28 February 2003
In talking about possible war against Iraq, Bush administration officials insist that their main objective is not to get their hands on the country’s massive oil reserves. But post-war, fierce competition is almost bound to erupt between US oil firms that have been kept off-limits by the Iraqis, and those — including Russian, Asian, and European companies — that either have firm contracts with the current regime or have negotiated but not signed deals.
Right now, six companies hold exploration or development contracts. Indian state Oil and Natural Gas Corp. (ONGC), Indonesia’s Pertamina and Russian Stroitransgas have exploration contracts for blocks in the Western Desert. China National Petroleum Corp. (CNPC), Vietnam’s PetroVietnam, and Syrian Petroleum Co. (SPC) have development deals for the Al-Ahdab, Amara, and Nur oil fields, respectively. Another Russian company, Soyuzneftegas, initialed a heads of agreement in January to develop the Rafidain field, though it will take several more months to wrap up negotiations, while a consortium from Belarus is close to signing up for another exploration block, Iraqi officials say.
The fate of these contracts is up in the air. Russian companies would probably try using them as a starting point for discussions with a new Iraqi government after the war, perhaps invoking international law. Whether they would be honored would depend on whether the US administration in Iraq post-war recognized the legitimacy of the present hierarchy under President Saddam Hussein or of the Iraqi legal system. It would also hinge on whether it regarded those who had already started implementing contracts as in legal contravention of UN sanctions, or whether it accepted their presence as a fait accompli.
Under the current system, the Oil Ministry signs contracts only after Saddam gives his approval. The signed contract then has to be ratified by the cabinet, before the Revolutionary Command Council, Iraq’s highest executive authority, issues a binding decree.
ONGC is the longest-standing contract holder in the Western Desert, having signed up for Block 8 in 2000. Iraqi officials say the company has already finished the first stage of reprocessing and interpreting data, and its proposals for field work have been approved. It’s now issuing tenders for 2-D and 3-D seismic surveys. The area has been cleared of remaining mines ahead of the detailed seismic work.
Pertamina, whose contract was ratified at the end of 2002, is in the early stages of gathering data ahead of reprocessing and reinterpretation.
Stroitransgas’ contract has yet to be ratified, but that’s a formality, Iraqi officials say.
CNPC, which signed its production-sharing deal to develop the 90,000 barrel-per-day Al-Ahdab field in 1997 — making it among the first to sign a contract — has yet to carry out any work. In December, Baghdad cancelled a similar contract held by Russian Lukoil for the 600,000 b/d West Qurna field because of its failure to meet contract obligations. But Iraqi officials say CNPC gets more time because the much-smaller field is lower down their list of priorities.
PetroVietnam signed its development and production contract for Amara last year, based on a new contract model similar to Iranian buyback deals. It is conducting studies and will soon start preparing to issue tenders, Iraqi sources say.
SPC has advanced slowly with Nur, for which it signed a development and production contract in 2001. It is keen to remain low profile, in light of its seat on the UN Security Council, and has even requested that contract ratification be delayed.
The upcoming competition among international oil companies would likely pit big European companies that had been negotiating contracts or expressed interest in reaching a deal — but stopped short of actually signing one — against the US majors excluded by the Iraqis. These include Total, which negotiated two production-sharing contracts in 1998 for the 600,000 b/d Majnoon and 440,000 b/d Nahr Bin Umar fields, and Royal Dutch/Shell. According to Iraqi officials, the Anglo-Dutch major has turned up in Baghdad regularly to underline its interest in the 100,000 b/d Ratawi field.
Other companies that have been negotiating development contracts include smaller European firms such as ENI and Repsol-YPF, which are both interested in the 300,000 b/d Nassiriya field, and Turkey’s TPAO, which has been negotiating for the 150,000 b/d Gharaf field, a race recently joined by Russia’s Mashinoimport and Rosneftegasexport. Australia’s BHP, CNPC, and a South Korean consortium have all expressed interest in the 250,000 b/d Halfaya field, while a grouping of Algeria’s Sonatrach, India’s Reliance and ONGC have been negotiating for the 150,000 b/d Tuba field.
A number of companies have been negotiating for other exploration contracts in the Western Desert. They include Petronas, PetroVietnam, TPAO, Russia’s Tatneft and Kalmneftegas, Tunisia’s ETAP, Canadian Natural Resources, and Irish Petrel Resources.
Post-war, US giants such as Exxon Mobil, ChevronTexaco, and ConocoPhillips would almost certainly want a slice of the action themselves, as would BP. While they don’t mention the fact they have been excluded from the $40 billion worth of contracts financed by oil revenues that Iraq has awarded since the start of the UN oil-for-food program in December 1996, they are probably looking to make up the loss. Diplomats estimate that Russian and French companies each account for 7%-8% of these contracts, most to supply goods and services for all economic sectors.
By Ruba Husari, Baghdad
(Published in Energy Compass February 28, 2003)