Iraq Oil Report

Plus:
*Iraq announces five long-term oil field/two gas field contracts up for bid
*Iraqi Kurdistan pans Baghdad’s moves
*Iraq Parliament Oil & Gas Committee demands oversight
*KRG explains oil deal breakdown

The U.S. advisers tasked to Iraq’s Oil Ministry were involved to some extent in the negotiated contracts between Iraq and the major international oil companies. U.S. advisers have been assigned to every ministry since 2003, but the oil sector was particularly shadowy and quiet.

Andrew E. Kramer of The New York Times reports a few of the U.S. advisers have told him of their involvement.

In their role as advisers to the Iraqi Oil Ministry, American government lawyers and private-sector consultants provided template contracts and detailed suggestions on drafting the contracts, advisers and a senior State Department official said.

It is unclear how much influence their work had on the ministry’s decisions.

Shell, BP, Chevron, Total, ExxonMobil, BHP Biliton, Dome and Vitol have all been negotiating technical support contracts with the Oil Ministry since late last year. The companies would get paid a set price for a set service: technology, equipment and training. Iraq’s oil sector needs of this, after decades of war, sanctions and Saddam Hussein ruined the once prominent domestic oil industry. And it needs help in making quality deals, as Iraqi experts were thrown out for political and religious affiliation or taken out by the violence.

The deals have not been made public, including their terms and price tag, and until that happens the quality of the return to Iraqis cannot be evaluated thoroughly. Even the details on the oil fields involved – Kirkuk, Rumaila, West Qurna, Zubair, Subba & Luhais and fields in Maysan province – are just now being released. Each field is to increase production by 100,000 barrels per day within the two year contract life, adding to the 2.5 million bpd produced in Iraq currently – a high since 2003.

The U.S. government has claimed it is not connected with negotiations, just offering advice when asked, and says the contracts are private sector matters.

USG policy since 2003, however, has been an advocate of free market and private sector leads in Iraq’s economy.

But Iraq has not concluded, if even conducted, the all important discussion as to what their oil industry should look like. Particularly, what the role of the international oil industry should be. Without that, any oil deals signed – be it by the Kurdistan Regional Government or Baghdad – will be controversial and face claims of illegitimacy, especially if the contracts are negotiated behind closed doors and not in a bidding process, and if the powerful oil unions don’t consent to the program.

Adding in the large oil companies who ran Iraq’s oil sector as their backyard playground in the first 40 years of Iraq’s oil life is another complication.

These deals, and those signed with the KRG, have not set well lately with members of Congress, Ben Lando reported last week for United Press International.

Iraq will offer seven oil and gas fields to international oil company development, Oil Minister Hussain al-Shahristani announced, to be awarded later this year or early next year.

These differ from the technical support contracts, which are limited in time and scope, and were not transparent, though the ministry claims the deals will be made public.

The bidding round, however, is supposedly going to be completely open, though the round of tenders has not been included in the Oil Ministry’s website, where oil sector tenders are usually cataloged.

The fields are Rumaila, Kirkuk, Zubair, West Qurna Phase 1, Bai Hassan and the Maysan fields. Maysan comprises three fields, Bazargan, Abu Gharab and Fakka, and the Oil Ministry said they are open to foreign firms for long-term development contracts, Ahmed Rasheed reports for Reuters. Two gas fields, Akkas and Mansuriyah, were also opened.

Taken together, the short-term and long-term contracts will open the door to major international involvement in the OPEC member’s oil sector for the first time in nearly four decades.

The Iraq Petroleum Co., a selection of the world’s largest oil companies from the 1920s through 1960s, had exclusive rights to explore and develop (or not develop, if they saw fit) Iraq, and had control over how much of the funds returned to the country.

The nationalization that began in the early 1960s and was completed a decade later is still considered a proud point in Iraq’s history, and international oil companies and their government supporters are viewed warily at best.

The Iraqi Parliament’s Oil & Gas Committee is demanding it reviews all oil contracts signed in Iraq.

