Plus:
*Iraq to pre-qualify more companies for bidding on smaller fields
*Controversy over status of new oil law…
*…and what it means for a new state oil company
*Iraq oil profits up as production takes hit in April
*Shahristani in the news
*Iraq’s Refugees overlooked
*U.S. troops speak out against war
*Iraq Oil Report has the new Pentagon audit claiming nearly all of $8B in Iraq contracts it looked at was subject to fraud
*Much, Much more…
Niko Resources and Vast Exploration have signed a production sharing contract with the Kurdistan Regional Government in the region’s southeast.
“The obligations under the PSC include a onetime signature bonus and capacity building bonus paid to the Government within 30 days from the execution date of the contract,” according to the Niko statement. “Annual contributions to personnel, training and technological funds established by the Government, as well as community support contributions to be paid over a period of 15 months to assist with infrastructure projects in the area. The consortium will also be responsible for paying its proportionate share of certain production bonuses in the case of commercial discovery. The remaining minimum work program obligations represents an exploration commitment, expected to commence in the near future, which includes the acquisition, processing and interpretation of a minimum of 300 kilometers of 2D seismic data and drilling of one well during the first exploration period.”
There are rumors of more deals coming, perhaps up to five more, to be announced soon.
Meanwhile, Iraq is planning to issue a new list of pre-qualified international companies to bid for future oil and gas deals to develop the country’s smaller fields.
“There will be another invitation for companies to submit their qualification documentation to compete for the development of smaller oil and gas fields,” Assem Jihad told Dow Jones Newswires’ Hassan Hafidh.“There is another chance for companies to compete for the second round of licenses,” he added. Last April, Iraq accepted 35 international oil companies to compete for hydrocarbon contracts out of 120 firms that applied to the ministry to qualify.
The draft oil bill unofficially reached the Iraqi Council of Representatives while the Presidency of the Council was calling on the Iraqi Council of Ministers to officially send the bill to the Council, PUK Media reports. “The bill was unofficially reached the Council, this is not acceptable legally,” Deputy Chairman of Iraqi Council of Representatives, Arif Taifur, told PUKmedia, urging the Iraqi Council of Ministers to send it officially.
The powers of the Iraq National Oil Company are to be significantly curtailed under Baghdad’s latest energy policy, with two senior Iraqi ministers vowing to end its historical role in overseeing oil production, Perry Williams reports for MEED. “The state monopoly has proved to be an utter disaster,” says Salih. “There are those of us, not just in Kurdistan but in other parts of Iraq, who think the old way of mismanaging oil should be done away with.” The oil law has faced significant delays but further progress is expected in the next few months, according to Iraqi Foreign Affairs Minister Hoshyar Zebari. However, he declined to give a deadline for its approval. “The Americans are very keen to see this oil law pushed through this year,” says Zebari. “It came to a standstill but I think we have now broken the standstill and have agreed to go back to the original text. There will be progress this year.” Zebari and Salih, both who represent the pro-privatized oil sector Kurdish region, both have recently claimed Iraqi oil reserves are 350 million barrels.
Rising oil prices boosted Iraq’s month-on-month crude revenue despite a drop in exports last month, according to Oil Ministry data, Ben Lando reports for UPI. The price Iraq’s oil fetched, which is lower than the global spot market average, increased from $95.02 per barrel in March to $103.71 per barrel in April.
Saudi Arabia’s decision to increase oil production in June will not help lower the price of crude, Iraqi Oil Minister Hussain al-Shahristani said, Matthew Brown and Ayesha Daya report for Bloomberg News. The oil market is “well supplied,” and prices are being driven by “speculative flows” and not supply and demand, Shahristani said today in an interview in Sharm el-Sheikh, Egypt, at the annual World Economic Forum. “Everyone is pumping as much as they can at the moment,” he said. “Iraq has added 500,000 barrels over the last six months and it has made no difference.”
For a wide ranging interview of Shahristani by Ala al-Hattab of Al-Iraqiyah Television see the end of this edition of Iraq Oil Report.
You can also catch him as a featured speaker at the Middle East Weapons of Mass Destruction Free Zone 2008 conference June 16, hosted by the Center for International Studies and Diplomacy.
Investigative reporter and forensic economist Greg Palast says the new windfalls profits tax should be relabeled the war profits tax in this stinging new commentary excerpted here:
In a hotel room in Brussels, the chief executives of the world’s top oil companies unrolled a huge map of the Middle East, drew a fat, red line around Iraq and signed their names to it.
