Iraq's Oil Stalemate
06.24.09, 01:50 PM EDT
The battle is still not won for foreign oil companies looking to tap into the country's lucrative reserves.
PARIS
-- Oil majors like BP, Total and ExxonMobil have waited a long time for
access to Iraq’s oil reserves, following the United States-led invasion
of 2003. While smaller companies raced into the semiautonomous and far
more stable region of Iraqi Kurdistan to get a head start, Big Oil
preferred to wait and play it safe with Baghdad, seat of the central
government, which has repeatedly frowned upon the Kurds’ awarding of
production contracts without a federal agreement in place.
It
would seem now that finally Big Oil is going to get its due after years
of waiting, with the Iraqi Oil Ministry set to announce the winners of
the first round of service contracts offered by Baghdad on June 29 and
June 30. Over 30 companies have reportedly taken part in the bidding,
including BP ( BP - news - people ) and Exxon Mobil ( XOM - news -
people ), with the winner expected to receive a fixed fee for every
barrel produced over a certain amount. These are not as attractive as
production-sharing agreements, where the oil company and the government
split the profits, but at least they involve oilfields that are already
up and running.
The problem is that, even after years of
sitting on the sidelines, it's still too early to get excited.
Opposition to the bidding process itself is rife, not just among the
Kurds, who are riled at Baghdad’s long-running campaign to nullify
their own production contracts, but also among Iraqi parliamentarians
and players within the oil industry. They argue that the focus on
service contracts deters foreign investment in undeveloped fields, and
also claim that the terms are far too favorable for the bidders.
''There
will be a lot of wrangling and negotiating after the contracts are
awarded,'' said Samuel Ciszuk, an analyst with IHS Global Insight. He
said it would be ''literally time-wasting'' until the parliamentary
elections due in December.
At
the heart of this debate is the lack of a legal framework for oil
contracts in Iraq. Reaching a cross-party consensus on how to divide
the country’s oil wealth has proved simply impossible. The Kurds gave
up waiting and issued contracts anyway; now Baghdad is doing the same.
The problem with using Saddam Hussein-era legislation is that the
parliament is kept out of the bidding process--which is precisely what
irks Iraqi lawmakers, who feel that Baghdad is leapfrogging over their
interests.
So for the moment, smaller companies
operating in Kurdistan like DNO ( DTNOF - news - people ) and Addax
Petroleum ( ADXTF - news - people ) have the upper hand. Since June 1,
Baghdad has even allowed them to export oil, which is where the real
money lies; up until recently they were allowed to sell only to the
local market. But their victory might prove Pyrrhic, particularly if
Baghdad keeps up its "blacklisting" of these companies and fulfills its
promise to not pay the Kurdish regional government a penny for the
export revenues. Judging by the current political stalemate, though,
they have time on their side.
http://www.forbes.com/2009/06/24/iraq-bp-total-markets-commodities-oil.html?feed=rss_markets
06.24.09, 01:50 PM EDT
The battle is still not won for foreign oil companies looking to tap into the country's lucrative reserves.
PARIS
-- Oil majors like BP, Total and ExxonMobil have waited a long time for
access to Iraq’s oil reserves, following the United States-led invasion
of 2003. While smaller companies raced into the semiautonomous and far
more stable region of Iraqi Kurdistan to get a head start, Big Oil
preferred to wait and play it safe with Baghdad, seat of the central
government, which has repeatedly frowned upon the Kurds’ awarding of
production contracts without a federal agreement in place.
It
would seem now that finally Big Oil is going to get its due after years
of waiting, with the Iraqi Oil Ministry set to announce the winners of
the first round of service contracts offered by Baghdad on June 29 and
June 30. Over 30 companies have reportedly taken part in the bidding,
including BP ( BP - news - people ) and Exxon Mobil ( XOM - news -
people ), with the winner expected to receive a fixed fee for every
barrel produced over a certain amount. These are not as attractive as
production-sharing agreements, where the oil company and the government
split the profits, but at least they involve oilfields that are already
up and running.
The problem is that, even after years of
sitting on the sidelines, it's still too early to get excited.
Opposition to the bidding process itself is rife, not just among the
Kurds, who are riled at Baghdad’s long-running campaign to nullify
their own production contracts, but also among Iraqi parliamentarians
and players within the oil industry. They argue that the focus on
service contracts deters foreign investment in undeveloped fields, and
also claim that the terms are far too favorable for the bidders.
''There
will be a lot of wrangling and negotiating after the contracts are
awarded,'' said Samuel Ciszuk, an analyst with IHS Global Insight. He
said it would be ''literally time-wasting'' until the parliamentary
elections due in December.
At
the heart of this debate is the lack of a legal framework for oil
contracts in Iraq. Reaching a cross-party consensus on how to divide
the country’s oil wealth has proved simply impossible. The Kurds gave
up waiting and issued contracts anyway; now Baghdad is doing the same.
The problem with using Saddam Hussein-era legislation is that the
parliament is kept out of the bidding process--which is precisely what
irks Iraqi lawmakers, who feel that Baghdad is leapfrogging over their
interests.
So for the moment, smaller companies
operating in Kurdistan like DNO ( DTNOF - news - people ) and Addax
Petroleum ( ADXTF - news - people ) have the upper hand. Since June 1,
Baghdad has even allowed them to export oil, which is where the real
money lies; up until recently they were allowed to sell only to the
local market. But their victory might prove Pyrrhic, particularly if
Baghdad keeps up its "blacklisting" of these companies and fulfills its
promise to not pay the Kurdish regional government a penny for the
export revenues. Judging by the current political stalemate, though,
they have time on their side.
http://www.forbes.com/2009/06/24/iraq-bp-total-markets-commodities-oil.html?feed=rss_markets