Iraq Oil Report

Oil negotiations between a handful of foreign companies and the government here appear stalled, setting back once again efforts to open up Iraqi oil fields to international companies, writes Gina Chon for The Wall Street Journal.

Oil Ministry officials had said they hoped to sign contracts by the end of June. That deadline came and went without a deal. Now, talks with major oil companies, such as Royal Dutch Shell PLC, BP PLC and Exxon Mobil Corp., appear to have hit new snags.

Iraq has terminated negotiations with an Anadarko Petroleum Corp. (APC)-led consortium for a short-term oil service contract, Dow Jones Newswires reported.

The consortium, which also consisted of Vitol Holding and the United Arab Emirates’ Dome International, was negotiating a short-term no-bid technical service contract, or TSC, to develop Luhais oil field in southern Iraq.

The Iraqi oil ministry is still waiting for other major international oil companies to submit new proposals for the or TSCs, the officials and sources said.

Iraq is to sell low-priced crude oil to Jordan at $22 per barrel less than the rate agreed by the two neighboring states under a 2006 deal, PressTV reported.

“After renewing the oil agreement between the two countries during Iraqi Prime Minister Nuri al-Maliki’s June visit to Jordan, Iraq has agreed to increase the oil discount from 18 dollars a barrel to 22 dollars a barrel,” said Jordanian Energy Minister Khaldun Qteishat.

Al-Maaqal Port in Basra has reopened after a four-month closure for renovation work, Hugh Tomlinson reports for Middle East Business Intelligence.

The oil port in Iraq’s southern province has been closed for refurbishment to its quay walls and for new equipment to be installed.

Established in 1916, it is the oldest of Iraq’s functioning ports and much of its infrastructure had become rundown.

“Technical teams and engineers from the State Company for Iraqi Ports have finished all rehabilitation work in the port, which was opened today following a four-month stoppage,” said the company’s general director, Salah Khudeir.

Iraq’s oil ministry said it plans to resurrect a major oil deal with China that fell apart amid crippling United Nations sanctions and the aftermath of the 2003 US-led invasion, AFP reported.

Oil minister Hussein Al-Shahristani met with Chinese ambassador Chang Yi to revive the 1997 contract that granted China exploration rights to the Al-Ahdab oil field in the province of Wassit, just south of Baghdad.

“Iraq and China are concerned with completing the agreement to develop Ahdab oil field,” a statement from the Iraqi oil ministry said.

The U.S. should stop paying for reconstruction projects in Iraq because the Baghdad government can fund the rebuilding from its sales of crude oil, two U.S. senators said.

Proposed legislation in the Senate, Bloomberg reported, would stop the U.S. from using any more taxpayer money to fund reconstruction projects in Iraq, Senator Carl Levin, chairman of the Senate Armed Services Committee and a Michigan Democrat, said on CNN’s “Late Edition” program.

Iraq’s Cabinet has approved a multimillion dollar contract to upgrade an oil refinery in southern Iraq, The Associated Press reported.

The $81-million contract will be awarded jointly to the U.S.-based Colorado Industrial Construction Services Co. (CICSCO) and CH2M HILL’s affiliate VECO Co. for the production of gasoline from the Samawah refinery, according to the official, who spoke on condition of anonymity because he was not authorized to release the information before the contract is signed.

Iraq’s State Company for Oil Projects (Scop) is moving ahead with the upgrade of its 150,000 barrel-a-day Basra refinery after inviting bids for the supply of pipes and fittings.

The deadline for bids is 10 August. Scop says it will not necessarily accept the lowest-priced bid, reports Perry Williams for Middle East Business Intelligence.

Iraq’s state-run North Oil Company has invited companies to bid for new drilling work at its largest gas field Akkas, and on the East Baghdad oil field as part of plans to redevelop the energy sector.

The tender for the western Akkas field, which has 7 trillion cubic feet of gas, involves the upgrade of four horizontal-producing wells using one rig.

Bids are due by 30 September, with the contract expected to last between six and eight months, the Middle East Business Intelligence says.

Iraqi oil exports have fallen for two consecutive months, writes Tamsin Carlisle for The National, a possible sign that production may have peaked for now amid struggles to restore damaged energy infrastructure.

Iraq’s crude oil exports slipped to 1.89 million barrels per day last month from 1.93 mbd in June and 1.99 mbd in May, according to news agency reports. The May level was the highest since the US-led invasion of Iraq in March 2003.

Iraq is paying for more of its own reconstruction but is still struggling to spend its multibillion-dollar surplus as it copes with a flood of oil revenue and a cumbersome approval process meant to curb corruption, Robert H. Reid for the AP reports.

U.S. officials who work with the Iraqis on reconstruction said the Baghdad government has been increasing its capital spending by 30 percent to 35 percent each year since 2006 — although they added that both governments want to see the pace increased.

The Iraqi government is drafting plans for Iraqi-funded projects to include 1,000 new primary health care centers over the next 10 years, new airports and a major renovation project for downtown Baghdad, the American officials said.

