrels of oil equivalent, meaning the vast amount of production will be heading to the international market.
The ministry has already announced that both major deposits will be put up for tender - Amu Darya is still on track for early next year, while plans for the northern discovery are expected to be announced in a few months.
The tenders are obvious. Only foreign companies can develop these fields. Afghanistan has no domestic oil sector, no local equipment or suppliers, and great need for infrastructure development to reach the finds. That means there will be some heavy front-loaded development expenses from the necessary construction of roads, power lines, communications, and locations for employees, equipment, and supplies.
To add to the interest, the country has also discovered other significant natural resource deposits. These include iron ore, lithium, and copper. Despite the rising instability, both the Afghan and U.S. governments regard the finds as decisive in reducing the nation's reliance on foreign economic assistance.
Thus far, foreign companies have begun operations only at the large Aynak copper mine south of Kabul. China's largest integrated copper producer, Jiangxi Copper (OTC:JIXAY), along with Shanghai Exchange-traded China Metallurgical Group (SHA:600030), began development there in 2007. To date, this project remains the only significant foreign investment.
Earlier this year, a U.S. Department of Defense estimate put the potential natural resource largesse at more than $1 trillion. While I continue to have some questions about the methodology used in that study (these guys are military, after all, not economic planners), I do agree that the proceeds will be considerable.
On the other hand, the increasingly serious security concerns may push back any revenue realization by several years.
Nonetheless, the new oil find will be developed and it will have a positive impact on the Afghan market...
Early Indicators of Profits
There are two aspects of the initial phase that will tell us what is likely to happen and in which sequence these activities will unfold.
The first is the tender process and the companies lining up to participate. This will tell us who will be coming in and which secondary providers (of everything from field services and supply, on one end, to processing, storage, and transport on the other) will benefit. Operating companies - those who will compete for the tenders - generally favor certain secondary providers in each category.
Early indications are that Chinese majors Sinopec (NYSE:SHI) and China National Petroleum Corp. (available only through thinly traded CNPC Hong Kong Ltd.; OTC:CNPXF) will be energetically pursuing bids, with some interest likely from Indian majors. I expect a consolidated bid here from Oil India (BY:533106), GAIL (BY:532155), ONGC Videsh (the foreign drilling unit of state-owned Oil and Natural Gas Corp.), and Indian Oil Corp. (BY:530965). That would reflect the same consortium that was bidding recently to pick up the BP (NYSE:BP) Vietnamese offshore projects.
Still unknown is the level of interest among U.S.- and European-based operators. Moving forward, security is obviously an important concern. And Chinese and Indian companies have traditionally had a higher tolerance for these problems than have Western companies.
The second aspect involves the requirements for early front-end engineering and design (FEED); engineering, procurement, and construction (EPC); and related planning.
Here, there is a greater likelihood of Western, in general, and U.S., in particular, involvement. The Chinese would prefer to provide all aspects of a development project, but they may not have the opportunity in this case, especially in light of the political environment.
As it happens, I came back from San Diego Saturday, following a few days of addressing and meeting with major American engineering companies. There are several developments on Iraqi, Kurdish, and Afghan hydrocarbon projects that are coming. These plays will occur well before the required early field services (seismic study, exploration, data analysis, test wells).
Given the more direct U.S. market accessibility for individual investors to the shares of these companies, your move is almost certainly going to come here first.
Kent Moors
Copyright (c) Dr. Kent Moors, The Oil and Energy Investor
After a long period of speculation, the Ministry of Mines in Kabul finally acknowledged the extent of newly discovered oil fields in northern Afghanistan. According to the ministry, there are about 1.8 billion barrels.
But the geological studies won't be completed until January, and thus far, the U.S. Geological Survey (USGS) is not committing to a volume of extractable oil beyond one billion barrels.
No matter.
Whether it is the one billion the USGS now claims or the some two billion the same agency suggested a few years ago, this is big news for the war-torn country.
One of the prevailing assumptions has pointed to the lack of economic prospects as a major impediment against post-war reconstruction in Afghanistan. The oil finds, therefore, may be just the ticket to begin some discussions of political stability ... or to tear the country apart.