Mustafa al-Hashemi reports for Azzaman the deputy of the committee, Abdul-Hadi al-Hasani, says that without a new oil law, the committee must vet oil deals.

Iraq is moving forward on developing the post-2003 oil sector using regulations remaining from before the war. Although the constitution called for new legislation for the hydrocarbons sector, that draft law has been stuck in political deadlock. The old law gave the Oil Ministry much sway, after Saddam Hussein shut down the Iraq National Oil Corp. in one of his political consolidation moves.

The Kurdistan Regional Government has also signed dozens of negotiated oil deals with international oil companies to explore for and develop oil in its three northern provinces, inluding a handful just last week,and Baghdad has demanded oversight in weak ebbs and flows of statements.

The KRG says the 2005 Constitution authorizes its moves, though Shahristani has called them illegal and the two sides have often butted heads over oil development rights.

For more on the KRG deals, read “Wildcatters in Controversial Northern Iraq Deals Optimistic,” by UPI’s Ben Lando.

Though the KRG has typically kept quiet on the Baghdad oil moves, it has now released a report it commissioned comparing its production sharing contracts with Shahristani’s six technical support deals.

The KRG report called the TSCs “disastrous,” according to a KRG statement.

For the full report by oil legal regime expert Dr Pedro van Meurs, click here for the PDF.

The study said Iraq would lose hundreds of billions of dollars over time due to the PSCs.

The contracts have not been published, but Ashti Hawrami, Iraq’s Kurdistan Regional Government natural resources minister, insists everything needed to know about what’s in the dozens of contracts signed between the KRG and international oil companies is in the public domain.

In a recent interview with United Press International’s Ben Lando from his office in Erbil, the capital of the KRG, Hawrami explained the breakdown of contract ownership by the companies and how much control the government has in the contract.

Spencer Swartz reports for Dow Jones Newswires that recent negotiations in Baghdad over the oil law didn’t make any progress.

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*Big Oil deals with Baghdad are the target
*As are Hunt Oil and other KRG deals signed with U.S. firms
*Plus, Iraq to establish Maysan oil company
*And, Alive in Baghdad

U.S. congressional leaders are pressing the Bush administration to block deals to be signed between the Iraqi federal government and the world’s largest oil companies and to cancel deals between the Iraqi Kurdish region and smaller U.S. oil firms.

Sens. Charles Schumer, D-N.Y., John Kerry, D-Mass., and Claire McCaskill, D-Mo., want the United States to dam negotiations on contracts the senators claim will, in part, further sectarian fighting.

United Press International’s Ben Lando has also obtained a letter from Senate Committee on Armed Services Chairman Carl Levin, D-Mich., to President Bush’s national security adviser Stephen Hadley, asking the administration to press Hunt Oil and other U.S. companies to cancel their oil deals with the Kurdistan Regional Government of Iraq.

The Iraqi Oil Ministry is negotiating two-year, technical support contracts — also being called technical service contracts — with Shell, BP, ExxonMobil, Chevron, Total, BHP Billiton and a consortium led by Anadarko. The deals, the scope and price of which have not been made public, are presumed to be worth $500 million each and provide technology, training and equipment to six key oil fields in Iraq, according to past ministry statements.

Each field would increase production by 100,000 barrels per day. The companies would likely not send any workers to Iraq. Shell, BP, Exxon and Total were part of the Iraq Petroleum Co., which controlled Iraq’s oil sector for decades before being kicked out in the 1960s and 1970s.

“We can confirm that negotiations between Shell and representatives of the Ministry of Oil regarding technical service agreements are ongoing. However, we regard further details as confidential,” said Shell spokesman Adam Newton, adding the company has no comment on the senators’ demands.

“If the Iraqi government decides it wants international oil companies to partner with them in developing their resources, ExxonMobil would be interested in participating,” said Exxon Manager of Upstream Media Relations L.A. D’Eramo. “Consistent with our long-standing global business strategy, ExxonMobil would pursue business opportunities as they arise in Iraq, just as we would in other countries in which we are permitted to operate. With that noted, at this time it would be premature to discuss specifics about any potential opportunity with Iraq.”