The map, the red line, the secret signatures. It explains this war. It explains this week’s rocketing of the price of oil to $134 a barrel. It happened on July 31, 1928, but the bill came due now. …
In 1928, oil company chieftains (from Anglo-Persian Oil, now British Petroleum, from Standard Oil, now Exxon, and their Continental counterparts) were faced with a crisis: falling prices due to rising supplies of oil; the same crisis faced by their successors during the Clinton years, when oil traded at $22 a barrel. The solution then, as now: stop the flow of oil, squeeze the market, raise the price. The method: put a red line around Iraq and declare that virtually all the oil under its sands would remain there, untapped. …
Again and again, year after year, the world price of oil has been boosted artificially by keeping a tight limit on Iraq’s oil output. Methods varied. The 1928 “Redline” agreement held, in various forms, for over three decades. It was replaced in 1959 by quotas imposed by President Eisenhower. Then Saudi Arabia and OPEC kept Iraq, capable of producing over 6 million barrels a day, capped at half that, given an export quota equal to Iran’s lower output. In 1991, output was again limited, this time by a new red line: B-52 bombings by Bush Senior’s air force. Then came the Oil Embargo followed by the “Food for Oil” program. Not much food for them, not much oil for us. In 2002, after Bush Junior took power, the top ten oil companies took in a nice $31 billion in profits. But then, a miracle fell from the sky. Or, more precisely, the 101st Airborne landed. Bush declared, “Bring’m on!” and, as the dogs of war chewed up the world’s second largest source of oil, crude doubled in two years to an astonishing $40 a barrel and those same oil companies saw their profits triple to $87 billion. …
The Iraq government attack on a Basra militia was really nothing more than Baghdad’s leaping into a gang war over control of Iraq’s Southern oil fields and oil-loading docks. Moqtada al-Sadr’s gangsters and the government-sponsored greedsters of SCIRI (the Supreme Council For Islamic Revolution In Iraq) are battling over an estimated $5 billion a year in oil shipment kickbacks, theft and protection fees. The Wall Street Journal reported that the surge-backed civil warring has cut Iraq’s exports by up to a million barrels a day. And that translates to slashing OPEC excess crude capacity by nearly half. …
Obama’s war profiteering tax, or “oil windfall profits” tax, would equal just 20% of the industry’s charges in excess of $80 a barrel. It’s embarrassingly small actually, smaller than every windfall tax charged by every other nation. (Ecuador, for example, captures up to 99% of the higher earnings).
Nevertheless, oilman George W. Bush opposes it as does Bush’s man McCain. Senator McCain admonishes us that the po’ widdle oil companies need more than 80% of their windfall so they can explore for more oil. When pigs fly, Senator. Last year, Exxon spent $36 billion of its $40 billion income on dividends and special payouts to stockholders in tax-free buy-backs. Even the Journal called Exxon’s capital investment spending “stingy.” At today’s prices Obama’s windfall tax, teeny as it is, would bring in nearly a billion dollars a day for the US Treasury. Clinton’s plan is similar. …
Vietnam showed us that foreign wars don’t end when the invader can no longer fight, but when the invasion is no longer profitable.
Iraqi’s Displaced
Refugees Return By the Busload
(video: Alive in Baghdad)
The List: A Mission To Save Iraqi Lives – Branded As Collaborators By Insurgents, Many Iraqis Who Helped The U.S. Face Grave Danger
(video: 60 Minutes)
Society, Security & Politics
An internal audit of some $8 billion paid to U.S. and Iraqi contractors found that nearly every transaction failed to comply with federal laws or regulations aimed at preventing fraud, in some cases lacking even basic invoices explaining how the money was spent, Anne Flaherty reports for The Associated Press.
Click Here for the entire audit.
Iraq will hold provincial elections later this year on different days for security reasons and to prevent voter-rigging, Prime Minister Nuri al-Maliki said on Sunday, Dean Yates reports for Reuters. Political analysts say the elections will be the battleground for a fierce power struggle — especially among majority Shi’ites — that could redraw Iraq’s political map.
A top Iraqi official said Friday the government was waiting for a list of candidates from the main Sunni party before submitting a new Cabinet to Parliament, UPI reports.
