assessments

Iraq: Oil Contracts and the Security Environment

6 MINS READApr 14, 2008 | 23:44 GMT
MAXIM MARMUR/AFP/Getty Images
Summary
Iraq’s Oil Ministry on April 14 published a list of companies that qualified to bid in the first licensing round for oil and gas contracts to develop Iraq's oil fields. Absent from the list were companies that have signed deals with the Kurdistan Regional Government. On the other hand, Iraqi Prime Minister Nouri al-Maliki has publicly recognized the Kurdish peshmerga forces as part of the formal Iraqi security apparatus. Should this cooperation extend to the energy sector, companies interested in the Kurdish energy sector might be able to breathe easier. The bottom line for all of this, however, depends on Baghdad’s ability to tame the insurgency and work out a power-sharing deal among Iraq’s warring factions.
The Iraqi Oil Ministry on April 14 published a list of 35 companies that qualified to bid in the first licensing round for oil and gas contracts to develop Iraq's oil fields during the second quarter of 2008. The date for the bidding round is to be determined. Some 120 companies had submitted applications, though the ministry did not publish the names of the companies it disqualified. It did say, however, that companies that failed to qualify in this round could be added in later bidding rounds. The 35 companies that qualified are:
  • Chevron (U.S.)
  • ExxonMobil (U.S.)
  • ConocoPhillips (U.S.)
  • Hess Corp. (U.S.)
  • Occidental (U.S.)
  • Anadarko Petroleum (U.S.)
  • Edison International (U.S.)
  • Nexen Inc. (Canada)
  • Royal Dutch/Shell (the Netherlands)
  • BP (U.K.)
  • BG International (U.K.)
  • Premier Oil (U.K.)
  • Maersk (Denmark)
  • Edison International (Italy)
  • Eni (Italy)
  • Repsol (Spain)
  • Statoil (Norway)
  • Wintershall Basf Group (Germany)
  • BHP Billiton (Australia)
  • Woodside Petroleum Ltd. (Australia)
  • Total (France)
  • CNOOC (China)
  • CNPC (China)
  • Sinochem (China)
  • Sinopec (China)
  • Mitsubishi Corp. (Japan)
  • Nippon Oil (Japan)
  • Inpex Holding (Japan)
  • Japex (Japan)
  • ONGC (India)
  • Lukoil (Russia)
  • JSC Gazprom Neft (Russia)
  • Korea Gas Corp. (consortium of LG International Corp., Daewoo International and Hanwha)
  • Petronas Gas BHD (Malaysia)
  • Pertamina (Indonesia)
Notably absent from the list were companies that have signed energy deals with the Kurdish Regional Government (KRG) without central government consent. As the Shiite-dominated ministry already has warned, the Iraqi government will regard any oil deals with the KRG as illegal and grounds for barring the company — and possibly the company’s home country — from buying Iraqi oil or bidding on lucrative oil deals, particularly in the predominantly Shiite and oil-rich south. However, although South Korean companies Korea National Oil Corp. and SK Energy — which signed deals with the Kurds in February 2007 and November 2007, respectively — did not make the list, the South Korean consortium of LG International Corp., Daewoo International and Hanwha did make the cut. The KRG has signed 15 production-sharing agreements with 20 foreign oil firms from 12 countries, including:
  • Austria (OMV)
  • Canada (Heritage Oil Corp., Impulse Energy)
  • France (Perenco)
  • Hungary (MOL)
  • India (Reliance Industries)
  • Norway (DNO)
  • Russia (TNK-BP)
  • South Korea (KNOC, SK Energy Co., Daesung Industrial Co., Samchully Co., Bum-Ah Resource Development Corp., UI Energy Corp., GS Holdings Corp., Majuko Corp.)
  • Switzerland (Addax Petroleum)
  • Turkey (Genel Enerji, A&T Petroleum)
  • United Kingdom (Gulf Keystone Petroleum)
  • United States (Hillwood International Energy, Sterling Energy, Aspect Energy, Texas Keystone, Kalegran Ltd., WesternZagros, Hawler Energy, Hunt Oil Co.)
As STRATFOR has discussed, the major oil and gas companies involved in both transport and exploration likely will not risk investing heavily in Iraqi Kurdistan, preferring instead to hold out for larger oil deals with the central government in the south. Though specific companies still can be blacklisted, Baghdad now has indicated with the list of qualified companies that it is not prepared to go so far as to ban an entire country from these energy contracts, allowing countries such as India and South Korea to diversify their holdings between the Kurds and the central government. South Korea is likely keeping quiet on the disqualification of its companies that have signed deals with the KRG, in hopes they will be included in future bidding rounds. The KRG leadership also is in talks with Iraqi Prime Minister Nouri al-Maliki to discuss a number of key points of contention between the Kurds and the central government, including the ongoing dispute over sharing oil revenues and signing separate energy contracts with foreign companies while the central government is still held up on drafting a controversial energy law to be applied across the nation. All the sticking points are unlikely to be worked out in these meetings, but a promising sign appeared April 13 when al-Maliki publicly recognized the Kurdish peshmerga forces as part of the formal Iraqi security apparatus. If this cooperation extends into the energy sector, companies that have investments or are interested in investing in the Kurdish energy sector might be able to breathe easier. (click image to enlarge) Current Iraqi oil production is concentrated in the predominantly Kurdish north and the Shiite south, with the North and South Rumaila and Kirkuk fields producing more than the rest of the fields combined. With so many foreign energy companies thirsting for the chance to drill in Iraq’s many discovered fields, Iraq’s oil output could increase to more than 6 million barrels per day (bpd), up from its current 2.5 million to 3 million bpd. Even these estimates have the potential to skyrocket, given that Iraq is sorely lacking in modern development technology and three-fourths of the country has not been seriously prospected since the 1970s. It also would be relatively cheap and easy for foreign companies to refurbish Iraq’s main export lines in the north and south, including the 600-mile Kirkuk-Ceyhan pipeline operated by Turkey in the north, which is capable of handling three times its current output once fully repaired. All of these prospects, of course, are dependent on Baghdad’s ability to tame a raging insurgency and work out a viable power-sharing agreement among Iraq’s warring factions — by no means a small feat. But with Iranian-U.S. negotiations over Iraq slowly but steadily progressing, with rival Shiite parties making moves to crack down on dissident militias in the south and with al Qaeda in Iraq severely losing traction, the security environment in Iraq is promising enough to jump-start the bidding race for Iraq’s oil resources.

Article Search

Copyright © Stratfor Enterprises, LLC. All rights reserved.

Stratfor Worldview

OUR COMMITMENT

To empower members to confidently understand and navigate a continuously changing and complex global environment.

GET THE MOBILE APPGoogle Play