44
and appraisal programme in the country, particularly with regard to infrastructure development, mine safety and
protection of the Group’s physical property. Foreign companies operating in Iraq may be particular targets for violent
criminal or terrorist actions, and such criminal or terrorist action against the Group’s personnel, facilities or third-party
infrastructure could have a material adverse effect on the Group’s business, prospects, and results of operations. In
addition, the possible threat of criminal or terrorist actions against the Group could have a material adverse effect on the
ability of the Group to adequately staff its operations or could materially increase operating costs. The Group may also
face higher operating costs, or a significant shortage of necessary personnel, equipment or supplies, as a result of
increased demand from multiple international oil companies simultaneously building up their local presence in Iraq.
Beginning in June 2014, militants affiliated with ISIS launched attacks on a number of cities and villages across the
north and west of Iraq, seizing control over a large swath of territory and advancing towards the national capital of
Baghdad. As the political and security situation continues to develop, there is considerable uncertainty regarding the
future stability and operating climate in Iraq. Additionally, attacks by ISIS insurgents have been reported in the vicinity
of the Mansuriya gas field, leading to the evacuation of the Mansuriya gas field, which contains one of the Group’s
licenses, and suspension of the Group’s activities there. Progress on the Mansuriya gas development project, which had
already been subject to numerous delays for operational as well as security reasons, could face further delays as a result
of the current conflict. The Group is actively seeking to sell or otherwise exit its interest in the Mansuriya licence, and
plans to spend only the minimum capital expenditures required under the licence. The escalation of tensions in Iraq could
inhibit the Group’s ability to exit the asset on favourable terms, or at all, or could delay the timing of such exit. Further
deterioration of the political and security situation in Iraq, such as the fall of the current government or a civil war, could
lead to an increase in violence and terrorist activity as well as volatile market conditions in the oil and gas industry,
which in turn could jeopardise the Group’s ability to operate safely in the country and negatively affect the Group’s
ability to develop its assets in Iraq.
Even if the Group’s exploration and appraisal programme in Block 9 in Iraq are successful in identifying a significant
quantity of commercially recoverable reserves, the Group may be required by the Iraqi Ministry of Oil to wait seven
years before it can begin development and production from Block 9, or to delay the Group’s development of any
identified reserves indefinitely. In relation to the Siba field, the Group expects first production of gas from July 2015,
and is aiming to have full production of gas on stream by the end of 2015. However, there is a risk that initial production
will not be achieved by July 2015 as a result, for example, of a delay in the delivery of the gas plant for the field.
Furthermore, the existing subsurface uncertainties in relation to the Siba field mean that the Group may fail to fully
develop its 2P gas reserves and achieve its daily average productions targets for the field.
The Group’s service contracts in Iraq for each of the Siba, Mansuriya and Block 9 assets provide that a Joint
Management Committee be established for each asset between the JV partners and the Iraqi government. As a result,
commercial and planning decisions made by the Group and its JV partners, and the scope of the Group’s work plan for
each of its assets in Iraq, have to be approved by the Iraqi government. The Iraqi government could refuse to approve for
any reason the Group’s conduct of its responsibilities under its licences, or could subject operational decisions to lengthy
delays or consultation requirements.
Finally, despite multiple drafts and proposals, as at the date of this Offering Memorandum, Iraq has not enacted a legal
regime governing its oil and natural gas industry. Certain of the previous draft bills setting out proposed oil and gas laws
provided that a licence or contract would be void if it violated the provisions of the relevant bill, and required that
existing contracts be reviewed to ensure consistency with the provisions of the relevant bill. If a new oil and gas law is
enacted in Iraq, and if its provisions override, invalidate or supersede the terms of the Group’s service contracts, the
Group may be required to accept terms for some or all of its agreements in Iraq that are different and materially less
favourable to those set out in the Group’s current arrangements, or such agreements may be repudiated entirely,
potentially resulting in significant downward revision of the Group’s estimated reserves and resources, and undermining
the Group’s ability to achieve its strategy. See “
Industry Overview—The Oil and Gas Sector in the Group’s Countries of
Operation—Iraq
.”
The security situation in Yemen has in the past caused, and may again cause the Group to cease exploration,
appraisal and development operations in the country, and may affect the validity of the Group’s licences if it is unable
to obtain and maintain effective security arrangements for Group personnel and assets in the country.
Al-Qaeda in the Arabian Peninsula has, in recent years, increasingly asserted its presence in Yemen, and Yemen’s oil
and gas industry has been severely affected by violence and sabotage. Foreign nationals in Yemen have been faced with
the threat of criminal or terrorist action, resulting in escalating operating costs associated with security, insurance and
other forms of protection against criminal and terrorist action. At the end of 2010, in light of a deteriorating security
situation, the Group withdrew its non-Yemeni employees from Yemen. As a result, the Group did not engage in any
exploration, appraisal or development activities in Yemen during the course of 2011. Although the Group resumed its
activities in Yemen in 2012 following Yemen’s long-serving President Saleh ceding power to Vice-President Abd Al
Rab Mansur Al-Hadi in February 2012, the security situation in Yemen remains challenging. Yemen has again recently
