Oil Companies Scouting Out Iraq Despite Risks
Billions of dollars are just beyond the faulty legal structures.
As multinational military forces have left Iraq, international petroleum companies have eagerly descended -- seduced by the long-term potential of vast oil reserves off-limits to foreigners for decades. Yet lingering violence, legal questions, and political uncertainty make doing business in this country a gamble.
In the first international oil auction, held last June and widely seen as a failure, the Iraqi government awarded a firm contract to only a consortium of British Petroleum and the China National Petroleum Co. to further develop the Rumaila field over 20 years.
Iraq recently forged an initial agreement with Exxon Mobil (XOM) and Royal Dutch Shell (RDS-B) to develop the West Qurna field, and one with an Eni-led (E) consortium of Occidental Petroleum (OXY) and Korea Gas for the Zubair oil field.
Under ratified deals, firms stand to gain a mere $2 profit on each barrel added to production because the Iraqi government wants to convey "they're not going to let the oil companies take over," said Robert Ebel, a senior adviser in the energy and national security program at the Center for Strategic and International Studies, a Washington-based think tank.
The operator of each 20-year service contract, which may be extended for five years, "will still make a rate of return in the double digits," said Ruba Husari, founder and editor of the website Iraqoilforum.com, via e-mail from Baghdad.
The country's proven oil reserves were last estimated at 115 billion barrels. These massive reservoirs, and the low costs linked to such an uncomplicated operation, essentially make it "easy oil" for firms, Husari said.
Iraq will boast some six million to 10 million barrels a day over the next several years, analysts tell Oilprice.com. This scenario illustrates why oil companies are more willing now than last summer to gain an initial foothold in the industry on the government's strict terms and build a long-lasting relationship that may lead to a production-sharing contract "for some discovered-but-yet-undeveloped oil field," Ebel said. "It's a hopeful assumption; I don't know how realistic it is."
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter