IRAQ Future depends on security

The most pressing issue once an interim government steps in will remain the lack of security throughout Iraq and the impact it has on sustainable production and the reconstruction process.

With no improvement in security, foreign investors, who remain much needed for the oil reconstruction process, are expected to remain on the sidelines, according to senior oil ministry officials.

A senior official with the Iraqi Oil Ministry told Platts in late April that international oil companies have stopped visiting the ministry, and now rely on their local representatives. "It is just too dangerous," the official acknowledged.

A major investment conference in Basra to which all major oil companies were to have been invited in mid-April was cancelled because oil executives refused to take the risk.

Even if security improved, questions remain over Iraq’s ability to issue tenders and pay for contracts.

"There are many contracts and offers under discussion for developing the oil fields, rebuilding refineries and exploration," oil ministry spokesman Assem Jihad told Platts recently. "But the minister is only discussing them."

Jihad explained that the ministry was still waiting for its investment budget. "We need lots of money," he said.

The handover of power may also speed up a decision on the fate of development contracts that were awarded to major oil companies by Saddam’s regime but which have been held up by the politics of war.

Iraqi officials say proven and probable oil reserves could top 300-bil bbl if all areas are opened up for exploration. So far, only 10% of the country’s acreage has been explored. Iraqi officials say new discoveries could help it leapfrog Saudi Arabia with its 259-bil bbl of reserves.

Before the war, Iraq had plans to raise its oil production from around 3-mil b/d to 6-mil b/d by 2010. To achieve that goal will require revisiting idle oil wells and opening up the Western desert for exploration.

Iraq was producing nearly 5-mil b/d of crude before it invaded Kuwait, making it OPEC’s second biggest oil exporter after Saudi Arabia.

Ulum in January met the deputy head of Russian oil major Lukoil to discuss "future cooperation" and agreed to continue discussions, although there was no definitive word on the fate of Russia's oil field development contracts.

The Russian company in 1997 signed an agreement with the former regime for development of the West Qurna oilfield. But Saddam’s government canceled the contract in December 2002, saying Lukoil had failed to comply with terms of its agreement and start exploration work in the field during the prescribed time.

Lukoil, like all foreign companies, was strictly prohibited by UN-imposed sanctions from performing any work in Iraq. The general belief at the time was that Baghdad voided Lukoil’s contract in retaliation for Moscow’s support of US initiatives at the UN to put further pressure on the Iraqi government.

Following the ouster of the Baathist regime last year, the US-backed interim government said it planned to review all contracts signed by the former government.

Ulum suggested in an interview with Platts in December that French companies might be excluded from Iraqi oilfield deals because of the French government's stance before and after the US-led war in Iraq. French major Total had been earmarked to develop Iraq’s Majnoon and Nahr Umar fields under an agreement with Saddam’s regime. Also under review is a memorandum of understanding signed in 1997 with China National Petroleum Corp for the Ahdab field.

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