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Analysts have filed their first impressions of Talisman Energy Inc.’s (NYSE:TLM) adventures in Iraq. Their reaction? More than a golf clap, but not quite a standing ovation.

In short, they cheered the potential to find massive amounts of oil, while barely batting an eye that Talisman’s new oil exploration project is in Iraq — one of the world’s ugliest war zones.  Oh, sure, it is actually in the autonomous region of Kurdistan, but that is still part of Iraq.

Menno Hulshof of Blackmont Capital and Andrew Potter at UBS Securities noted the two exploration blocks Talisman now has interests in are “within the green line” separating Iraq and Kurdistan.  Those lacking sharp political and geography skills will not discover that Kurdistan is in, you know, Iraq by reading Mr. Potter’s report.  The closest he came to clarifying Kurdistan’s location was by saying: “Both blocks are recognized to fall within the ‘Green Line’ boundary of Kurdish territory.”  There was no mention that the boundary is with Iraq. The very patient, however, might sort that out from the map included in his report.

Kurdistan is paradise compared to Iraq, but not without its dangers.  As Kam Sandhar of Peters & Co. Ltd. put it:

The area has significant production potential and reserves potential, albeit with some geopolitical and fiscal risks.

Back to Blackmont's Mr. Hulshof on the red-tape risk: 

Since 2003, the KRG [Kurdistan Regional Government] has been licensing exploration acreage under its own legislation (20 PSC’s [production-sharing contracts] signed with 15 companies and consortiums), a move disputed by the Iraqi government, which has no oil and gas legislation.  Negotiations over licensing rights are ongoing.
 

Indeed, on Monday, Talisman acknowledged that agreements may be tinkered with as Iraq pulls together new policy. David Mann, a Talisman spokesperson, on Monday said there is a hope existing deals will be “grandfathered” should new rules emerge.  As part of Talisman’s $315-million deal with Kurdistan, it received a 40% interest on Block K44, and the Calgary-based company pointed out in its press release that the production sharing contract on this block was inked before the effective date of Iraq’s shiny new constitution.

Talisman also entered into a  two year “seismic services agreement” on Block K39, after which it will have the option to enter into a production sharing contract as the operator with a 60% working interest in the first year.

The analysts generally agreed that Talisman got a deal, initially spending only $315-million to have access to an area that could end up producing scads and scads of oil.  Exciting, yes, but not enough for the number crunchers to ratchet up their target price on the company.

Source: Taliman Energy: Analysts Cautiously Applaud Iraq Deal