The Oil giants are itching to invade Iraq  

Posted by Big Gav in , , , ,

The Times has an update on the efforts of western oil majors to secure Iraq's oil, noting "The big players have been shut out since nationalisation in 1972. Now they see their chance to get in" - Oil giants are itching to invade Iraq.

Yet since the Iraqi government nationalised the industry in 1972, oil’s main players have been shut out. Years of war and violence have kept them at bay.

That may be about to change. In October the Baghdad government kicked off a round of bidding to allow international oil companies to exploit eight of the country’s largest oil and gasfields. BP, Royal Dutch Shell, Exxon Mobil and Gazprom are among the 35 companies that have put concerns about security to one side and thrown their hats in the ring. The deals would pave the way for the first significant foreign investment in the country’s biggest fields in more than three decades. Some side deals have already been signed — last month Shell announced a $4 billion (£2.7 billion) gas joint venture with the Iraqi government and opened a permanent office in the country.

For Iraq the timing couldn’t be better. As reserves dry up around the world and national governments tighten their grip on what is left, the industry is more desperate than ever to get its hands on the Iraqi honey-pot. The plummeting oil price, from a high of $147 a barrel this summer to a new low of $36 last week, has focused their minds.

Along with Saudi Arabia, Iraq is one of the cheapest countries to extract oil from, costing as little as $4-$5 per barrel thanks to the easy geology and high flow rates.

That is a long way from more exotic endeavours such as Canada’s tar sands, where extraction can cost $50 a barrel or more. Labour is also cheap. Addax, which has made $248m so far this year, pays $15 a day to the manual labourers who work at Taq Taq.

In terms of easily accessible and plentiful oil, Iraq is the final frontier. But if the experience of Addax and the other intrepid few who have ventured into Iraq is anything to go by, getting it out of the ground will be a long, tortuous process. ...

Iraq is still struggling to find its feet. Last week the UN passed a resolution barring companies and governments during the next year from suing the fragile government for damages suffered under Saddam Hussein’s rule. The fear is that a wave of lawsuits, from the likes of Kuwait, would decimate the government’s coffers just when it desperately needs to invest in rebuilding.

Then there is the issue of domestic politics. Outside Kirkuk, an unfinished 25km pipeline is a bleak testament to the role it plays for the few that have ventured into the country. DNO, the Norwegian oil group, stopped construction nearly a year ago with the pipeline just a couple of yards short of the Kirkuk-Ceyhan pipeline. Since then it has been waiting for government approval to lay the final section. Until that happens, the 50,000 barrels-a-day facility it built in Tawke to feed it remains idle. Every day that passes, $2m worth of oil — at today’s price — remains in the ground.

The problem boils down to a long-simmering row between semi-autonomous Kurdistan and the central government. Like Addax and its partner in Taq Taq, Genel Enerji of Turkey, DNO received its permission to drill from the Kurdistan regional government (KRG), not the oil ministry in Baghdad. In total, the KRG has signed a total of 20 so-called production-sharing agreements with western companies. The terms are generous, allowing developers to recoup their full development cost and then share the revenue.

The deals have infuriated Hussein Shahristani, the Iraqi oil minister. He has been trying to finalise an oil law that will govern rights and revenue-sharing for the whole country. Oil accounts for about 95% of the government’s revenue. The draft law proposes more stringent technical service agreements for new foreign entrants, which leaves the ownership of reserves in Iraqi hands and pays the companies a fee.

The KRG’s deals, he has said, are “illegal”. He has threatened to bar any company that deals with the Kurds from bidding for the giant fields in the south. That is why the likes of BP and Shell have kept out of Kurdistan. They are hoping they will now be repaid for their patience.

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