Iraq Oil Report

Influential former Pentagon official Richard Perle has been exploring going into the oil business in Iraq and Kazakhstan, write Susan Schmidt and Glenn R. Simpson for The Wall Street Journal.

Perle, one of a group of security experts who began pushing the case for toppling Iraqi dictator Saddam Hussein about a decade ago, has been discussing a possible deal with officials of northern Iraq’s Kurdistan regional government, including its Washington envoy, according to these people and the documents.

It would involve a tract called K18, near the Kurdish city of Erbil, according to documents describing the plan.

Gas Cities LLC, a joint venture between Dana GasDana GasLoading… PJSC, the Middle East’s first and largest regional private-sector natural gas company, and its partner Crescent PetroleumCrescent, announced that the 461 million square foot site for the Kurdistan Gas City has been officially assigned by the Kurdistan Regional Government (KRG), for development by Gas Cities LLC, following extensive surveys that have been completed on potential sites within the Kurdistan Region of Iraq.

The groundbreaking ceremony of the Kurdistan Gas City will take place on the 21st of September, 2008, a joint statement read.

The U.S.’s Energy Information Administration projects that crude oil prices will average about $127 a barrel in 2008 and $133 in 2009, up from the $72 average in 2007. With the world’s third largest proven reserves, and production having finally returned to 2.5 million barrels per day, Iraq’s revenues will surely be greater than in past years. Iraq is expected to draw $70 billion in oil revenue this year alone, and its government has announced plans to further increase oil production.

One of the first things Iraq will need to do is upgrade its equipment used for oil production, writes Daveed Gartenstein-Ross for the Middle East Times.

The Iraqi Oil Ministry says oil exports in June amounted to 58.1 mn barrels, a 4.3 per cent decline from the previous month.

Sunday’s statement says it sold for US$123 a barrel and yielded US$7.141 bn. It adds that 43.6 mn barrels were exported through the south and 14.5 mn from Turkey’s port of Ceyhan. No reason was given a reason, but exports through Basra’s ports were suspended for a few days last month because of sandstorms, The Economic Times of India reported.

Reports that a number of international oil companies are on the brink of signing contracts with Iraq have prompted a furious reaction in certain parts of the media and on Capitol Hill. The deals have been widely characterised as no-bid contracts, implying that Big Oil has somehow used its political clout to muscle in on Iraq and renewing suspicion that the whole US intervention in Iraq was primarily a grab for natural resources, Raad Alkadiri reports for Gulf News.

Foreign firms are reluctant to invest in the country’s service contracts which the Oil Ministry is currently negotiating, the Iraqi daily Azzaman reported.

Iraqi oil officials say they doubt whether any of the firms expressing a willingness to sign service contracts will start work in earnest once they win the deals.

Generally, foreign majors are not as keen to enter into oil service deals unless they have some form of guarantee that they will be given preferential treatment with more lucrative contracts concerning the development of new fields.

The government is not constitutionally authorized to sign development deals but it has the right to strike service deals with foreign firms.

##

An oil refinery in the once restive and violent city of Haditha is working once again.

The reopening ceremony was attended by Oil Minister Hussein Shahristani who thanked the people of the Province of Anbar, of which Haditha is a major town, for their efforts to restore relative stability.

The refinery was shut due to mounting violence which had turned the whole of Anbar Province into a war zone, Azzaman reports.

Ramco Energy notes the recent share price movements and articles in the media surrounding its associate company Mesopotamia Petroleum Company Limited, in which Ramco holds a 32.66% interest, concerning the establishment of a joint venture with the Government-owned Iraqi Drilling Company.

Ramco confirms that MPC has been in talks concerning the establishment of a joint venture to provide oil services with IDC, under a mandate from the Iraq Ministry of Oil, for some considerable time and these have reached an advanced stage, OilVoice said.

