TAWKE, Iraq -- The Canadians are squeezing oil from sand. The Brazilians want to nurse it up through miles of seawater, sandstone and salt. But here in the far north of Iraq, oil is literally bubbling to the surface.
Oil executives lament that the age of "easy oil" is over. It isn't over here. For companies that have stumbled into this corner of Iraq known as Kurdistan, it's an era that has just begun.
"Look at this," said Magne Normann, Middle East director for DNO International ASA of Norway, as he stood beside a pond of oil oozing up on a hillside. For fun, he heaved in a stone. "What a sight," he said, as the liquid shot three feet high. "Pure oil."
Iraq is well known as one of the planet's last great oil repositories, with more than 115 billion barrels of reserves, by most estimates. The surprise is how much oil -- and easily accessible oil -- there appears to be in Iraq's Kurdish region, a rugged, Switzerland-size area that has seen centuries of conflict but essentially no oil exploration, until now.
One of the world's most prolific oil fields, the Kirkuk field, sprawls for more than 70 miles just to the southwest of the Kurdish region's border. After 74 years in production, it still churns out over 400,000 barrels a day. Dozens of similar geological structures extend far to the north in Kurdistan, undrilled and almost entirely unexamined.
"I am not expecting to find another Kirkuk," says Ashti Hawrami, Kurdistan's plain-talking minister of natural resources. "But I think we will find a lot of fields that add up to Kirkuk."
If he's right, Kurdistan's three provinces could hold more than 25 billion barrels of crude. That's roughly five billion barrels more than the remaining proven reserves of the U.S.
With oil prices near record highs -- U.S. benchmark crude closed at $136.04 a barrel yesterday, off $5.33 for the day but still roughly double the level of a year ago -- governments and energy companies are scouring the earth for fresh supplies. (Please see related articles on Pages A7 and C3.)
Kurdistan is now among the world's last playgrounds for the old-fashioned oil explorers known as wildcatters. More than 20 companies from around the world are prospecting here, making this one of the liveliest exploration zones in the oil-rich Middle East, particularly for risk-taking small fry like DNO.
The hubbub is in sharp contrast to the rest of Iraq, where an exploratory well hasn't been drilled in 15 years, thanks to neglect throughout the Iran-Iraq war, the period of international sanctions and then the war that began in 2003. Major oil companies have entered talks with Baghdad over ways to boost output in the huge fields in Iraq's south. But the Iraqi government remains loath to grant outsiders the right to explore for new oil or to share in the profits.
The freewheeling Kurdish area has no such compunctions. The Kurds have enjoyed near-complete autonomy within Iraq since the early 1990s, and now have their own regional government, complete with a Parliament and a prime minister. The 2005 Iraqi Constitution recognized that autonomy, and gave the Kurds a degree of control over their own resources that they were quick to exploit.
By early 2007, the Kurds had awarded contracts to three exploration ventures. When negotiations over a national Iraqi oil law broke down in acrimony last summer, the Kurds decided to move ahead with their own oil legislation. Some two dozen other exploration deals were signed under the Kurdish law -- causing Iraqi officials in Baghdad to regard them as invalid.
Companies signing deals under the Kurds' law have since been barred by Baghdad from doing business in the rest of Iraq, where the biggest of the country's oil fields lie. That threat is keeping the major oil companies out of Kurdistan, despite their ardor for new terrain to drill. Meanwhile, until Iraqis can agree on a national oil law, the companies drilling in Kurdistan have no way to export oil they unearth.
Even if they do find a way, the oil will have to travel via an existing oil pipeline that runs through Turkey, which has skirmished with the Kurds for decades and fears the rise of a rich and independent Kurdistan. Like Iran and Syria, Turkey has a large and often restive ethnic Kurdish population.
All these uncertainties have helped push down the stocks of some of the oil companies operating here, as investors have recoiled from the legal morass and the overall dangers of Iraq. A slumping share price was one reason that Todd Kozel, the American chief executive of U.K.-based Gulf Keystone Petroleum Ltd., recently flew a dozen hedge-fund managers and financial analysts over to see his company's holdings firsthand. "The goal of this trip is to prove that Kurdistan is safe," he told them.
Kurdish officials look at the flurry of oil contracts they're signing as a two-pronged insurance policy. By cutting deals with companies from countries as diverse as Australia, Britain, France, India, Russia, South Korea, Turkey and the U.S., the Kurds say they hope to win international political support in case things go awry with Baghdad.
