Iraq's oil lies in the hands of international oil companies As multinational military forces have left Iraq, international oil companies have fallen sharply - seduced by the long-term potential of vast oil reserves off-limits to foreigners for decades. However, the continuing violence, legal issues and political uncertainties are doing business in this country a bet.
In the auction world oil first edition last June, widely considered a failure, the Iraqi government has given a firm contract for only a consortium of British Petroleum and China National Petroleum Co. to develop the field over 20 Rumaila years. Iraq recently signed a first agreement with a group composed of Exxon Mobil and Royal Dutch Shell to develop the West Qurna field, and the other with a consortium led by ENI of Occidental Petroleum and Korea Gas to Zubair oil field.
Under the deal ratified, companies have everything to gain from a profit of only $ 2 on every barrel added to production because the Iraqi government wants to send "they will not let oil companies take over," said Robert Ebel, a senior adviser to the Energy and National Security Program at the Center for Strategic and International Studies (CSIS), a think tank based in Washington.
The operator of each service contract of 20 years, which may be extended by five years, "continues to yield a double digit," said Ruba Husari, founder and editor of the website Iraqoilforum.com, via e-mail from Baghdad. The proven oil reserves of the country were last estimated at 115 billion barrels. These mass reservoirs, and low cost of such an operation without complications, mainly to "easy oil" for businesses, Husari said.
Iraq will have about six million to 10 million bpd in the coming years, analysts say Oilprice.com. This scenario illustrates why oil companies are perhaps now more prepared than last summer to obtain an initial anchor in the industry of government's strict conditions and thus build a long term relationship that can lead to a contract production sharing "for some short, but oilfield-yet-underdeveloped," said Ebel. "That is an optimistic assumption, I do not know how realistic it is."
Yet, as companies salivate over Iraq's potential, the legal and political issues are still problematic for doing business. "Weak and poorly defined, the country ravaged by war legal structures, and moves by the uncertain future government expected to be elected in January, may result in cancellation of service contracts, warned David Bender, a analyst in practice in the Middle East to Eurasia Group's Washington office.
Through conversations with oil companies, Bender has gleaned that Iraq is probably not "totally developed in the legal details that are the most important aspect" and instead focuses on key political process. As a result, he said, members of a newly elected government, influenced by their own interest groups and "power politics" may cancel contracts, despite the associated penalties.
Finalizing a hydrocarbons law governing the long-awaited oil industry will be a priority for the next government, "said Mishkat al-Mumin, a research assistant at the Institute, a Washington-based Middle East and Iraq Minister of Environment from 2004 to 2005. Ideally, the legislation will provide an overview of investing in new oil fields, establishing a board to manage the issues of oil and provide a mechanism for distributing oil revenues, "she added.
The absence of an agreement on sharing oil revenues with the Kurdistan Regional Government continues to hit northern Baghdad, which never recognized as legal the Kurdish oil deals with small independent firms. "If you get an oil law in place, the Kurds to accept that the right oil or they will say..." You do not give us enough share of the income you receive from our oil, "questione.
Posted on February 4, 2010.