UK’s Midmar Energy confirmed the deal, saying that its associate company, Mesopotamia Petroleum Company (MPC), is in the advanced stages of discussion regarding a joint venture with state-owned Iraq Drilling Company (IDC).

Midmar formed MPC in 2005, with its partners, as an oil and gas company established for the specific purpose of undertaking operations in Iraq. Midmar holds a 32.67% interest, Upstreamonline reported.

“We anticipate the formal ratification of our agreements in order to progress our work in Iraq,” said Midmar boss Thomas Redman in a statement.

A project to supply, process, and transport natural gas to Kurdistan Region for much-needed and more affordable electricity is rapidly progressing.

The United Arab Emirates’ Dana Gas and Crescent Petroleum are to start producing natural gas in the Iraqi Kurdistan Region as of next month, and they promise to put an end to the devastating power and fuel crisis.

The head of Dana Gas, Hamid Dhia Jaafar, announced that his company and Crescent Petroleum will start producing natural gas in Kurdistan Region on August 1, 2008, Aiyob Mawloodi with The Kurdish Globe reports.

Occidental Petroleum CEO Ray Irani said Iraq’s larger oil fields will likely draw formal participation from a consortium of large Western oil producers later this year, as the war-torn country moves to ramp up its economy. “There are some very large fields in Iraq which are going to become available,” Irani told Wall Street analysts on a conference call. “The huge ones will be run by…the oil majors and companies our size. No one company is going to get a field of 20 billion barrels or more, period.” Occidental also sees an opportunity to run smaller fields in Iraq on its own, Steve Gelsi for MarketWatch says.

At a time of high oil prices and supply shortages, the dispute over Iraq’s oil reserves, which could produce an additional 1.5m barrels a day with minimum investment, demands urgent resolution.

Iraq’s oilfields require immediate and expert maintenance, and the Iraqi people need the funds the oil can command on the global market. But negotiations on a draft national oil law are hopelessly stalled and controversy has erupted over proposed contracts with foreign oil companies. Iraq needs international support to negotiate fair and sustainable deals, Yahia Said writes for The Financial Times.

Iraq may be seeking to accelerate crude production, says Tamsin Carlisle for The National, but the outlook for concluding any agreements to develop the country’s oil and gas resources remains exceptionally murky.

Earlier this month, the oil ministry of Iraq asked international oil companies to revise proposals for short-term deals to raise output from Iraq’s six biggest producing oil fields, shortening the contracts to between 12 and 18 months from the two years previously stipulated. But there is no guarantee that Western oil companies involved in the negotiations will be amenable to the new terms.

Industry analysts and executives are skeptical a planned opening of the war-torn country’s oil industry to foreign investment will bring big profits for the Western Oil Majors, or boost output as much as hoped, Tom Bergin writes for Reuters.

While many have lined up to register to bid for Iraqi oil deals, actual bidders may be thinner on the ground and deals may take longer to conclude than the government plans.

“If the invasion was about oil, let the record show it has been more botched than even its toughest critics claim,” Raad Alkadiri, Senior Director in the Markets and Country Strategies practice, at industry consultants PFC Energy said in a note to clients.

Responding to a request by four Senate Democrats, the State Department’s inspector general

has announced an inquiry into the department’s policy on western oil company contracts in Iraq.

“I have initiated a review of the responses provided to Congress recently on issues surrounding oil contracts, oil field development and U.S. policy in Iraq,” Acting State Department Inspector General Harold Geisel wrote in a June 22 letter obtained by CongressDaily.

The letter to Senate Armed Services Committee Chairman Carl Levin, D-Mich., and Sens. Charles Schumer, D-N.Y., John Kerry, D-Mass., and Claire McCaskill, D-Mo., refers to material State gave the House Oversight and Government Reform Committee for its investigation into a deal involving Texas-based Hunt Oil Co., as well as other potential oil contracts.

