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The Kurds may be sitting on buried
treasure, and foreign firms want to do business
6.11.2006
By Bay Fang - An Oil Rush in (Yes) Iraq |
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November 6, 2006
London, -- In a small townhouse in the
financial district here, a high-ceilinged room is
packed to capacity with oil executives in dark
suits. They are men from all over the world,
representing some of the largest multinational oil
companies, and they sit in rows like schoolchildren,
assiduously taking notes. At the front of the room,
the minister of natural resources from the Kurdistan
Regional Government in northern Iraq is speaking,
his English fluent. On the wall behind him is a
large map of potential oil fields in the Kurdish
region and the beginning of a PowerPoint
presentation that reads, "Oil Can Be a Source of
Stability."
The government of Iraq may be far from ready to
welcome foreign investment into its oil sector right
now but, like it or not, the Kurds are moving ahead.
While the government in Baghdad is still haggling
over its petroleum law and violence wracks much of
the country, the Kurds are about to pass their own
oil law. They have already signed contracts with a
handful of foreign oil companies, and they're
aggressively wooing more. The question now is
whether these attempts to sign separate contracts,
establish a parallel legal regime, and attract
much-needed foreign investment will be a source of
stability or instability in a country that knows far
too much of the latter and very little of the
former. |
Oil fields in Kurdistan Region (Iraq) |
Money. The dispute over oil goes to the heart of the
political debate in Iraq. The Kurdish region,
currently the only autonomous region in Iraq, has
enjoyed self-rule since 1991. Earlier this month,
the Shiite-dominated parliament in Baghdad passed a
federalism law, allowing other regions to be
formed-but not for another year and a half. The law
was hotly debated because although the Shiites would
like to create their own zone in their oil-rich
heartland in the south, the Sunnis fear being left
with only an area in resource-poor central Iraq. An
agreement empowers the federal government to receive
all oil revenues and redistribute them to the
regions according to population and "needs."
But the real question is who gets to sign the
contracts and manage the fields. And on this point
the Kurds won't budge-Iraq's Constitution, they say,
gives them control over so-called future fields
(existing fields are controlled by the central
government, and the fate of those in Kirkuk will be
decided by a referendum next year). "In management
of new fields, we are adamant that we will not share
with federal authorities," says Ashti Hawrami, an
English-trained petroleum engineer who is the new
minister of natural resources. "Planning,
coordination-no problem. But who has the right to
write contracts? We can consult with the center, but
the ultimate authority lies with the [Kurds]."
High-level jabs have already been exchanged over the
issue. The Iraqi oil minister, Hussain al-Shahristani,
has insisted publicly that contracts signed by the
Kurdish regional government must be subject to the
ministry's review. In response, Kurdish Prime
Minister Nechirvan Barzani issued a statement that
many interpreted as a threat of secession: "The
people of Kurdistan chose to be in a voluntary union
with Iraq on the basis of the
Constitution. If Baghdad ministers refuse to abide
by that Constitution, the people of Kurdistan
reserve the right to reconsider our choice."
Iraq has the third-largest proven oil reserves in
the world, with an estimated 115 billion barrels,
and oil companies have salivated over the country's
potential since Saddam Hussein's regime fell in
2003. According to the U.S. Energy Information
Administration, 90 percent of Iraq's regions are
unexplored, with only about 2,000 wells drilled,
compared with about 1 million in Texas alone. But
the industry has been in terrible shape for the past
20-some years. International sanctions against
Saddam's regime meant that the infrastructure was
not upgraded. Oil experts think that if
international expertise were brought in and
facilities modernized, Iraq could produce up to 4
million barrels per day (which is what it produced
in 1990, before the invasion of Kuwait). "Iraq's
entry into the market will change the entire global
oil game," says Ed Chow, a longtime oil consultant
who used to work for Chevron.
And that is what is so tempting for the oil
companies. In the London townhouse, after the
presentations, the questions come quickly from the
audience, as much flattery as inquiry.
"Congratulations," one oil company rep tells Hawrami.
"When can we come negotiate with you?" His answer:
"It's first come, first served. We welcome
entrepreneurs, but we want structured companies with
experience, who offer something we don't have
ourselves."
Reserves. Oil companies say that though there are no
producing oil fields in the Kurdish territory,
initial exploration has shown geological structures
similar to large oil fields in other parts of Iraq.
The Kurdish government claims 25 billion barrels of
proven reserves in the north, plus 20 billion
barrels of potential reserves. A Norwegian company,
DNO, began drilling last November and discovered its
first well this spring. While there is much more oil
in the south, the violence there prevents those
reserves from being exploited now.
The Kurds themselves marvel at the change in
international reaction to their advances. "Five to
six months ago, no one would shake hands with a
Kurd," says Hawrami. But in May, the Kurdish
government created the Ministry of Natural Resources
and appointed the minister. In July, Kurdish
legislators passed an investment law, which spells
out foreign investors' rights. And last month the
Kurds published the final version of their own
petroleum law. The regional government intends to
move it through the Kurdish parliament this
month-despite being asked by the United States to
hold off for the sake of national reconciliation.
The Kurds have signed four contracts with foreign
oil companies, and the government's website says it
"expects a large-scale licensing round following the
passage of the act."
Downstairs, over bites of salmon and pasta, the oil
executives feel one another out warily. One
congratulates another on a just signed
production-sharing agreement. Another group
discusses options for doing seismic testing in
Kurdistan (there are only two operators there now,
both Chinese). Representatives from two major oil
companies chat with a British government official.
One was preparing to go to Kurdistan but decided to
stay in order to meet with Hawrami. "What stage is
the central government at with its petroleum law,
anyway?" one asks. "I'm not sure," answers the
other. "I guess if there's a conflict, that would
make things complicated."
That's the consensus view. The U.S. government has
expressed concern about companies investing in
Kurdistan before the rest of Iraq is ready. "If the
Kurds pass their own law, it definitely complicates
things-the opportunity for cooperation probably
diminishes," says one senior U.S. official. "But
it's a great negotiation tactic-you offer something
up that's your ideal and then go from there."
To the Kurds, however, their law is most definitely
not just a starting point. In fact, though they are
involved in the negotiations over the central
hydrocarbons law, Kurdish officials say it will not
mean much to the region. "Not for investing in
Kurdistan, it doesn't," says Hawrami. "But it does
matter for the Kurdish people, because we need our
fair share of revenue from the rest of the regions!"
So the companies are going with what is available
now. Hawrami comes into the room after having had
private discussions with one company and is
instantly mobbed. Tibor Szatmari, the CEO of a
Hungarian oil company that is the largest in Central
Europe, waits to talk with him. When he gets an
opening, he thrusts his company's annual report into
the minister's hands. He admits that he's desperate
to get one of these contracts. "If you wait until
the situation is absolutely clear, you'll never go,"
Szatmari explains. "So you take a calculated risk."
Especially if you don't expect to be entering
Baghdad anytime soon. "There's a paralysis in the
central government," says one former senior U.S.
official who quit to start a company that is now
investing in Kurdistan. "It's the cultural baggage
of the old regime-no one can make a decision without
consulting the top guy."
So what's next? A mess, perhaps, as the Kurds press
ahead despite Baghdad's explicit protests. Hawrami
finishes his presentation on an upbeat note-and just
the hint of a threat. "We will soon be awarding new
contracts, perhaps on the strength of the new law,"
he says. "If you come to Kurdistan, we guarantee
that you can go to Basra and work as well. After
all, who's going to block you?"
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