“We have a memorandum of understanding with the Iraqi government whereby we have provided free technical advice,” said Anadarko Manager of External Communications John Christiansen. “However, we do not intend to pursue additional interests at this time.”

The other companies couldn’t be reached or couldn’t provide comments before the article was published.

CLICK HERE for the entire must read article.

From other media:

“Iraq is a sovereign country, and it can make decisions based on how it feels that it wants to move forward in its development of its oil resources,” said White House spokeswoman Dana Perino, Anne Flaherty reports for The Associated Press. “And if that means that our companies here in the United States can compete and win business, then that’s for them and the Iraqis to decide,” Perino added. “But I don’t think the federal government of the United States needs to get involved.”

Iraq’s oil ministry has finished negotiations with oil majors on six short-term oil service contracts and hopes to sign the deals during the next month, Ahmed Rasheed reports for Reuters.

Iraq’s Cabinet has decided to establish a new oil state-owned company to manage and develop massive oil and gas resources in the southern oil-rich province of Maysan, the oil minister said Tuesday, AP reports. The announcement was made as government forces are cracking down on Shiite militias in the Maysan capital of Amarah, promising to boost the quality of life there now that the gunmen no longer rule the streets. Oil Minister Hussain al-Shahristani said the Maysan Oil and Gas Commission would be split off from the Basra-based Southern Oil Company and reorganized as an independent company.

Alive in Baghdad: Brigadier General Discusses Triangle of Death

Plus:
*Iraq’s next oil deals
*Basra exports back
*DNO production up
*Tee times in Iraqi Kurdistan
*Much more…

Al Herman is no diplomat. His choice words are frank, sometimes unprintable, and usually effective.

As America’s top adviser to Iraq’s Electricity Ministry for the past 28 months, he’s butted heads professionally with Iraqi ministers and the U.S. commanding general.

On Friday, the Angel of Light, as he’s been dubbed, turned out the lights of his office in Saddam Hussein’s old Republican Palace for the last time, Ben Lando reports for United Press International.

Demand for electricity is growing at a faster pace than supply, and a lack of security and needed infrastructure still plague the effort, but Iraq’s power stations are generating record electricity. The minister of electricity announced this month a $480 million deal with General Electric.

“I’m pretty positive about it,” said the 63-year-old with an often-used raspy smoker’s chuckle. “There’s a lot of activity going on. We would be setting records every day if the drought hadn’t occurred last year,” cutting power generation from the dams by 50 percent from last year.

Herman headed a handful-size team within the Iraq Transition Assistance Office, an evolution of the now shuttered Iraq Reconstruction Management Office, as the State Department’s senior consultant on the electricity sector.

Early efforts to refurbish or build new infrastructure were too grand for Iraq’s fragile system and led to wasted money. But the new plan led by ITAO and, until last week, Herman, is to build capacity to operate and maintain the infrastructure, allowing for growth. …

“You’re talking about a massive, massive reconstruction effort,” said Herman, who estimates $30 billion is needed for the reconstruction and expansion of the electricity sector, as well as tens of billions in related fuel infrastructure for the power plants. “It takes time to reconstruct.”

That blunt explanation may not sit well with Iraqis, where in any given household in any given area there are complaints of receiving only a few hours a day of irregular electricity, at best. …

Read the entire story. CLICK HERE.

Four Western oil companies are in the final stages of negotiations this month on contracts that will return them to Iraq, 36 years after losing their oil concession to nationalization as Saddam Hussein rose to power, Andrew Kramer reports for The New York Times.

While these deals are not new to Iraq Oil Report readers (most prominently Dec. 6 and Feb. 1.) there are a number of nice new nuggets:

Any Western oil official who comes to Iraq would require heavy security, exposing the companies to all the same logistical nightmares that have hampered previous attempts, often undertaken at huge cost, to rebuild Iraq’s oil infrastructure.