##

“Iraq has many underexplored and underexploited fields, but who can tell what’s going to be happening with Iraq?” said Paul Sullivan, economics professor at the National Defence University in Washington, DC.

The remark was made in a recent discussion on energy, security and development at the Centre for Strategic Studies at the University of Jordan.

Sullivan, who is also an adjunct professor of security studies at Georgetown University, said most of the major oil finds over the last century were made in the 1960s and 1970s, adding that any further discoveries will not come easy.

“Oil is finished, it’s over with, it’s done,” he said.

An oil refinery in Iraq’s western desert has resumed production, as part of an outreach to an area once controlled by Sunni insurgents, Sinan Salaheddin writes for the Associated Press.

The refinery, located near the Syrian border in the once-violent Anbar Province, was closed in 2005 due to deteriorating security. Its rehabilitation is part of efforts by the Shiite-led government to boost services and win loyalties in the nation’s Sunni heartland.

The refinery is expected to generate local jobs and meet needs for fuel and other petroleum products in the region, which was once the main stronghold of al-Qaida in Iraq.

As head of one of the country’s three state-owned oil companies, Sheikh Manaa Abdullah Alobaydi is one of the most important people in northern Iraq. He is such a major figure that the government won’t let him and Hunar Najeeb Hassan, director general of Northern Gas Co., travel outside Iraq at the same time.

Yet unlike so many powerful men in Iraq, the two company leaders studiously avoid politics, which both consider the bane of their existence. While lawmakers in Baghdad debate how to divvy up Iraq’s mineral wealth, the country depends upon apolitical oil and natural gas experts like them to keep that wealth flowing, reports James Warden with Stars and Stripes.

The European Union is negotiating an energy pact with the Iraqi government, part of the bloc’s efforts to reduce dependence on Russian oil and gas. Iraq has the world’s third largest proven reserves of oil and in late June opened key producing fields to foreign investment, Tim Cocks with Reuters says.

Republican Senate candidate Bob Schaffer said that oil leases he helped obtain for a former employer in the Kurdish region of Iraq didn’t undermine that country’s stability, and he strongly defended them as a boon to the Kurds as well as U.S. interests in the region, Michael Riley with The Denver Post reports.

In his most extensive comments yet on the subject, the former three-term congressman also clarified what he knew of U.S. State Department warnings that such leases were counterproductive to the American goal of a strong central government in Iraq.

The election plans remain snared in one of Iraq’s thorniest political dilemmas: the future of the oil-rich northern region of Kirkuk.

Iraq’s Kurds, who control a semi-autonomous region in the north, have held up parliament passage of a law to allocate funds and set guidelines for the provincial elections, writes Brian Murphy with the Associated Press.

Dr. Mahmoud Othman, a lawmaker with the Kurdistan block in the federal Parliament in Baghdad, has denied statements attributed to him by the press saying that the Kurdistan Regional Government’s oil contracts are illegal, the KRG said in a press statement.

Dr. Othman has requested the Kurdistan Regional Government issue a statement on his behalf clarifying that he was misquoted in his comments on proposed Federal Oil Ministry contracts and existing KRG contracts.

Iraqi Finance Minister Bayan Jabr Solagh said that Iraq’s booming oil wealth holds the key to peace and urged foreign investors to take part in huge projects planned by his war-ravaged country.

With state revenues quadrupled since the US-led invasion of 2003 and amid soaring world oil prices, “from my point of view, money is key to peace, it is the main key,” Solagh said in an interview with AFP.

Finally, after a long five years-plus, there was proof that the occupation of Iraq really did have something or other to do with oil, said Nick Turse with Salon.

Every time we put fuel in our cars, we are probably paying for the war in Iraq - a disturbing thought. The fact is, oil output from Iraq fell to one-third of what it was before the invasion and one-fifth of what it could now be. Fortunately, some Iraqi oil wells are currently being brought back into more regular production and there is talk of the discovery of a new field in the western desert of Iraq, writes Michael Casey for The Irish Times.

