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Big oil's waiting game over Iraq's
reserves
19.9.2007
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September 19, 2007
In Iraq, oil companies face a dilemma. They can wait
for the central government in Baghdad to agree a new
oil law that will give them a legal framework in
which they can operate, and for the security
situation to become manageable.
Or they can press ahead and sign agreements with the
Kurdistan Regional Government, the authority in the
autonomous north of Iraq, at the risk of souring
relations with Baghdad and shutting themselves out
of deals in the rest of the country.
It is a decision that has so far divided the smaller
operators from the majors.
In Iraqi Kurdistan, the companies that are active
include DNO – which has produced the first oil from
a new source in Iraq since the invasion of 2003 –
Addax, Dana Gas, Sterling Energy and Western Oil
Sands, which is spinning offits activities in the
region as part of its takeover by Marathon.
Most recently, they have been joined by Hunt Oil, a
privately held US independent, which this month
signed a deal to explore in Kurdistan.
The majors, on the other hand, have been conspicuous
by their absence, aware that Iraq's central
government does not recognise the legality of
agreements signed with the KRG. |
Oil fields in Kurdistan
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Hussain al-Shahristani, Iraq's oil minister, said
recently about Hunt Oil's deal: "All these contracts
have to be approved by the Federal Authority before
they are legal . . . This was not presented for
approval; it has no standing.''
Only 3 per cent of Iraq's vast reserves of oil and
gas are in Kurdistan, and while the minnows of the
oil world might be able to make a good business out
of 3 per cent of Iraq's reserves, the big fish want
access to the remaining 97 per cent.
That is why the majors that are interested in Iraq,
including Total and Chevron – which plan to
collaborate in the country – and Royal Dutch Shell,
are all working with the government in Baghdad.
While they wait for contracts to be offered, the
majors are building relationships, training
engineers and carrying out technical studies for
free, in preparation for the day when they might be
able to operate.
The question is how long their patience will last.
The level of violence is still unacceptably high,
and the oil law is stuck in parliament. If anything,
the prospect of agreement appears to be receding as
tensions between the parties grow.
If the political situation in Iraq continues to
deteriorate, there may come a time when the majors
decide it is better to have 3 per cent of a large
amount than 97 per cent of nothing.
Last week, the US commercial officer in Iraq said
Hunt Oil was "smart" for becoming the first US oil
company to sign a high-profile exploration and
production deal in Iraq, even though the deal was
with the KRG.
He was careful, however, not to suggest that other
US oil companies should follow the Hunt model,
saying: "I can't recommend that as a US government
official."
DNO said last month it had rejected an offer of
$700m from an unnamed international oil company for
its Kurdistan assets.
The identity of the bidder remains unknown, but the
offer is a sign that at least one major has given up
on the strategy of getting close to the Baghdad
government.
Mr al-Shahristani, the oil minister, suggested
recently that some contracts could be offered before
the oil law is signed. But even if there are deals
on the table, concernsabout security will be a
powerful deterrent to potential partners.
It looks as though the majors will have to keep
waiting for Iraq for some time to come.
ft com
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