Iraq Oil Ministry Opens Door to Foreign Companies
July 1, 2008; Page A8
Iraq will open eight oil-and-gas fields to foreign petroleum companies in an effort to accelerate production in the next few years, in what would be the most extensive upgrade of producing fields since the fall of Saddam Hussein.
The Iraqi oil ministry announced contracts to develop six oil fields and two natural-gas fields would be put out to bid by the end of the year. But the ministry didn't award some expected but controversial short-term consulting deals that critics complained were improperly limited to companies based in the U.S. and its allies.
Many giant undeveloped regions believed to hold huge amounts of oil weren't included in this first round of bidding. Development of them was postponed until the Iraqi government agrees on a law governing hydrocarbon investments.
While the ministry's announcement was a step toward boosting production and bringing in foreign oil companies to help, many hurdles remain in Iraq's quest to become a major oil-producing country again.
The ministry lacks enough experienced personnel to negotiate contracts, political divisions are slowing passage of the hydrocarbon law and violence makes it unlikely foreign companies would commit many geologists and engineers to work in Iraq, according to experts at oil companies, the U.S. government and oil-industry consulting groups.
The difficulty getting the Iraqi oil industry completely back on track is highlighted by the fact that the limited-scope consulting deals are still under negotiation, even though the ministry said Monday was the deadline for getting them concluded.
The ministry said it wants to press ahead with the more-ambitious development deals for the eight oil-and-gas fields. About 40 foreign oil companies, from the U.S., Europe, Japan, China, Russia and elsewhere have been approved by the oil ministry to bid on those contracts.
The slow progress also shows how difficult it remains to meet Iraqi goals of boosting production by 1.5 million barrels a day in the next couple years. Iraq now produces more than 2.5 million barrels of oil a day, up from 1.9 million barrels a day last year, but far below the 3.5 billion barrels the country produced in 1979, according to statistics compiled by BP PLC.
Hopes that Iraq's oil output will dramatically increase -- providing much-needed supply for global markets and money for Iraq's government -- are riding on the country's ability to pass a law that will spell out the legal and financial details of investing in the oil sector. Until then, the hunt for new fields in Iraq is on hold.
The legislation has been bogged down for more than a year, largely because of differences among Kurds and Baghdad officials over who has control over signing contracts for development and other issues. The oil legislation isn't expected to be considered by parliament until the October legislative session at the earliest, said independent Kurdish lawmaker Mahmoud Othman.
The Kurds have negotiated 20 separate oil deals, with companies including Hunt Oil, which haven't been authorized by the central government. "It's a clear violation of the rules," said Iraq Oil Minister Hussein Shahrastani.
"Iraq is definitely losing an opportunity because we aren't moving fast enough," Mr. Shahrastani said. "And that's why we aren't waiting around for the oil law to be approved to move forward with trying to increase our production."
Hoping to show cohesion and progress -- even as the consulting deals remain unsigned -- the Iraqi oil ministry may have accomplished the opposite. The announcement out of Baghdad was so hard to parse that a number of big foreign oil companies peppered advisers in Washington with questions trying to grasp what was being floated.
The new contracts are so-called technical-service agreements, in which companies receive fees for providing hands-on expertise. The companies would prefer a production-sharing contract, in which the company and host government split the barrels produced.
Many foreign companies expressed interest in bidding later this year. Iraq has the fourth largest known reserves of oil -- after Saudi Arabia, Iran and Canada.
Foreign oil companies have been offering assistance and are willing to sign consulting deals as a way to get their foot in the door of Iraq's potentially lucrative oil industry.
"If the Iraqi government decides it wants international oil companies to partner with them in developing their resources, Exxon Mobil would be interested," the Texas company said in a statement.
The involvement of Western oil companies in the development of Iraq's oilfields remains a hot-button issue both in Washington and Baghdad. There is a widespread belief in Iraq and in certain circles in the U.S. that the war was a smokescreen for U.S. oil companies to take control of Iraq's oil resources, more than 30 years after they were nationalized.