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Saturday, 01/26/2008 2:10:16 PM

Saturday, January 26, 2008 2:10:16 PM

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Iraqi minister: race for new oil fields

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An Iraq at peace may be capable of pumping substantially more than 5 million barrels of crude a day -- and the world's big oil companies want to be part of the action if and when it does.

With violence down and production up, Iraq says output reached nearly 2.5 million barrels a day last month -- about half the capacity eventually foreseen by many analysts. But Iraqis are even more bullish.

"We expect to take Iraq to between 6 (million) and 8 million barrels a day ... in about 10 to 12 years," Oil Minister Hussein al-Shahristani told The Associated Press Friday on the sidelines of the World Economic Forum, saying most of the extra production would be coming from "green fields" identified but not yet exploited.

Such estimates are definitely on the high end. Still, the big oil companies appear to be believers in the future of Iraq as perhaps the Middle East's last oil frontier -- and are already trying to gain the best toehold in a contest that in part pits Russia's state-linked sector against major players from the United States and Europe.

"All the majors and the minor oil companies have shown a great interest including the Russians, obviously," al-Shahristani said as he took a break from meeting key figures in the industry for an interview in the lobby of his hotel at this Swiss Alpine resort. "They are all very keen to come and work in Iraq."

Al-Shahristani's view of his country as "the place ... for future work in the industry" is shared by many in the industry.

Saudi Arabia, the Middle East petroleum powerhouse, now produces about 9 million barrels a day and will likely remain OPEC's most prolific source of crude for decades of come.

But there is intense interest in expanding other sources of supply because of concerns that the oil flow from Iran, the organization's No. 2 producer, could be interrupted if tensions with the U.S. over Tehran's nuclear program turn into conflict.

This is where Iraq comes in, with potential for development and oil reserves that one company last year revised upward to more than an estimated 200 billion barrels. That estimate, by the consulting firm IHS Inc., is double previous ones which already qualified the country as holder of the world's third-largest reserves.

Ehsan ul-Haq, chief analyst at PVM Oil Associates in Vienna, Austria, said the general perception in the industry is "that there are much more possibilities in Iraq than anywhere else in the Middle East."

So who will get the nod? Al-Shahristani says the playing field is level.

"We have been telling everybody ... that ... awarding contracts is going to be (a) transparent, public competition, according to the international industrial norms," he said.

Still considering America's huge footprint in the country, the big U.S. oil companies might have the advantage. And that could deal a setback to Russia's drive to take a bigger share of the energy pie -- most recently demonstrated by lucrative pipeline deals and company purchases in the Balkans by gas giant Gazprom.

Al-Shahristani denied any planned favoritism.

"We are not going to look at the nationalities of the companies," he said, adding that U.S. companies hoping to win bids "have to offer the Iraqis the highest return."

"They have to abide by the rules of the game like everybody else," he said.

But Ul-Haq said sentiment is that "the American companies will have the advantage in Iraq, even though the Russians have been trying to improve their relations with the government."

Complicating any bidding are disputes over a proposed oil and gas law, meant to divvy up those resources among Shiites, Sunnis and Kurds -- one of the benchmarks sought by the United States to achieve national reconciliation.
The Iraqi Cabinet approved a U.S.-backed draft bill last February and forwarded it to parliament. But parliament, citing legal technicalities, sent it back to the Cabinet. The measure has been bogged down in negotiations ever since.

With national legislation stalled, Kurdish authorities have signed more than a dozen contracts with foreign companies over the objections by Oil Ministry officials in Baghdad, who consider the deals to produce oil in northern Iraq illegal.

Bidding procedures are going ahead nonetheless, with Iraq giving international oil companies until Feb. 18 to submit their documented interest in participating in the development of some of the country's most prized oil fields.
The Iraqi government recently warned foreign oil companies that deals signed with the Kurds were illegal and on Friday, the Iraqi oil minister -- with an indirect nod toward the Kurds -- cautioned all factions to view the resource as a shared good.

"Oil can either unite Iraqis into a prosperous democratic society, or can split Iraqis into warring factions, trying to lay their hands onto whatever oil they can get," he said.

"Oil is the wealth of all the nation and it should be distributed equitably to all the regions of the country."
http://www.businessweek.com/ap/finan.../D8UD4GP00.htm
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