US to Use Corporate Structure to Run Iraq’s Vast Oil Industry

April 28th, 2003 - by admin

by Susan Warren and Chip Cummings – The Wall Street Journal

The US government is structuring Iraq’s vast oil industry much like a corporation, with a chief executive and a management team vetted by American officials who would answer to a multinational board of advisers.

The team’s task will be huge. An Iraqi national oil company pumping three million barrels a day – about what was produced before the war to topple Saddam Hussein – would rival the size of Mexico’s Pemex, and exceed the production of the world’s largest publicly traded corporation, Exxon Mobil Corp., which pumps about 2.5 million barrels daily. If Iraq eventually produces the six million barrels a day that experts believe is possible, it would rank second to Saudi Arabia’s Saudi Aramco state oil company.

The money garnered from oil exports – millions of dollars each day – would initially be used to restore Iraq’s oil fields and shipping ports and for the reconstruction of the country, which has been battered by American bombs and artillery fire.

The new team and part of the advisory board are expected to be announced next week. The structure, at least initially, will take the place of the traditional ministry system, with the chief executive performing virtually the same role as the former oil minister, according to government officials, industry experts and former Iraqi oil officials familiar with the plan.

The chief executive also would represent Iraq at meetings of the Organization of Petroleum Exporting Countries, just as the former oil minister did.

Philip J. Carroll, former chief executive of Shell Oil Co., the US arm of Royal Dutch/Shell Group, will be chairman of the board, working closely with an Iraqi vice chairman. That position is expected to be filled by Fadhil Othman, who led Iraq’s oil-marketing group before Mr. Hussein assumed power 24 years ago, though the final team and their titles are still being negotiated.

The American-style structure and the appointments may rankle those who believe that the US is wielding too much unilateral power over the occupied nation. It also could irk Iraqi oil-ministry officials who already are back at work trying to get the country’s massive oil fields running again. The US is counting on those officials’ expertise to run the nuts and bolts of the oil operations.

Thamir Gadhban, a senior oil ministry official coordinating reorganization efforts in Baghdad, said he would expect Iraq’s top oil man to come from the current ranks of the ministry. “The Iraqi oil industry is not a new one, and there are experienced people in the ministry of oil and its organizations,” who would be best qualified for the job, he said, adding, “this is the only normal way.”

The corporate structure also appears to depart from indications from the Pentagon’s Office for Reconstruction and Humanitarian Assistance that top jobs at Iraqi agencies would, on an interim basis, be led by current Iraqi officials untainted by the Hussein regime. US advisers had said Iraqi expatriates would be appointed only to advisory positions. The interim management team, to be composed of current and former Iraqi oil officials, will constitute the executive leadership of the Iraq National Oil Co., with the chief executive also sitting on the advisory board.

Some choices may prove controversial, including the possible appointment of any expatriate Iraqi to serve in a senior executive position.

Just how much power the advisory board will have remains unclear. Some maintain that the board will play largely an advisory role, with little real authority. Another school of thought holds that the board will have final say in all major strategic and investment decisions for Iraq’s oil industry, much as a board of directors does at an American company. Under that scenario, the new oil-management team would have a large degree of autonomy over day-to-day operations, while major decisions about investments, capital spending and production will be taken to the board for approval. The board would “question, challenge, discuss and gain an understanding” before approving any plans, says one person familiar with the matter.

Still, US officials are keen to avoid the perception that non-Iraqis – especially Americans – will run roughshod over Iraqi decision-making. The US is trying to get the United Nations Security Council – whose members include France and Russia, which opposed the war – to end economic sanctions on Iraq so that the country can begin exporting its oil freely. Washington also wants to defuse resentment in the Arab world over the US-led conquest and occupation of Iraq. How the US handles Iraq’s oil wealth will be crucial to winning over the region.

As a result, there will be at least a plurality, if not a majority, of Iraqis on the board. The initial announcement will likely include only the first seven or eight members of the advisory board, which will grow to about 15 members.

Final say on some matters, such as how oil revenue will be spent and how much should be used for restoring Iraq’s oil fields, will fall to retired Lt. Gen. Jay Garner, who has been named to administer Iraq, or to the interim government. While Iraqi oil management may not choose to disclose all the details of their oil production, which is common among Arab states, the advisory board will ensure that there are strict financial controls over revenue so that it is spent for the benefit of Iraqis.

Like the interim government, the corporate oil structure is intended to serve as the bridge to a permanent Iraqi-run industry. Once an official Iraqi government is in place, the chief executive will likely evolve into the usual oil-minister position.

Though Iraq’s politically appointed oil minister hasn’t been seen since American forces pushed Mr. Hussein from power, many of the agency’s top bureaucrats appear firmly back in control. Mr. Gadhban and Kahtan Al-Anbaki, another top official involved with ministry reorganization efforts, said they expect Iraq to be able to quickly resume significant crude-oil output and could increase its current production-growth targets under a new government.

Mr. Gadhban said Iraq could still meet a previously announced daily production goal of about six million barrels of oil in five or six years, assuming United Nations sanctions are removed, as is widely expected.

Outside analysts have held much more skeptical views of Iraq’s long-term production capacity. Mr. Gadhban said Iraqi production capacity before the war was three million barrels a day, of which 2.3 million barrels could be exported. Mr. Gadhban said Iraq has about 115 billion barrels of proven reserves, slightly more than most outside estimates, and another 200 billion barrels of probable reserves. That puts the nation’s reserves just behind those of Saudi Arabia, whose reserves are the largest in the world. In addition, there are “hundreds” of promising, unexplored petroleum structures in Iraq, he said, “therefore, we can put new discoveries into production in short time.”

He and Mr. Anbaki said that initial reports from oil fields in the country suggest prewar production could be resumed “in a short time,” though Mr. Gadhban didn’t elaborate. Members of the US Army Corps of Engineers working in the oil fields have said about 800,000 barrels a day of production can be restored in the country’s southern region in six to nine weeks. Output in the north also is expected to resume soon.

– Bhushan Bahree in Vienna contributed to this article.