Seeking Iraq’s Oil Prize

January 28th, 2005 - by admin

David R. Baker / San Francisco Chronicle – 2005-01-28 23:28:45

SAN FRANCISCO (January 26, 200) — The Iraqi government that emerges from Sunday’s election may open its oil business to foreign investment, and international petroleum companies are jockeying to curry favor with the war-torn country.

Firms from the United States and Europe — including Royal Dutch/Shell Group and the Bay Area’s own ChevronTexaco — are literally working for free on certain engineering and training projects to get their feet in the door.

The companies are forging these arrangements with Iraq’s oil ministry to help train Iraqi engineers and study ways to tap more of the country’s vast oil reserves, estimated to be either the second- or third-largest in the world.

Meanwhile, Iraqi officials are drafting a law that would encourage international companies to invest in the country’s tattered oil industry, run by the state since 1972. The current finance minister, a candidate in the election, announced the legislation late last month, although he offered few details.

“So I think this is very promising to the American investors and to American enterprises, certainly to oil companies,” Finance Minister Adil Abd Al-Mahdi said at a National Press Club conference in December.

The idea of bringing international companies and their money into Iraq’s oil business isn’t new.

In the 21 months since Saddam Hussein’s ouster, the interim Iraqi government and its American advisers have suggested several times opening up the country’s oil industry, which is saddled with ancient equipment and sabotaged by insurgents. But many Iraqis bridled at the notion that the country’s oil reserves should be controlled by foreigners.

The widespread conviction in the country that the United States invaded to seize their oil hasn’t helped.

“There is a strong belief, which should not be underestimated, that the whole purpose of the war was to gain US control over Iraqi oil,” said Walid Khadduri, editor of the Middle East Economic Survey, in a recent speech. “It is going to take a good deal of persuasion and a great deal of transparency to convince a majority of public opinion that the gradual privatization of the oil industry is for the good of the people and neither a war prize nor a way for carpetbaggers to get rich quickly.”

Flurry of Agreements
International oil companies have approached post-Hussein Iraq with caution, their hunger for new crude supplies tempered by near-daily insurgent attacks on the country’s pipelines.

But the companies’ ties to Iraq are growing. In the last two months, Iraq’s oil ministry has signed a flurry of agreements to study the potential of some of the country’s underdeveloped oil fields and train its engineers on the latest technology and techniques.

Royal Dutch/Shell Group signed an agreement with the ministry Jan. 14 to study the vast Kirkuk field, which has been producing for decades and is currently estimated to hold 8.7 billion barrels of reserves. Shell also will help draft a master plan for tapping Iraq’s natural gas.

Shell will do the work for free as a way to strengthen its links with the ministry, said spokesman Simon Buerk in the firm’s London headquarters.

“It’s our aspiration to build a relationship with the Iraqis,” Buerk said. “We want to establish ourselves as a credible partner.”

BP, formerly known as British Petroleum, signed a contract last week to study the Rumailah oil field near Basra. Exxon Mobil Corp. inked a memorandum of cooperation with the ministry last fall, laying groundwork to provide the ministry with technical assistance and conduct joint studies. An Iraqi-Turkish consortium won a contract in late December to help develop the Khurmala Dome oil field.

ChevronTexaco Training
San Ramon’s ChevronTexaco has been flying Iraqi oil engineers to the United States for four-week training courses since early last year. The company also helps those engineers analyze data from the Kirkuk and South Rumailah fields.

ChevronTexaco describes the program as a goodwill gesture, one that will not necessarily result in future contracts with the Iraqis. “We made it clear there will be no quid pro quo,” said company spokesman Don Campbell.

For years, Iraq’s oil has been a tempting but forbidden prize.

The Baathist government nationalized Iraq’s oil industry in 1972, slamming the door on foreign ownership or investment. Thirteen years of international sanctions after Hussein’s 1990 invasion of Kuwait further isolated the industry, cutting it off from new equipment and new techniques.

Unexploited Resources
That isolation left much of Iraq’s oil wealth untapped. Only 17 of the country’s 80 discovered oil fields have been developed, according to the US government’s Energy Information Administration. Only 2,300 wells have been drilled in Iraq. Texas has about 1 million.

No one is quite sure how much oil the country has, in part because large swaths of the land remain unexplored by oil companies. Confirmed reserves of 112 billion barrels to 115 billion barrels would give Iraq the world’s third- largest supply, behind Saudi Arabia and Canada. Estimates of the country’s full holdings go as high as 214 billion barrels.

Global oil companies, faced with declining production in many of their existing fields, want in.

“That’s the name of the game today for (integrated oil companies) — access to new supplies,” said Robert Ebel, director of the energy program at the Center for Strategic and International Studies in Washington.

The companies, however, have been hesitant to push for deals with Iraq’s transitional government as the election nears.

“The people they may start talking with today might not be around next week or next month,” Ebel said.

The insurgency has added to their caution. Most analysts don’t expect big oil companies to invest heavily in Iraq until the violence against Westerners and anyone helping them subsides. Shell’s study of the Kirkuk oil field, for example, will be performed outside Iraq, using data already collected.

“In terms of security, we’re monitoring the situation, and clearly, right now, we’d have concerns about the safety of staff there,” Buerk said.

Iraqi officials have moved slowly on opening up their oil industry to the outside world. They badly want to increase production, which supplies 95 percent of their government’s revenues. Foreign cash could help.

But in the invasion’s aftermath, oil is a sensitive subject. Iraqis see oil as a part of their national identity. Oil money pouring into the state budget in the 1970s — after nationalization — built schools, hospitals and highways. Many Iraqis are leery of letting foreigners own any piece of the industry.

Antonia Juhasz, a project director at the International Forum on Globalization think tank, said Iraqis may see the proposed law to invite investment as confirmation that the war was, at heart, a struggle over oil. Her organization has criticized both the war and the involvement of American companies in Iraq’s reconstruction.

“It seems like the most blatant description of why everyone thought we went to war in Iraq,” Juhasz said.

E-mail David R. Baker at
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