Oil companies reluctant to invest in Iraq
Friday, July 07, 2006
AP
DUBAI, United Arab Emirates (AP) - In Iraq's peaceful north, 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.
