In Iraq's peaceful north "Kurdistan
Region" , a trio of foreign oil companies have begun classic wildcat
exploration, hoping a gusher of black gold will bring them untold
wealth.
But the companies are little-known outside the industry — something
that's unlikely to change until security improves. And the deals
they have cut with the Kurdish regional administration bypassing the
central government leaves them in a murky legal situation.
More than three years after the U.S.-led invasion, no big oil
company has stepped forward to spend the huge sums necessary to tap
Iraq's giant oil reserves and get crude flowing and revenues pouring
into Iraq's government to help pay for food, jobs and even medical
care.
"It will take a lot more to bring in the big guys," said Sharif
Ghalib, a senior analyst with Energy Intelligence Research in New
York.
None is likely to start prospecting until company chiefs feel
reasonably assured that their workers won't be sent home in coffins
and that their investments have legal protection that won't be taken
away by a new government.
"We are interested and they are interested. But we need those
conditions in place to take it to the next level," Shell Oil Co.
President John Hofmeister told The Associated Press. "It's too soon
to make a judgment on how close we are. I suspect we could be a few
years away."
The government of Prime Minister Nouri al-Maliki is eager to get
them in quickly. Even with the resources of major oil companies, it
would take at least five years to dramatically boost production and
refining.
"Of course we want major foreign oil companies to come into Iraq. We
need funds and we need technology," said Assem Jihad, spokesman for
the Oil Ministry, which has called for up to $20 billion in
investment.
But big companies like Shell and ConocoPhillips won't budge until
Iraq has a law governing oil-sector investment and figures out just
who owns the country's underground oil.
The constitution is frustratingly unclear on whether mineral wealth
is controlled by the central government or the largely Shiite and
Kurdish regions where it is found.
No less important, Iraq has no legal guidelines for foreign
investment in the oil sector. Al-Maliki's government hopes to issue
a hydrocarbons law this year that sets parameters for foreign
involvement in oil fields, refineries and pipelines, Jihad said.
"The majors are especially hesitant about the constitution. It's so
ambiguous," said Neil Patrick, an Iraq analyst with the Economist
Intelligence Unit in London. "It's still not clear who they deal
with and who makes the decisions."
The Kurdistan regional government, for example, views the legal gray
area as an opening to bring in foreign companies to develop fields,
over the objections of the national government in Baghdad.
Exploration by Norway's DNO, Canada's Heritage Oil and Britain's
Sterling Energy is soon to start or already under way, with DNO
reporting a modest discovery.
Al-Maliki appears intent on quashing such regional claims on oil
resources and bringing them under Baghdad's control. But to do that,
the Shiite prime minister will have to alienate key Shiite and
Kurdish allies.
That is a tall order, said Muhammad-Ali Zainy, an energy economist
at the Center for Global Energy Studies in London.
"I sympathize with him," Zainy said. "To come up with a truly
national plan, he has to rid himself of the political parties
surrounding him — including his own party."
An even bigger worry is security. The government claims U.S. and
Iraqi troops can protect foreign oil companies from insurgent
attacks, but analysts note rebels routinely sabotage oil
infrastructure.
Some oil majors would probably be willing to work in Iraq before the
insurgency is quelled — if Iraq creates a clear legal framework. But
big oil would probably follow the lead of the three smaller
companies by limiting its presence to the safety of the northern
Kurdish lands.
That won't do much to quench global oil demand. Kurdish fields
aren't nearly as lucrative as Iraq's giant southern oil fields, home
to around 85 percent of the country's 115 billion barrels of crude
reserves.
In the meantime, Iraq's hobbled oil sector limps along.
The Oil Ministry announced last month that crude production had
risen to 2.5 million barrels a day, its highest level since the
U.S.-led invasion in 2003. But the country's No. 2 oil shipping
terminal, on the Persian Gulf at Khor al-Amaya, caught fire and
remained closed last week.
"This chaotic situation will not continue forever," Zainy said.
"There will be a solution."
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