Oil Search regards Kurdistan as one of the few places left in the world where independent oil companies can capture material exploration positions with large reserve potential and on satisfactory commercial terms. The region is lightly explored and contains some of the most prospective geology in the world, with relatively low sub-surface risk.

Oil Search has two interests in Kurdistan, the Shakal Block and Block K42. The Company acquired a 15% Working Interest in the Shakal Block in May 2008. Shakal lies in the south-eastern fairway of the Zagros Fold belt and lies immediately south east and on trend with the Pulkhana Field. In August 2009, Oil Search was awarded a seismic option in Block K42. Block K42 has an excellent oil and gas address, on trend with a number of very large oil fields, and provides Oil Search with its first operated role in the country. The structure of the agreement allows Oil Search to conduct a preliminary evaluation of the acreage at a relatively low cost prior to making a decision whether to take up an option to enter into a Production Sharing Contract.

During 2009, Oil Search withdrew from the Bina Bawi EPSA due to lack of materiality.

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Testing of the Shakal-1 exploration well in the Shakal PSA (Oil Search 15%) was completed and the rig released in October. The well flowed at rates of up to 950 barrels of oil per day from the Paleogene-age Jaddala carbonate and is currently suspended. The Joint Venture has agreed to acquire additional seismic data during 2010 to assist in defining the scale of the resource and its relationship to the adjacent Pulkhana structure. The Shakal well met the drilling commitment in the Shakal PSA and a one year extension to the licence has been applied for from the Kurdistan Regional Government.

During the quarter, preparations were made for the 200 kilometre seismic programme over the newly-awarded K42 exploration block (Oil Search 75% paying interest). The seismic programme is scheduled to commence early in 2010. The Shakal seismic will be carried out at the same time as the K42 programme with data being available mid-year.