Lead role suggested for oil majors in post-war Iraq

6 april 2003 Al Jazeera

Iraqi opposition leaders in exiles meeting with senior US officials in London have agreed on international oil companies taking a lead role in kick-starting the beleaguered country's oil industry after the war.

The talks on Saturday were held under the auspices of the oil and energy working group of the State Department’s future of Iraq project, run by Thomas S. Warrick, special advisor to the US Assistant Secretary of State for Near Eastern Affairs.

Iraqi opposition delegates said they believed that talks with foreign oil majors on long-term projects could start quickly. Iraq has an estimated 112 billion barrels of proven oil reserves, making it the second largest potential producer after Saudi Arabia.

Foreign investment deals, in particular production-sharing agreements (PSAs), would be brokered between six months and two years, said Dara Attar, an oil consultant representing some opposition groups at the meeting.

Dr. Valerie Marcel, a senior research fellow at the Royal Institute of International Affairs, said this figure was highly optimistic. “An occupation could take six months to two years and oil companies won’t want to invest during the US occupation,” she said.

During an occupation oil companies will be unsure of the Iraq’s stability, a key factor for long-term investment. PSAs, which last from 15 to 20 years, are likely to be brokered no less than three years down the road, said Marcel, an expert on the politics of oil in the Middle East. Instead, companies are likely to opt for “buy-back” contracts, which are short term licenses to explore, ranging from one to three years.

Short-term rehabilitation of southern Iraqi oil fields are already underway.

There was a clear agreement among delegates in favor of PSAs to attract oil kingpins. Production-sharing agreements combine different companies to explore and exploit fields. The oil industry prefers these deals because they guaranty a healthy profit margin, even at low world oil prices.

Long-term contracts are expected to see US companies ExxonMobil, ChevronTexaco and ConocoPhilipps compete with Anglo-Dutch Shell, Britain’s BP, TotalFinaElf of France and Russia’s Lukoil along with some Chinese state companies.

Experts at the meeting estimated $5 billion was needed to rehabilitate Baghdad’s archaic oil industry to reach an output of 3.5 million barrels per day (bpd), nearly a million barrels more than existing capacity.

Delegates advised Baghdad to remain a member of the Organization of the Petroleum Exporting Countries (OPEC) but without limits on production.

“It would be in the mutual interest of Iraq and OPEC,” said Marcel. It is important for Baghdad to remain among the ranks of the oil cartel but Iraq cannot be restrained in its oil production in order to rebuild the country crippled by over a decade of United Nations-imposed sanctions and now war.

There are fears in OPEC of a showdown on quotas, undermining the Riyadh-led strategy of production restrictions aimed at supporting prices of $25 a barrel.

The London meeting did not reveal the names of those who might run Iraq’s oil industry in the short term.

But Phillip Carrol, the former head of Shell in the United States, has been billed as a candidate to oversee oil policy along with Iraqi economist Mohammad-Ali Zainy as his number two.

Zainy, a senior energy economist and analyst at the London-based Center for Global Energy Studies, served in the Iraqi Oil Ministry for 14 years. --- Al Jazeera with agency inputs