Global Policy Forum

Oil Companies Hopeful on Iraqi Politics


By Laurence Frost

Associated Press
March 14, 2005

As Iraq's political factions move closer to forming a new government, the world's oil leaders are dusting off their Baghdad Rolodexes with an eye toward lucrative production agreements. Through 15 years of conflict and sanctions, major oil companies never lost sight of Iraq's massive proven reserves - the world's second-largest after Saudi Arabia. Efforts to form the nation's first elected government in over half a century are making the prospect of major contracts more tantalizingly real, even if that government could still be more than a year away. The Shiite alliance that won a slim majority in January's Iraqi election was holding talks Monday with Kurdish parties, with both sides saying a deal was close. The new parliament is set to convene for the first time Wednesday.

The world's three biggest integrated oil companies - BP PLC, Exxon Mobil Corp. and the Royal Dutch/Shell Group of Cos. - recently struck cooperation or training deals with Iraq. France's Total SA regularly invites Iraqi engineers to Paris for training. "It's a way to maintain contact and get the oil officials to know about them," said former Iraqi Oil Minister Issam Chalabi, who fled Saddam Hussein's regime in 1991.

Speaking from Jordan, where he works as a consultant, Chalabi said some 20 companies have offered Iraq's interim government training for oil personnel, free geological studies or other technical assistance. The oil powerhouses stayed on the sidelines as oil-services companies like Halliburton Co. were awarded billions of dollars worth of contracts to renovate Iraqi pipelines and other infrastructure. The U.S.-led postwar administration and the provisional government that followed lacked the democratic or legal legitimacy to approve full-blown production deals - which typically guarantee companies a share of oil extracted from fields they invest in. Such long-term contracts may still have to wait until after the framing of a new constitution and a second round of elections slated for the end of this year, and perhaps even until the adoption of a new energy law.

Iraq's crude is badly needed to fund the country's reconstruction and to feed surging global demand. With proven reserves of 112 billion barrels, but current production of just 2 million per day, "Iraq has more oil fields that have been discovered but not developed than any other country in the world," Chalabi said. If rapid improvements are made to Iraq's damaged oil infrastructure, Chalabi sees the potential to triple output to 6 million barrels per day within about five years.

Britain's BP agreed last month to analyze Iraqi oil ministry data on the Rumailah oil field near the southern city of Basra, in the zone patrolled by British forces. Such studies are vital when preparing to launch new drilling operations. Exxon Mobil has an agreement covering technical assistance, training and possible studies, while Royal Dutch/Shell won a contract in January to carry out study work on Kirkuk, a major oil field in the north.

Total, which negotiated production contracts for two Iraqi oil fields in the early 1990s but never signed them, argues that its 80 years of experience in Iraq could be crucial. "Everyone knows that we've worked in Iraq, everyone knows we've conducted surveys, everyone knows that Total was born in Iraq in 1924," said Christophe de Margerie, president for exploration and production. Total was founded by a group of investors who took over the French government's 24 percent stake in Iraq Petroleum.

De Margerie dismissed suggestions that French opposition to the U.S.-led invasion could damage his company's chances of picking up where it left off at the major Majnoon oil field and smaller Bin Omar, both in southern Iraq. "Everything we've been told so far, directly or indirectly, has led us to believe that all companies will be able to take part in an equitable manner and that the potential opening of Iraqi oil resources will have nothing to do with politics," he said.

But former oil company geologist Ibrahim Mohammed, who works as a London-based consultant in contact with Iraqi officials, says Baghdad oil ministry staff expect the major U.S. companies to win the lion's share. "Among people who are high up in the ministry of oil and the national Iraqi oil company," Mohammed said, the feeling is that "the new government is going to be influenced by the United States."

That perspective may have been a factor in OAO Lukoil's decision last September to team up with Houston-based ConocoPhillips Co. as it evaluates the 68.5 percent stake in the large West Qurna oilfield that Lukoil negotiated with Saddam's Iraq. Lukoil is based in Russia, which also opposed the war. The company is granting ConocoPhillips a 17.5 percent stake in the southern oil field - giving the project a solid U.S. connection. ConocoPhillips, which holds a 10 percent stake in Lukoil, declined to further discuss the deal or comment on reports that post-Saddam administrators have canceled Lukoil's production rights.

Ultimately, much will depend on the makeup of the new Iraqi government. The Shiite United Iraqi Alliance picked conservative cleric Ibrahim al-Jaafari last month as its candidate for prime minister, rebuffing U.S.-educated contender Ahmad Chalabi, who is seen as more pro-Washington. In order to win the two-thirds majority needed to confirm al-Jaafari as premier, however, the alliance is negotiating with Kurdish parties over naming Kurdish leader Jalal Talabani president of a secular Iraqi state.

The accelerating numbers of Iraqi insurgent attacks are another problem. Total sent officials to Iraq soon after the U.S.-led invasion, but has since stopped, de Margerie said. ConocoPhillips and BP also have acknowledged safety issues, and Royal Dutch/Shell, which currently has no employees in Iraq, said the company "would have concerns" about sending them there unless the security situation improves.

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