And work in the deserts and swamps that contain much of Iraq’s oil reserves would be virtually impossible unless carried out solely by Iraqi subcontractors, who would likely be threatened by insurgents for cooperating with Western companies. …

The no-bid deals are structured as service contracts. The companies will be paid for their work, rather than offered a license to the oil deposits. As such, they do not require the passage of an oil law setting out terms for competitive bidding. The legislation has been stalled by disputes among Shiite, Sunni and Kurdish parties over revenue sharing and other conditions.

A clause in the draft contracts would allow the companies to match bids from competing companies to retain the work once it is opened to bidding, according to the Iraq country manager for a major oil company who did not consent to be cited publicly discussing the terms.

While the current contracts are unrelated to the companies’ previous work in Iraq, in a twist of corporate history for some of the world’s largest companies, all four oil majors that had lost their concessions in Iraq are now back.

The BBC’s Marcus George has a great companion piece:

It’s difficult to imagine today, but 50 years ago the Iraqi oil industry was directed from offices thousands of miles from Baghdad.

In the 1950s, number 214 Oxford Street, London, was the headquarters of the Iraq Petroleum Company.

For three decades, the IPC held a stranglehold over Iraqi oil - a monopoly only broken with nationalisation in the 1960s.

But once again, foreign oil companies are waiting for another opportunity to return to Iraq. With governments eager to see the rocketing price of crude oil kept under control, focus on Iraq is increasing.

And writing in an Op-Ed for UPI, Consumers For Peace director Nick Mottern has another take.

Basra exports are back after weather, Alsumaria TV reports.

Norwegian oil company DNO said on Wednesday its output in Iraq, on a working interest basis, jumped to 11,685 barrel per day in May from 5,961 barrels in April, Reuters reports.

In the twilight years of the Iraqi monarchy in the late 1950s, Dhia Jafar, then Iraqi development minister, inaugurated two hydroelectric dams in the mountains of Kurdistan. For more than half a century afterwards, no new power stations were commissioned in the northern regions of Iraq, Simeon Kerr reports for the Financial Times. Now Hamid Jafar, the minister’s son, is developing and transporting natural gas to fuel two new power stations in Irbil and Suleymaniya, aiming to deliver stable power to Iraqis who still have only a few hours of mains electricity a day.

Getting a tee time in Iraq may seem far-fetched, but a $4.5 billion development planned in the more secure northern Kurdish area would bring 9 holes, a country club and a resort to northern Iraq, Ben Lando reports for The Washington Times. The Tarin Hills project announced this month is a made-to-order community including apartments and houses, a mosque, primary and secondary schools, a medical center and a lake running through what is now dusty foothills home to no one but a few scattered families and shepherds.

The rest of Iraq is focused on security and building up the fledgling government, and getting vital services to citizens. Kurdish citizens, too, still want for regular electricity, food and other daily supplies.

Iraq’s parliament will start holding sessions outside the U.S.-protected Green Zone in the fall, the deputy speaker said Tuesday, Qassim Abdul-Zahra reports for The Associated Press.
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Plus:
*Shell and South Gas Company to team up on joint venture
*Turkey and Syria eyeing Akkas gas field

More of Iraq’s oil has seen the light of day and exports have realized post-invasion records as measures to stem attacks and other interference have proved successful along the key northern pipeline system.

Some who used to target the pipeline — especially on the link from Baiji north through hot Sunni Arab insurgent territory and to Turkey — are now paid to protect it, though long-term success is far from guaranteed.

“The export pipeline was under attack constantly last year this time,” Oil Minister Hussain Shahristani told United Press International’s Ben Lando during an interview in his Baghdad office. …

Overall oil production averaged 2.55 million bpd in May, “and we’ll keep on adding to it toward the end of the year,” Shahristani said. “We are planning to reach 2.8 (million) to 2.9 million bpd.”

