Iraq opens door to foreign contracts at major oil fields

Iraq can reach a geologic potential of 10m barrels a day with substantial foreign investment. But output will depend on security improvements (Daily Telegraph image)

Daily Telegraph: Iraq opens door to foreign contracts at major oil fields

By Damien McElroy, Foreign Affairs Correspondent
Last Updated: 2:23am BST 15/04/2008

Foreign oil companies are poised to enter Iraq later this month after Baghdad signalled it was prepared to sign five oil field services agreements covering its biggest fields.
 
Five years since the US and Britain toppled Saddam Hussein’s dictatorship, there have been few forays by oil’s major players into Iraq, even though the country accounts for almost 10pc of world reserves.

A violent insurgency forced most oil companies to keep executives responsible for Iraq outside the country. Most are based in the Gulf.

Despite lack of foreign involvement in oil production, Iraq has returned to pre-war export levels of 2.5m barrels a day.

The two-year service contracts that have been negotiated would see British, American and Australian oil companies supply equipment and expertise that would boost output by hundreds of thousands of barrels at each field.

“I expect the oil companies will get their first deals in Iraq before the end of the month,” said a British official. “The Iraqi government has said it’s ready to do the deal. For the big oil companies it’s not so much security that’s the stumbling block now, it’s the legal framework. This is the development that starts the ball rolling.”

The five deals will cover Kirkuk, Missan, West Qurna, Zubair and Rumaila oil fields and have a face value of £1.5bn, though reimbursement will be satisfied in barrels.

“In this politically sensitive and difficult situation, service contracts are a pragmatic step forward for Iraq,” said Steve Peacock, head of exploration and production for BP in the Middle East.

BP’s contract, which is substantially negotiated, would involve the British firm providing project management, technical services and parts supplies to the North and South Rumaila fields.

The measures are described as a stopgap until Iraq’s parliament ratifies a long-delayed oil law to allow foreign firms an exploration and production role in Iraq for the first time since the industry was nationalised in the 1970s.

While the security situation has prevented the large oil companies establishing a presence in Iraq, Mr Peacock said there had been extensive mapping of its resources. “We’ve studied the whole of the rest of the country, so we’re waiting for what comes next after the service agreements.

“We have an opinion on which bits we’d be more interested in. Whether it gets linked into the contract or not – it’s a natural question that’s on the table,” added Mr Peacock. “These contracts are valid for a couple of years; how does that link with what comes next?”

Royal Dutch Shell is set to emerge with interests in Kirkuk, Iraq’s biggest field, discovered in 1927, and Missan, which it will serve in joint venture with the Australian miner BHP. The remaining contracts will go to Chevron, Exxon Mobil and Total.

Oil experts estimate that Iraq can reach a geologic potential of 10m barrels a day with substantial foreign investment. But its achieved output is likely to rest on security improvements and nationalist resistance to foreign involvement.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/15/cniraq115.xml

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