Iraq in crisis
IRAQ PUSHES AHEAD WITH OIL PLANS
By Roula Khalaf and Dino Mahtani
Financial Times (London)
February 5, 2008
LONDON -- The Iraqi government is inviting major oil multinationals to participate for the first time in the development of the oil industry, without waiting for the passage of crucial but controversial hydrocarbons legislation.
In a sign that the oil law the U.S. has been pressing for is unlikely to be agreed by parliament any time soon, Hussain Shahristani, Iraq’s oil minister, said in an interview with the *Financial Times* that Iraq was now determined to push ahead with plans to raise production from a current 2.5m barrels per day to 6m bpd in five years.
Speaking on the sidelines of a conference in London, he said major companies were registering to pre-qualify for oil development licences before the February 18 deadline. The process, he said, should lead next year to the award of the first contracts to develop oil fields across the country.
Oil giants, so far deterred from Iraq by violence and the absence of clear legislation, are showing keen interest in the pre-qualification process. It marks the first opportunity to tap into a country with the world’s third largest proved oil reserves and a largely undeveloped oil industry with low production costs.
But the companies will no doubt require more legislative clarity and further improvements in security before committing substantial investment. Jeroen van der Veer, Royal Dutch Shell’s chief executive officer, said last week: “We are in the race so to say, we would like to work in Iraq but the petroleum law is not ratified so we don’t know the conditions. We would like to know the rules of the game.”
While eyeing more long-term relationships with Iraq, major companies are negotiating technical support contracts to get their foot in the door and help raise production of several oil fields by 500,000 bpd this year. These deals do not involve putting teams on the ground and are confined to offering arms-length technical and managerial assistance. The companies include Royal Dutch Shell and BP as well as U.S. giants ExxonMobil and Chevron and France’s Total.
The exact terms of the longer-term development contracts have not been decided yet, according to Mr. Shahristani.
The minister said a “model contract” would be worked out, compensating companies for bringing in technology and financial resources while guaranteeing full government ownership and control of oil.
One senior Western oil executive said the exact nature of the contract was not necessarily controversial. “I don’t mind as long as you get part of the upside,” he said.
Mr. Shahristani’s decision to bypass an oil law reflects the government’s frustration with the Kurdish regional government, which has been seeking more independence on oil policy, fuelling a protracted dispute with other parliamentary groups.
The Iraqi cabinet approved the oil law a year ago but has since been unable to pass it through parliament, partly due to disagreements over the sharing of oil revenues between regions.
The government in the Kurdish north, meanwhile, has passed its own oil law and has been signing exploration contracts with Western companies, causing anger in the central government. Mr. Shahristani has warned that these contracts are illegal and companies involved in the contracts could be blacklisted.
The minister denied that the decision to move ahead with development contracts was primarily a tactical move designed to put pressure on the Kurdish bloc, however.
“Iraq has lost decades of opportunity and we’ve lost a year discussing a draft law. Now the government has decided to go full speed ahead in developing these fields,” he said. “We owe it to the Iraqi people to develop oil resources well.”
OIL MAJORS DISCUSS OIL FOR EXPERTISE DEAL WITH IRAQ TO BOOST OUTPUT
By Robin Pagnamenta
February 4, 2008
The West's biggest oil companies are in talks with the Government of Iraq to boost the country's oil and gas output.
Under a specially designed technical services agreement, ExxonMobil, Chevron, ConocoPhillips, and Shell would be paid in oil rather than cash to help to develop the fields.
The decision, which is politically highly charged in Iraq, would involve the oil majors taking on the role of special contractors to the Government. The agreements would cover a variety of oil and gasfields in western, southern, central, and northern Iraq. Shell, for example, is interested in the Akkas gasfield in Anbar and another gasfield in the south of the country.
The Iraqi Oil Ministry has designed the contracts to encourage Western oil companies to provide training, equipment, and expertise to help Iraq to meet a target of increasing production to 2.6 million barrels by the end of this year and 2.8 million within two years, from about 2.4 million now.
Officials from several oil companies have been meeting Iraqi officials in Amman, Jordan, in recent weeks to fix the terms. The companies involved would be favored in bidding for longer-term contracts on the fields -- which are some of Iraq's largest producers -- set for this year. Another bidding round is expected to take place next year.
