23 March 2007
UK supermajor BP is staying away from Iraq’s northern Kurdish region, to avoid antagonizing the central government in Baghdad. However, despite the Iraqi government’s recent approval of a draft hydrocarbon law, BP will not venture into the country until there is a rule of law and it can be sure that contracts signed with the existing authorities would survive political change, a senior company executive said.
“Every country has changes of governments and Iraq will be no exception. What is important from our perspective is that there is at least some stability and a sense of the law and contract law,” Steve Peacock, BP’s president for exploration and production in the Middle East and Asia told International Oil Daily in an interview this week.
“As the situation stands today, we have decided we will not put people in the country given the security situation.
But the intention is to stay connected, follow how the legal system and political structures are evolving so when it’s ready we will be ready to help,” he added.
In the meantime, the Kurdish region of Iraq, where a handful of small companies have entered into production sharing contracts in recent years and some have made modest discoveries, is off limits from BP’s point of view. BP’s stance is in line with the position of other majors, including Exxon Mobil which said recently it wanted a “more predictable” situation in Iraq before operating there.
“The country has an enormous resource base and there are many areas where we think we could work, but what we want to do wherever we go is work with the established and agreed political system in the country,” Peacock said.
“Our view is that if we work in Kurdistan we will antagonize the central government. We don’t want to do that. We want to support a stable government that all parts of the country are clearly working with,” he added.
The new petroleum law endorsed last month is still awaiting approval by the Iraqi parliament. The government is also expected to submit a federal revenue sharing bill and model contracts to the legislature for approval. According to the annexes submitted with the draft hydrocarbon bill, a new Iraqi National Oil Co. will be put in charge of producing fields and nondeveloped fields that are close to the oil infrastructure, leaving 26 remote oil and gas fields out of Iraq’s 78 identified fields as well as some 65 exploration blocks for international oil companies to operate.
“Initially Iraq will need technology and field management processes and if they want to build up output at rates they say they would want, international oil companies can help, whether it’s around additional forms of oil recovery or development of new fields,” Peacock said.
“The thing to consider as they do that is what is going to incentivize international oil companies to work in partnership with them [particularly] when they’re trying to grow significantly their production even from existing reservoirs,” he added.
BP won a tender in 2005 to conduct a reservoir study for the southern Rumaila field, which was completed and handed over to the Iraqi oil ministry last year. The study aimed at using ministry data on the field to build a geological model for the reservoir to help monitor its performance. At the time, BP saw the study as a way of gaining advantage over other companies which would serve it in negotiation when the country is open for business.
The draft hydrocarbon law stipulates that contracts with international oil companies could be based on risk, development and production or service contracts, without providing details.
“The hydrocarbon law allows for different types of contracts to be in place, so it’s still about specific contracts for specific opportunities. The real issue today is that none of those contracts has been proposed or negotiated,” Peacock said.
Despite the uncertainties, Iraqi Oil Minister Hussein al-Shahristani said last week he expects a first tender of projects to go out this year. But first there has to be “clarity about commercial contracts and how they survive subsequent change in regime and the security situation will have to improve before we physically go in,” according to Peacock.
By Ruba Husari, Dubai
(Published in International Oil Daily March 23, 2007)