Following a meeting in Najaf with Shiite Grand Ayatollah Ali al-Sistani, Iraqi Prime Minister Nouri al-Maliki said it was time to focus on reconstruction, UPI reports. “We managed to lessen violence in the country and are still working on it,” he told Voices of Iraq, adding, “What Iraq needs now is international companies to carry out reconstruction projects and improve the country’s infrastructure.”
Although a leading government official dismissing local and government ability after five years of ignoring it should be the most curious, perhaps this takes the cake: “The government deposited funds into bank accounts of big international companies to make them feel more secure about working in service projects for the country,”Maliki said at the provincial council in the southern city of Najaf. “We are not suffering from a shortage of funds for electricity and water projects, yet international states banned their companies from entering Iraq because of insecurity and lack of financial guarantees”.
A security agreement that will pave the way for a long-term U.S. troop presence after most forces withdraw from Iraq could be signed in the coming months, the Iraqi foreign minister said Sunday, The Associated Press reports.
Witnesses to War Speak Out on Rules of Engagement: Veterans from the Iraq war testified about actions they have taken and things they have seen that led to the deaths of Iraqi civilians. See this video from Newshour with Jim Lehrer.
Five U.S. Marines have been killed in Southern California in the last eight days from non-combat causes, officials said, UPI reports. The confirmed or probable causes are homicide, suicide and traffic accidents, the newspaper said.
Iraq to increase grain imports due to drop in local produce, Ali Shatab reports for Azzaman. This year’s severe drought is forecast to lower wheat and barely yields in Iraq by up to 35 percent, the Ministry of Planning said.
Iraqiyah interview of Shahristani:
He says oil revenues in the first quarter of 2008 amounted to $15.5 billion, which is almost double the sum planned for in the 2008 budget, and there is a surplus in state revenues, and thus the State is anxious to draw up a complementary budget for the second half of 2008 and release more funds for the reconstruction plan and for the import of additional foodstuff.
Asked if Iraq is now technically prepared to develop its oil industry, Al-Shahrastani says the fact that Iraq has succeeded in raising production and export levels in the past five years indicates it has the competence and determination to do so, adding: But is what we produce at present commensurate with what Iraq is capable of producing, taking into consideration Iraq’s huge oil reserves which exceed 115 billion barrels? He says the answer is that Iraq needs to cooperate with oil companies, import the most modern technologies, train Iraqi cadres in those technologies, and obtain advanced equipment. He says Iraq is now inviting foreign companies through competitive and transparent public deals that achieve for Iraq the highest financial yield, employ Iraqi labour, and train unskilled manpower for the oil industry. He says there will be “a qualitative leap in 2008 to develop cooperation with oil companies to increase oil production and exports.”
Told that some oil experts ask that each governorate should have an oil refinery whose output is commensurate with the governorate’s needs for oil derivatives, Al-Shahrastani says small refineries whose capacity is 10,000 or 30,000 bpd in each governorate are not economic and do not produce gasoline at the required standard and quality and suffer from many technical and economic problems. He says Iraq is turning towards building modern big refineries which do not only meet local consumption needs but also export oil products at higher prices than crude oil. He says there are plans to build a refinery with a capacity of 300,000 bpd in the governorate of Dhi Qar at a cost exceeding $5 billion, and a refinery with a capacity of 150,000 bpd in Karbala and in Kirkuk. He says at the same time they are going ahead with plans to provide products in the shortest period possible to the governorates, and a refinery is being built in Al-Diwaniyah while the Al-Najaf refinery has been expanded and it will be further expanded.
Asked when work will begin on the big oilfields in Al-Nasiryah and Karbala, Al-Shahrastani says the oilfields should not be mixed with the refineries, for they are two different issues. He says a contract has been signed for the studies and designs for the Al- Nasiriyah refinery and the same goes for the Karbala refinery which is being built in two stages: the first stage involves building a small refinery quickly to meet needs and it is hoped to complete this stage in less than 18 months and it will have a capacity of 40,000 bpd. He says there is now a big stockpile of oil products in Iraq, and it has been decided to allow the sale of liquid gas without ration cards and without a limit in Al-Sadr City in particular, to alleviate the people’s suffering, and this will be subsequently done in other areas. He says refineries are now producing more than in the past, and imports of oil derivatives have decreased.
