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Oil Companies Scouting Out Iraq Despite Risks


Billions of dollars are just beyond the faulty legal structures.

Editor's Note: This article was written by Fawzia Sheikh of, which offers free information and analysis on energy and commodities. Sheikh focuses on fossil fuels, alternative energy, metal, oil prices, and geopolitics.

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, 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 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."
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