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Potential of rich rewards pursuing Iraqi oil comes with risk of death

KansasCityStar.com

By SEBASTIAN ABBOT

 Experts believe Iraq’s proven reserves could rise by an additional 70 billion to 80 billion barrels once security conditions stabilize enough to allow renewed exploration.
NABIL AL-JURANI
Experts believe Iraq’s proven reserves could rise by an additional 70 billion to 80 billion barrels once security conditions stabilize enough to allow renewed exploration.
Wednesday, Oct 8, 2008
BAGHDAD | Recurrent violence in oil-rich parts of Nigeria may provide a sobering lesson for oil companies hoping to work in Iraq.

And oil companies should take heed: Despite the fact that attacks are at their lowest level in Iraq in more than four years, it is by no means free of danger.

Representatives of 34 international oil companies will meet Monday with Iraqi government officials in London to discuss the bidding process for eight enormous oil and gas fields. If the contracts are approved, they could lead to the biggest foreign stake in Iraq since the industry was nationalized more than 30 years ago.

About 4,000 miles from Baghdad, oil companies are doing damage control in Nigeria — arguably the most dangerous place in the world — where firms like Royal Dutch Shell PLC and Exxon Mobil Corp. operate.

Three years of attacks in the country’s Niger Delta have cut oil production from 2.5 million barrels per day to around 1.5 million — demoting Nigeria to Africa’s second-largest oil producer behind Angola.

The violence in Nigeria pales next to Iraq, even now.

“The differential is enormous in terms of the physical threat of being killed by a militant,” said Ian Pilcher, a private security consultant who has advised oil companies in Nigeria and Iraq. “Nigerian hostages are rarely harmed, if at all, and I can’t really see West Africans ever setting up roadside bombs.”

The risk of death while pursuing oil in Iraq, however, comes with the potential for rich rewards.

Current estimates put Iraq’s proven oil reserves at 115 billion barrels — more than three times the 36 billion barrels held by Nigeria.

Experts think Iraq’s proven reserves could rise by an additional 70 billion to 80 billion barrels once security conditions stabilize enough to allow renewed exploration. That would give Iraq the world’s second-largest proven oil reserves after Saudi Arabia.

“Even if the security situation is a problem, the potential is so great that if you are a major oil company, you have to have an Iraq strategy in your portfolio,” said Leila Benali, director of the Middle East and Africa department at Cambridge Energy Research Associates.

Oil companies are maneuvering to gain access.

The Iraqi government recently signed a $3 billion deal with the state-owned China National Petroleum Corp. to develop the Ahdab oil field in southern Iraq.

In September, Shell signed a deal to establish a joint venture with the state-run Iraqi South Oil Co. to tap natural gas in southern Iraq and is expected to spend $3 billion to $4 billion over five years on the project.

That deal was announced three days after Nigerian militants attacked a pipeline in the Niger Delta.

Militants in the Niger Delta have repeatedly bombed oil pipelines and kidnapped hundreds of oil workers in an attempt to force the central government to allocate more oil revenue to the southern states where the petroleum is pumped. They have also set up a smuggling network to sell oil stolen from pipelines — often with help from corrupt security officials and politicians.

That same scenario for Iraq is not farfetched.

“Oil companies can negotiate with the central government, but if the local government and local people are not happy, the oil companies are not going to be able to do what they want to do,” said Amy Jaffe, an energy expert at Rice University’s James A. Baker III Institute for Public Policy.

The situation may be even more combustible in Iraq because most of the country’s oil is in the predominantly Kurdish north and Shiite south — leaving Sunnis at the mercy of the central government to distribute the nation’s resource wealth.

Iraqi lawmakers have been deadlocked over a national oil law to do just that.

http://www.kansascity.com/news/world/story/831528.html

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