The al-Basaer newspaper of The Association of Muslim Scholars said in its Tuesday editorial that efforts by Iraq and the United States are focused on reaching a long-term strategic agreement. The agreement is to be signed between Washington and what the newspaper calls “the Iraqi government,” which al-Basaer says presumably is supposed to represent the will of the Iraqi people.

It said the United States would achieve victory with the passage of the agreement, while the Iraqi government would be a toy to place Iraqi oil legitimately in U.S. hands for decades.

A visit by the prime minister to Iraq last week paved the ground for a new era between Ankara and Baghdad, setting the ground for immense energy cooperation between the two countries as various agreements were reached, notes the Turkish Daily News.

A landmark consensus to secure Turkey’s rights to Iraqi oil, which grants authorization to the Turkish Petroleum Corporation, or TPAO, for oil exploration, drilling and marketing, was reached in a written document signed by the Iraqi oil minister at the last minute.

##

Reuters reported that the Iraqi Oil Ministry said the country will hold a major oil and gas conference in October to allow foreign oil firms to get a better understanding of the country’s energy potential.

The Oct 17-19 energy conference and exhibition will be the first event of its type in Iraq since the U.S.-led invasion in 2003. More than 50 international oil companies would take part, Oil Ministry spokesman Asim Jihad told a news conference.

“It will be a great chance for the Oil Ministry to meet global oil companies and discuss their potential role in developing Iraq’s oil sector,” Jihad said.

Iraq’s Oil Ministry said that it is close to signing contracts to build two new oil refineries in southern Iraq, the Associated Press said.

The ministry is expected to sign one contract for a 300,000 barrel-per-day refinery in Nasiriyah province by the end of July or early August, a senior oil official said.

The official said the ministry was studying proposals presented by international companies to build another 150,000-barrel-per-day refinery in Karbala. The official, who declined to name the companies, spoke on condition of anonymity because he is not authorized to make statements.

Most analysts believe that the autonomous Iraqi Kurdistan region possesses far more oil than current forecasts hold — possibly as much as 45 billion barrels, which would put the Iraqi north alone on the level of petro-titans like Nigeria. Kurdistan’s “prospectivity is beyond doubt,” Micael Gulbenkian of the Canadian Heritage Oil Company, which does business in Kurdistan, said in a 2006 interview.

The trouble lies in getting the oil out of the ground, writes Spencer Ackerman with The Washington Independent.

Reuters said that Iraq’s fledgling navy of battered patrol boats is bulking up for a greater role in protecting the country’s economic heart, its offshore oil terminals.

Putting on muscle to protect the two terminals that account for 90 per cent of Iraq’s revenues, the tiny navy is aiming to boost manpower by about a third to 2,500 in two years and greatly expand its fleet, now centred on five Chinese-made Predator patrol boats.

More control over its wreck-ridden waters at the head of the Gulf is another sign of Iraq’s determination to secure its oil infrastructure and reserves, the world’s third largest.

The oil deals the Kurdish regional government and the central government in Baghdad are signing are illegal, according to a top Kurdish politician and legislator.

Mahmoud Othman, the head of the powerful Kurdish bloc in Iraqi parliament, described the signing of these deals as “a premature and out-of-lace move” in the absence of a national law organizing the exploitation of the country’s oil riches.

Othman is the first senior Kurdish officials to criticize the oil development deals the Kurdish regional government has signed, the Iraqi daily, Azzaman reported.

The Canadians are squeezing oil from sand. The Brazilians want to nurse it up through miles of seawater, sandstone and salt. But here in the far north of Iraq, oil is literally bubbling to the surface.

Oil executives lament that the age of “easy oil” is over. It isn’t over here. For companies that have stumbled into this corner of Iraq known as Kurdistan, it’s an era that has just begun, writes Neil King Jr. for The Wall Street Journal.

##