Only Foreign Companies Can Develop This $1 Trillion Field
Afghanistan has other deposits, primarily in the south, in the Amu Darya River basin on the joint Uzbek, Tajik, Afghan border. That one has an estimated 1.6 billion barrels of oil equivalent. And given the known development on the other side of the Uzbek border, it has prospects for some hefty recovery volume.
That earlier discovery is primarily gas. This new discovery in the north is basically oil, with some associated gas thrown in for good measure. In short, Kabul is looking at the possibility of diversified hydrocarbons production and the likelihood of exporting both. The daily domestic demand will remain well below 150,000 barrels of oil equivalent, meaning the vast amount of production will be heading to the international market.
The ministry has already announced that both major deposits will be put up for tender - Amu Darya is still on track for early next year, while plans for the northern discovery are expected to be announced in a few months.
The tenders are obvious. Only foreign companies can develop these fields. Afghanistan has no domestic oil sector, no local equipment or suppliers, and great need for infrastructure development to reach the finds. That means there will be some heavy front-loaded development expenses from the necessary construction of roads, power lines, communications, and locations for employees, equipment, and supplies.
To add to the interest, the country has also discovered other significant natural resource deposits. These include iron ore, lithium, and copper. Despite the rising instability, both the Afghan and U.S. governments regard the finds as decisive in reducing the nation's reliance on foreign economic assistance.
Thus far, foreign companies have begun operations only at the large Aynak copper mine south of Kabul. China's largest integrated copper producer, Jiangxi Copper (OTC:JIXAY), along with Shanghai Exchange-traded China Metallurgical Group (SHA:600030), began development there in 2007. To date, this project remains the only significant foreign investment.
Earlier this year, a U.S. Department of Defense estimate put the potential natural resource largesse at more than $1 trillion. While I continue to have some questions about the methodology used in that study (these guys are military, after all, not economic planners), I do agree that the proceeds will be considerable.
On the other hand, the increasingly serious security concerns may push back any revenue realization by several years.
Nonetheless, the new oil find will be developed and it will have a positive impact on the Afghan market...
Early Indicators of Profits
There are two aspects of the initial phase that will tell us what is likely to happen and in which sequence these activities will unfold.
The first is the tender process and the companies lining up to participate. This will tell us who will be coming in and which secondary providers (of everything from field services and supply, on one end, to processing, storage, and transport on the other) will benefit. Operating companies - those who will compete for the tenders - generally favor certain secondary providers in each category.
Early indications are that Chinese majors Sinopec (NYSE:SHI) and China National Petroleum Corp. (available only through thinly traded CNPC Hong Kong Ltd.; OTC:CNPXF) will be energetically pursuing bids, with some interest likely from Indian majors. I expect a consolidated bid here from Oil India (BY:533106), GAIL (BY:532155), ONGC Videsh (the foreign drilling unit of state-owned Oil and Natural Gas Corp.), and Indian Oil Corp. (BY:530965). That would reflect the same consortium that was bidding recently to pick up the BP (NYSE:BP) Vietnamese offshore projects.
Still unknown is the level of interest among U.S.- and European-based operators. Moving forward, security is obviously an important concern. And Chinese and Indian companies have traditionally had a higher tolerance for these problems than have Western companies.
The second aspect involves the requirements for early front-end engineering and design (FEED); engineering, procurement, and construction (EPC); and related planning.
Here, there is a greater likelihood of Western, in general, and U.S., in particular, involvement. The Chinese would prefer to provide all aspects of a development project, but they may not have the opportunity in this case, especially in light of the political environment.
As it happens, I came back from San Diego Saturday, following a few days of addressing and meeting with major American engineering companies. There are several developments on Iraqi, Kurdish, and Afghan hydrocarbon projects that are coming. These plays will occur well before the required early field services (seismic study, exploration, data analysis, test wells).
Given the more direct U.S. market accessibility for individual investors to the shares of these companies, your move is almost certainly going to come here first. When the time comes to look seriously at Afghan projects, I'll give you the heads-up.
And that advance notice will be coming here before it shows up elsewhere.
Sincerely,
Kent Moors