Iraq’s south has more oil reserves, production and exports, and it has been less frequented by attacks. It’s humming at 1.92 million bpd in production, he said, while northern flow has increased to 630,000 bpd. Domestic consumption is at “about half a million barrels a day,” Shahristani said, with the rest sent to market via pipeline.

Although they hit 450,000 bpd in May, the pipelines from the Kirkuk fields in Iraq’s north to the refinery of Baiji and then onto the Turkish port of Ceyhan were offline more often than not since 2003. Saboteurs were either sparking explosions as they tapped into the system or, more often, launching attacks on workers and infrastructure as part of their campaign.

There have been at least 779 attacks on pipelines from March 2003 through May 15, 2008, according to an expert in threats and vulnerabilities to the energy sector worldwide, who spoke to UPI on condition of anonymity.

Refineries have sustained 585 attacks, 569 on tanker trucks, six on maritime tankers and 47 attacks at the oil fields. And 767 workers have been killed, wounded or kidnapped.

More incidents have likely occurred but have gone unreported, the expert said.

This is true for the electricity sector as well, including 1,285 workers who met the same fate as their oil colleagues. …

Read the entire story. CLICK HERE.

Shell and Iraq’s South Gas Company are nearing a deal on a joint venture to develop the massive gas reserves in the south of the country, Perry Williams reports for the Middle East Economic Digest. Shell has submitted a gas master plan to harness the massive reserves and mostly wasted gas produced – and like oil there’s likely plenty more to be found. Shell is also attempting a deal to develop the Akkas gas field.

Turkey’s energy minister also said on Friday, that Turkey has been talking to Syria and Iraq to extract natural gas from Iraq’s Akkas fields, Hurriyet reports. “We are planning to carry Iraqi gas through a pipeline right next to the Kirkuk-Yumurtalik oil pipeline. We are holding tri-lateral negotiations with Syria and Iraq to extract and use gas in the Akkas fields, and we hope our talks would yield a positive result,” Guler told a Turkish-Arab economic forum in Istanbul on Friday.

This is a relatively new option being pushed for the Akkas gas field. It’s along the Syrian border, and the export option discussed has been directly to Syria for domestic consumption and then transit north in the Arab Gas Pipeline. Taking it through western Iraq and up to Turkey would be more expensive, require more security and is likely not going to happen.

Turkey’s direct-from-Iraq gas negotiations have been centered more on the Iraqi Kurdistan potential gas reserves, which would have an easier time being sent in a new pipeline alongside the Kirkuk-Ceyhan oil lines. However, exports must compete from a very large and growing domestic demand for Iraq’s gas to stay in country.
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Iraq’s Kurdish region has been collecting millions of dollars in signing bonuses for 19 oil deals inked with international oil companies but is waiting for a federal revenue-haring law before turning it over to Baghdad.

The signing bonuses vary from between $1 million and $5 million “to sometimes more than that,” Kurdistan Regional Government Minister of Natural Resources Ashti Hawrami told United Press International’s Ben Lando, though he wouldn’t give details “until we publish the information.” …

“The signing bonuses are part of the oil revenue, and they should be accounted for as such. That money hasn’t been touched by the regional government. It’s basically accounted for to be deposited when we have an agreed revenue sharing law.”

Also to be published are details of what is required of the contractors, aside from searching for and producing oil and gas. …

“We’re also doing some sales of crude oil internally now,” he said. “A few million dollars of revenue is accumulated, again this revenue is accounted for in the same way.” …

Read the entire article. CLICK HERE.

Iraqi kidnap victims’ wives face financial struggle, Hind al-Safar and Zaineb Naji report for the Institute for War & Peace Reporting. Women whose husbands go missing find it difficult to obtain government aid.

Secular women’s groups and religious leaders are battling over how much influence Islamic law should have over Iraqi Kurdistan’s new personal status legislation, Amanj Khalil reports for IWPR. Women claim the new law erodes their rights. They’re angry at plans to base legislation and inheritance on Islam.

Read Iraq’s editorial pages: the Iraq Press Roundup by UPI’s Hiba Dawood.

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