And in case Iraq were to break up, the Kurds would have their own abundant revenue stream. "Has this been deliberate? It certainly has," says a beaming Mr. Hawrami, the Kurdish natural-resources minister, who has crafted the bulk of the contracts awarded so far. "We want a balance. We want friends on all sides."
Some good-sized companies have planted their flags here, including Austria's OMV AG, Hungary's MOL Group and India's Reliance Industries Ltd. But they are far outnumbered by lesser-known ones that see Kurdistan as a once-in-a-generation opportunity. WesternZagros Resources Ltd., for example, is a Canadian company that has never drilled for oil. It now has the rights to a 2,000-acre patch about 60 miles southeast of the famed Kirkuk field.
Then there's Genel Enerji AS and Addax Petroleum Inc. Together, the Turkish and Swiss-Canadian concerns have sunk six wells in their Taqtaq field and are ready to pump more than 50,000 barrels a day. Estimated extractable oil in their field, the companies say: at least 550 million barrels.
Rumblings of a coming oil boom have triggered pell-mell construction in Erbil, the capital of the Kurdish region, a city that local officials tout as the next Dubai. It has a new airport. Cranes hover over the frame of a high-rise hotel being built for Kempinski, the German luxury hotelier. A United Arab Emirates company, Damac Properties, is planning a $4.5 billion retail and golf community on the outskirts.
No company better captures Kurdistan's oil boom than DNO, which in 1995 had just three employees and a North Sea oil plot that coughed up around 800 barrels a day. By 2004, DNO had multiplied its output with expanded North Sea holdings and 30 wells in Yemen. That year, DNO signed its first contract with the Kurdistan regional government.
What brought Mr. Normann to the tiny village of Tawke, within sight of the Turkish border, were the area's pond-size oil "seeps." Oil and gas seeps aren't always a good sign. But in Iraq, they have led, over the years, to some of the biggest finds.
The DNO deal was unusual in several ways. It was signed just as the insurgency caught fire in the rest of Iraq, but before Iraq had a new constitution. More noteworthy was that it promised the Norwegian company a cut of future revenue in exchange for shouldering all upfront risks and investment costs.
Such so-called "production-sharing contracts" are controversial in much of the Middle East, where people oppose giving foreigners a cut of their nations' resources. But the Kurds have used roughly the same model for all ensuing oil deals, permitting companies to take profits, after expenses, of around 18% on average. The rest will go to the Kurdish government. How that will then be distributed within Iraq is still being negotiated.
What the Kurds wanted in return was speed. Dozens of contractors turned down DNO, but it managed to hire a Canadian seismic crew and a Chinese drilling company called Great Wall Drilling. By November 2005 it had its first drilling rig in place, shipped from China and hauled by a 110-truck convoy from the Turkish port of Mercin.
Six months later, DNO announced it had struck oil -- the first new discovery in Iraq since the early 1990s. "By any measure, anywhere, that's fast," says Mr. Normann.
DNO now has three tracts covering an area nearly the size of Rhode Island. It is drilling its 11th and 12th production wells at its Tawke field, which extends for 16 miles along an undulating rise in the far northwest corner of Iraq. Tests so far suggest the field may contain more than a billion barrels of oil. DNO has told shareholders that with its current technology, it expects to recover at least a quarter of that.
Its Tawke wells can pump an average of around 10,000 barrels a day each. That is small compared with Kirkuk and other mammoth fields. But it has been years since any U.S. oil well, outside of Alaska and the Gulf of Mexico, produced anywhere near that. The most prolific onshore well in the lower 48 states, owned by Swift Energy Co. in Louisiana, pumped just 1,600 barrels a day last year.
"For a company of our size, there is nothing like this anywhere in the world," said Mr. Normann, gazing at DNO's rugged concession on a drive from Erbil to Tawke.
After crossing other companies' tracts, his Land Rover cruised for nearly an hour along an arid, scrub-dotted plain with an immense ridge to the north extending far to the horizon -- all of it open to DNO exploration. "That ridge goes all the way to Syria," Mr. Normann said, pushing back his cowboy hat. "And we haven't drilled any of it."
DNO is lucky on several counts. It has found abundant oil. Its contract, approved before Baghdad and Erbil had their bust-up early last year over the national oil law, is one of the only three not under fire.