Told there are those who say capacity of Al-Najaf refinery is not more than 10,000 bpd, while others speak of lack of material in the refinery and say the gasoline produced there goes to the Al-Dawrah refinery for further treatment, Al-Shahrastani says that is exactly the result when each governorate wants its own refinery. He says the refineries with a 10,000 bpd capacity were imported by Iraq for “exceptional circumstances and have a limited technology.” He says a second unit will be opened at the Al-Najaf refinery with a capacity of 10,000 bpd, and a third unit will be added, and new units are being ordered to improve the quality of gasoline. He says the solution is to build the new Karbala refinery with a capacity of 150,000 bpd which will meet not only the needs of the central Euphrates but of other Iraqi areas as well. He notes it takes four to five years to build such a refinery.
Asked why work on building refineries was not begun immediately after the fall of the previous regime, Al-Shahrastani says the question should be addressed to those in power at the time. He adds to be fair it should be said that the country’s circumstances at the time were not normal, and the civil administration was running matters in “an arbitrary and confused manner,” and even when the Governing Council was formed the country had no real administration. He says no sooner his predecessors began to put matters in order when major terrorist attacks occurred and the bombing of the Samarra shrine created sectarian tension, and not only refineries but also hospitals, housing units, airports, and roads were not built.
Another video report says the Oil Ministry’s performance has improved with the improvement in the security situation. Oil Ministry Undersecretary Ahmad Abd-al-Amir al-Shamma says imports of oil derivatives have decreased steadily in recent years. Another official says stringent measures will be taken against those who do not abide by official prices set for oil derivatives. He says there are “good quantities” of oil products in both the north and south, and urgent plans have been drawn up to transfer those quantities to Baghdad to build “a good stockpile of those products.” Several citizens all testify to the improvement in the availability of petroleum products.
Asked about the international oil companies that reportedly want to invest in Iraq’s oil industry, Al-Shahristani says the extraction, refineries, and distribution sectors of the oil industry need investment and development. He says they have begun to ask the companies that want to operate in Iraq’s oil extraction sector and the production of crude to qualify, and 120 international oil companies have applied to qualify to operate in Iraq. He says there are clear economic, technical, legal, and training criteria for qualifying, adding that a company’s ability to train Iraqi personnel is a criterion because they do not want an investor who brings manpower from other states, and one of the conditions of qualification is that all labour should be Iraqi. He says 35 of those companies have qualified, and now those companies will be invited to submit tenders to develop oilfields whose production can be increased, and work on them will begin this summer. He says the tender that ensures for Iraq the best financial yield and meets the criteria will be chosen.
Told some people and some studies say that foreign investment in the oil sector could have a negative effect on the Iraqi state and society and argue that the state should be the investor, Al- Shahrastani says the media does not talk about the importance of investment and cooperation with foreign companies, but talks about the kind of contracts concluded with those companies. He says the objection is directed at contracts for partnership in production, where a percentage of the Iraqi oil produced is allocated to the foreign company. He says foreign companies will not be allowed to share in Iraqi oil, and one of the main reasons the oil ministry and federal government objected to some contracts concluded without the ministry’s approval in the Kurdistan province is that they are contracts for partnership in production. He says there are models of other contracts that retain complete national control and Iraqi ownership.
Al-Shahrastani says Iraq and any oil-rich state in the world needs the expertise of the major oil companies, equipment, training for their personnel, and the most modern oil technology. He notes that some of the big oilfields in the south and also the Kirkuk oilfield have aged although hardly 20 per cent of the total oil in them has been extracted, while modern technologies can increase the percentage of oil extracted from such fields, and those technologies are not available in Iraq. Al-Shahrastani notes that if Iraq increases its extraction of oil from existing oilfields by 1 per cent that will result in its reserves yielding 1 billion additional barrels, and 1 billion barrels at current prices means additional revenue of $100 billion.
Told the prime minister of the Kurdistan province, Nerchivan Barzani, recently said he’s prepared to turn over the oil contracts concluded to the central government and asked if committees have been formed to decide on those contracts, Al-Shahrastani says Barzani came to Baghdad two weeks ago with a delegation of experts and they discussed the oil bill that was approved by the Iraqi Cabinet in 2007, and it was agreed to go back to the draft of that bill. He says the Kurdish delegation called for a review of the draft while the oil ministry argued that if the door to a review is opened and discussion is renewed, then the door will be open to introducing many other amendments.