At an estimated 115 billion barrels, Iraq's oil reserves are the third-largest in the world after Saudi Arabia and Iran.
However, a long-running political dispute with the Kurdistan Regional Government in Northern Iraq has delayed the introduction of a hydro-carbon law, which would direct how the funds raised would be used and whether they would go to central government in Baghdad or the regional administrations.
Security remains a key concern and most of the work is likely to be carried out by Iraqis or other Arab citizens rather than by expatriates.
BP TALKS EXPLORE POTENTIAL OF IRAQI OIL ASSETS
By Robin Pagnamenta
February 4, 2008
BP is in talks with the Iraqi Government about a plan to boost oil production at the huge Rumaila field on the border with Kuwait.
Tony Hayward, chief executive, said that he had met Hussain al-Shahristani, the Iraqi Oil Minister, “in the last few weeks” to discuss opportunities in the country.
Among other potential projects in Iraq, BP's interest is understood to include the Rumaila field, one of Iraq's largest, which is believed to contain about 18 billion barrels of oil, according to figures from Wood Mackenzie.
BP undertook a study of the field for the Iraqi Government two years ago. It already has a small Iraq team based in the Middle East and is one of a number of big oil companies discussing agreements designed to increase rapidly the country's output to 2.6 million barrels per day by the end of this year.
These effectively would be service contracts to provide training, expertise, and equipment, for which the companies would be paid in oil.
BP, Total, Shell, ExxonMobil, Chevron, and ConocoPhillips attended talks with the Iraqi Government in Amman, Jordan, last month to help to fix the terms of the contracts. Shell is interested in a gasfield in western Iraq.
A spokesman said that it was too early to consider putting in expatriate staff because of the security situation.
BP was involved in Iraq until 1975, when the country's oil industry was nationalized.
Speaking at the group's results presentation yesterday, Mr. Hayward said that as well as the Iraqi Oil Minister he was also involved in talks with Gazprom, of Russia, over a proposed asset swap that would involve BP's Kovykta gas project.
He admitted that talks had been taking longer than planned, mainly because of the scale of the assets and the number of parties involved.
Creating a “balanced structure” that would be acceptable to BP, TNK-BP, and Gazprom had been “difficult and complicated.”
“The constructive dialogue continues,” he said, but there was no certainty that an agreement could be reached soon.
PROTESTERS GREET IRAQI OIL OFFICIALS IN LONDON
By Natalie Obiko Pearson and Lananh Nguyen
Dow Jones Newswires
February 5, 2008
LONDON -- Iraqi oil officials and oil company executives were greeted by demonstrators in London Tuesday protesting long-term oil contracts being signed in Iraq, which they say are handing control of the country's oil wealth to private foreign enterprise.
Iraq Oil Minister Hussain Al-Shahristani, Ashti Hawrami, minister of natural resources for the Kurdistan Regional Government, and executives from companies like BP PLC (BP), Exxon Mobil Corp. (XOM) and others were among the attendees at a Middle East oil conference being held by London-based think tank, Chatham House.
About a dozen protesters with placards, some calling out "No to cheap Iraqi oil," stood outside the conference venue. One of the demonstrators, Greg Muttitt, co-founder of London-based oil industry watchdog Platform, said contracts known as production sharing agreements, or PSAs, were being struck in Iraq under pressure from Western governments, which benefit foreign companies at the expense of Iraqis. [See here, here, and here for Platform's 2005, entitled "Crude Designs: The Rip-Off of Iraq's Oil Wealth." --J.R.]
"They give control of Iraq's oil to multinationals for 20-30 years. It's like giving my house to a decorator and renting a room back from him," Muttitt said.
Gabriel Carlyle, another proteter, said polls show that a large number of Iraqis are against such contracts and called the companies "war profiteers" working with western governments to exploit Iraq.
Muttitt said the Kurdistan Regional Government's recent signing of oil contracts with foreign companies a move that effectively hands the Iraqi Kurds' new-found autonomy over to foreign governments and oil companies. "What they're doing now is jumping out of a frying pan into the fire . . . taking their sovereignty and surrendering it," Muttitt said.
The demonstrators said they were not against Iraq seeking technical expertise anf [sic] financing from foreign oil companies in order to rebuild the war-torn industry but opposed the exploitative deals they said were being struck.