Majors eye Iraq fields as oil law advances

An agreement on a draft oil law for Iraq may finally have been reached this week, bringing multinationals like BP and Royal Dutch Shell closer to long-sought contracts, Forbes reports. Iraqi government spokesman Ali al-Dabbagh told United Press International April 16 that a new understanding had been reached between Baghdad and the Kurdistan Regional Government (KRG), after a year of deadlock over the future of the country’s oil industry.

“There is an understanding between the central government and the regional government for the oil law,” al-Dabbagh was quoted as saying, raising hopes that the law can finally move forward, creating a legal framework for foreign investment in Iraq.

“The implications of a passed oil law allowing foreign investment would naturally be huge for Iraq, the region and the oil industry,” said Samuel Ciszuk, an analyst with Global Insight, “unlocking a new chapter for Iraq, allowing it to develop and modernize its oil and gas production rapidly.”

However, there does not seem to be an agreement on the disputed oil-rich city of Kirkuk, which the KRG claims. Currently, 97% of Iraq’s proven reserves of 112 billion barrels lie outside Kurdish territory, including Kirkuk.

Al-Dabbagh said an agreement for UN mediation on the status of Kirkuk could be in the works. Minnows such as Norway’s DNO have signed their own deals with the KRG. Press reports now claim an oil deal between Baghdad and one or more industry majors is in the works, though the Iraqi oil ministry reportedly denied it. (Forbes, April 16)

Forbes reports that Shell is among oil majors training workers to prepare for an eventual move into Iraq, once an oil law is agreed upon and security improves. Last September’s attack on the Kirkuk-Bayji pipeline killed 26 and injured 59.

Memoranda of understanding were signed last year between Iraq and majors Chevron and Total to develop the oil field of Majnoon in southern Iraq’s Basra province, but Forbes called them “wishful thinking rather than guaranteed business,” noting that the field was temporarily closed last September after violence from locals demanding employment. (Forbes, Oct. 10, 2007)

Baghdad has pre-qualified for bidding 35 of 120 foreign companies that submitted applications between Jan. 9 and Feb. 18 to participate in the first licensing round. Included on the list of 35 are Exxon Mobil, the world’s largest oil company, and Europe’s two biggest, Shell and BP, as are ConocoPhillips, Chevron, France’s Total, Russia’s Gazprom and Lukoil, Japan’s Mitsubishi and Inpex Holding, and China’s Sinochem. Authorities in Ankara are said to be miffed that the Turkish Petroleum Corporation (TPAO) did not make the pre-approval list. (Zaman, April 17)

Meanwhile, there are signs of a race between Western major seeking to export Kirkuk’s oil through Turkey and Russian interests seeking to export Kirkuk’s oil through Syria. Iraq’s state-owned North Oil Co. has signed a preliminary agreement with Russia’s Stroytransgaz for the repair of the Iraqi section of the 880-km Kirkuk-Banias pipeline. In 2007, Stroytransgaz received a contract to bring the Syrian section of the line back into working condition. The pipeline was closed for much of the 1970s and 1980s. In the 1990s, it was reopened so Iraq could bypass the UN oil embargo. (Oil & Gas Journal, April 15)

Is the KRG hoping for Western contracts, while Baghdad is tilting to Russia and Syria as a counterweight to the West and the Kurds, replicating Saddam’s strategies?

See our last posts on Iraq and the oil struggle, and Kurdistan.