Told that statements by some Kurdistan province officials indicate they are going ahead with the conclusion and implementation of those contracts and asked about the ministry’s stand, Al- Shahrastani says the draft of the bill is clear, and contains an article about contracts concluded prior to February 2007 stating that such contracts should be referred to a committee of experts to ascertain whether they conform with the oil bill, and if not they should be amended so as to conform, and then they will be approved by the committee. He says any contracts concluded after February 2007 are invalid because it is not known if they are subject to the draft’s mechanisms such as free and open competition, transparency, qualifying the companies, Iraq achieving the highest financial benefit, and national control. He notes that the Constitution states that the oil belongs to the entire Iraqi people, and therefore how can any one side dispose of it and conclude contracts whereby the other sides do not know what percentage of oil was granted to the companies, and even if it is known how can they be sure it is the highest percentage the Iraqis could obtain when there has been no open competition.
Asked why the oil bill has been delayed in parliament, Al- Shahrastani says when the Cabinet approved the bill all the political blocs were represented in the government, but subsequently some blocs withdrew from the government and adopted a political stand and called for amendments to the bill, and that led to the delay.
Told there are neighbouring states and especially Gulf states that press for not adopting the oil bill so that Iraq “will not be an important figure” in the field of exporting oil, Al-Shahrastani says that there is other talk that the United States and others are pushing towards the enactment of the law so as to control Iraqi oil. He reassures Iraqis that this government cannot allow any foreign state, regional or external, whether it has forces in Iraq or not, to interfere in this serious Iraqi affair, and they know that and “they respect themselves and do not initiate a discussion in this matter with me or other officials.” He says the 35 companies that qualified belong to 16 nationalities and include American, Russian, Chinese, Indian, and Japanese, and political matters were not taken into consideration at all, only the company’s technical competence, financial standing, and training programme were considered.
Al-Shahrastani says the oil ministry has decided to go ahead with developing the oilfields while observing “all the conditions and requirements of the new oil and gas bill,” so that once the bill is passed all their work will have been in accordance with the law. He adds if the “enactment of the law is delayed for various political reasons, we are not prepared to wait while the Iraqi people continue to have the present living standard.” He says they have decided to go ahead and they have drawn up a plan to increase oil production to 4.5 million bpd within the next five years, and to more than 6 million bpd within the next 10 years, “and we will not stop and wait for anyone.”
Told that some gas stations sell at prices higher than the official prices, and that there has been talk that gasoline will be sold to taxis at different prices than to private cars, Al- Shahrastani says it is illegal to sell at prices higher than the official prices, and urges citizens to refuse to pay more than the official price, which is 450 dinars per litre. He says it is gangs who extort the additional money from citizens with the force of arms, and the state is determined to prevent such extortion. He says the ministry will retain the existing price in 2008. Regarding talk about different gasoline prices for taxis and private cars Al- Shahrastani says that is “propaganda for political purposes.” He says some newspapers seek sensationalism and usually have political motives.
Al-Shahrastani says in the past when there were terrorist attacks on oil tankers and drivers his ministry drew up a programme to ensure that the product reaches its destination and appointed reliable persons to accompany the tankers, but wide scale corruption and terrorism are not eliminated by 40 or 50 employees who escort hundreds of oil tankers daily, yet the entire security situation has now improved.
Asked if reports that fuel oil prices will increase are true, Al- Shahrastani says fuel oil prices have not changed in the past two years and there is no intention to increase current prices. He notes that Iraq exports black oil at more than 400,000 dinars per ton, while it is sold to citizens at 100,000 dinars per ton.
Asked about “the joint oilfields with the Iranian side or the Kuwaiti side” and reports that the oil ministry addressed a memorandum of condemnation to the foreign ministry in that regard, Al-Shahrastani says there is “continuing and serious dialogue with Iran and Kuwait. We have agreed in principle with them to sign an agreement known as the unification of oilfields agreement. Thus if there is an oilfield that is in the two countries we choose a third party that is qualified and to which both sides agree to assess the size of the oilfield and the quantity of its reserves, and on the basis of border maps that are agreed upon that third party will decide what proportion of the oilfield lies in the territory of each country and the share of each side in the oilfield, and the two countries exploit it together, because its joint investment will enable the two sides to exploit the oilfield better economically.” He says agreement has been reached with Kuwait and Iran on that, and they now are waiting for the Foreign Ministry to demarcate the border with Iran.
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