Soaring oil prices will leave the Iraqi government with a cumulative budget surplus of as much as $79 billion by year’s end, according to an American federal oversight agency. But Iraq has spent only a minute fraction of that on reconstruction costs that are now largely borne by the United States.

The unspent windfall, which covers surpluses from oil sales from 2005 through 2008, appears likely to reinforce growing debate about the approximately $48 billion in American taxpayer money devoted to rebuilding Iraq since the American-led invasion, note James Glanz and Campbell Robertson for The New York Times.

According to the GAO’s latest report to Congress, the oil boom will give Iraq a surplus of $79 billion in unspent funds by the end of this year, writes Bronwen Maddox for The Times of London. Nearly $10 billion has been sitting in a U.S. bank in New York. The report, commissioned from the oversight agency by two senators, the Democrat Carl Levin and the Republican John Warner, will reignite questioning about the $48 billion the U.S. has spent since the 2003 invasion on rebuilding a country with the third-greatest oil reserves in the world.

U.S. lawmakers want Iraq to use bigger oil profits to pay for more of its own reconstruction. VOA Correspondent Scott Stearns reports, Iraq’s parliament has approved a supplementary budget that raises this year’s spending to more than $70 billion.

Thousands of workers in Iraq’s Southern Oil Company organized a two-hour sit early this week protesting a government decision to replace the company’s chief.

CEO Abduljabbar al-Aibi has been leading the company for the past four years and is credited with efforts to revamp the firm and maintain and boost output.

The company in the southern Province of Basra is responsible for gigantic oil fields which currently produce most of Iraqi oil exports.

The sit-in was called for by the Oil Workers Union, Abed Battat writes for the Iraqi daily, Azzaman.

The U.S. government says that Iraq has tucked away billions of dollars in oil revenue since 2005. But the country’s badly damaged infrastructure is still mostly propped up by U.S. funds. NPR’s Madeleine Brand talks to James Glanz, the New York Times Baghdad bureau chief, about where the money’s going and why some officials are crying foul.

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The Oil for Iraq Liberation bill, introduced by Congressman Dennis Kucinich, D-Ohio, will prevent U.S. based oil companies from development of and investment in petroleum resources of Iraq.

“Recently we have seen evidence of a concerted effort to pressure the Iraqi government into privatizing Iraqi oil fields against the will of its citizens. We have also heard that certain high level architects of the Iraq war stand to gain financially. This bill will ensure that the Iraqi oil money stays out of the hands of U.S. oil companies who would otherwise benefit from the US attack on and occupation of Iraq.”

Despite intense U.S. pressure, Iraqi legislators Sunday failed to reach an agreement to solve an increasingly bitter dispute over the oil-rich northern city of Kirkuk, Leila Fadel and Sahar Issa write for McClatchy.

Kirkuk sits on Iraq’s northern oil fields and also on a fault line between the Sunni Muslim Kurds who dominate most of northern Iraq and the Sunni Arabs who occupy the center of the country.

The parliament’s inability to resolve the dispute over the city mirrors Iraqi political leaders’ inability to make progress on other fronts, including constitutional amendments and the passage of a law governing the distribution of the country’s oil revenues, despite the recent improvements in security.

Iraq is inviting bids from contractors to drill seven new oil wells and complete work on four natural gas wells.

The Oil Ministry says contractors have until Sept 15 to submit bids to drill in the East Baghdad oil field.

Today’s statement says bids to complete four gas wells in the Akkas gas field in western Iraq will be accepted until September 30, the UAE’s The National reports.

UAE-based Dana Gas and its partner and shareholder Crescent Petroleum announced on 29 July that a 462mn cu. ft. site has been allocated for its planned Kurdistan Gas City.

However, the success of the project, which will cost $3bn to build and generate planned foreign investment of over $40bn, like other Kurdistan Regional Government (KRG) energy initiatives, will likely depend on the resolution of the dispute over what powers the federal Ministry of Oil wields in regions such as the KRG, the Tehran Times said.

The UK/Dutch Shell Group hopes to sign short-term technical service agreements in Iraq shortly, in addition to a gas deal, but has failed to give a definitive timeline for either.

“In Iraq, subject to the security situation, we are keen to make progress,” says Jeroen van der Veer, chief executive officer at Shell, writes Perry Williams for the Middle East Business Intelligence.

Iraq’s daily oil production is at its highest level since the March 2003 U.S. invasion, in large part thanks to improved security, according to a Pentagon audit.

“Iraqi oil production set new records this quarter, with output reaching 2.43 million barrels per day, the highest quarterly average since the invasion,” Stuart Bowen, the Defense Department’s inspector general for Iraq reconstruction, wrote in his 18th quarterly report to Congress on the expenditure of $50 billion in U.S. economic aid. Production fell to 1.3 million barrels a day during 2003, Bloomberg’s Tony Capaccio reported.

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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.

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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.

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