MONTREAL - The distinguishing feature of Iraq's auction of oil rights this
weekend is the relative absence of American companies, in contrast to five
weeks ago, when US firm ExxonMobil and Anglo-Dutch Shell signed an agreement to
develop the West Qurna Phase 1 field.
That development came only two days after the British company BP and China's
CNPC (China National Petroleum Corporation) signed terms for the development of
the huge Rumaila oil field, at 17.8 billion barrels (Bbbl) over twice the size
of West Qurna 1, which holds at least 7 Bbbl of recoverable oil, and only three
days after Italy's Eni signed to develop the 4.1-Bbbl Zubair oil field along
with Korea Gas and Occidental Petroleum.
It looked, then, that there was a slight tipping in favor of US and British
companies, historically over the last century the ones with
the greatest influence on the pace of development of Iraq's hydrocarbon energy
resources. (See The
Rise of Rimland?, Asia Times Online, November 13, 2009).
The results of the latest round of bidding, in which 10 more fields were
offered, show a different pattern. Out of over 40 companies constellated in
various consortia, only seven firms present at the auction were American and
only one actually entered a bid.
For West Qurna Stage 2, out of four consortia submitting bids, the winners were
Russia's Lukoil and Norway's Statoil, which will split shares respectively of
63.75% and 11.25% after an Iraqi state partner comes on board as intended with
a 25% share. Soviet state companies had planned to develop West Qurna in the
late 1980s and Lukoil inherited the agreement, only to have it nullified, along
with all of Saddam Hussein's other contracts, after his fall.
While West Qurna 1 went to ExxonMobil and Royal Dutch Shell, West Qurna 2 is
the larger resource, with estimated reserves of over 12 Bbbl. Lukoil had lost
West Qurna 1 in a consortium with ConocoPhillips; a third independent bidder
was CNPC.
That's not all. The largest field on offer in the round just concluded,
Majnoon, with 12.8 Bbbl estimated reserves, went to a consortium bringing
together Shell with Malaysia's Petronas. Outbidding a consortium formed by CNPC
with France's Total, they will share respectively 45% and 30%, with the other
25% going to an Iraqi state company. Halfaya, the third-largest field on offer
with 4.1 Bbbl, went to a consortium also formed by CNPC (one-half share) with
Total and Petronas (one-quarter each) also participating.
There is no comprehensive legal framework for foreign direct investment in
energy resource development in Iraq, partly due to the failure to hold a
referendum (provided for in Article 140 of the Iraqi constitution and overdue
by more than two years) on the status of Kurdish regions within four Iraqi
governates, specifically to decide whether they become part of the Iraqi
Kurdistan region.
As the northern city of Kirkuk and the region around it are included in this
process, energy resources and the division of revenues between the federal
regions and the political center in Baghdad is an issue. Due to the failure of
Iraq's government to get parliament to approve such a law governing oil and gas
development, the legal framework for the ventures assigned in the auction just
concluded is set up in the form of service contracts.
Nevertheless, the present developments bode well for political stability in
Iraq if the security situation remains also stabilized as a precondition for
that. The more revenue that there is to divide among the center and regions,
the easier it will be to divide this revenue; and the easier it is to divide
increasing revenue, the easier it will be to resolve acute political issues.
Still, the fields recently auctioned are mainly in the south of the country,
rather than in the Kurdish region.
An interesting exception is the Qaiyarah and Najmah fields, adjacent to one
another in the northern province of Nineveh, where the Angolan company Sonangol
won with a revised bid. This would be a good sign for cooperation between the
Kurdish region and the political center in Baghdad for future energy
exploration and development in Iraqi Kurdistan, and for an eventual political
settlement of thorny issues, including reversal of Saddam's Arabization policy
in the north, which altered the ethnic balance there and hence also
contemporary electoral rolls.
Running down the list of fields for the sake of completeness, Gharaf with 900
million barrels (Mbbl) went to a Petronas-Japex (Japan Petroleum Exploration
Co) consortium and Badrah (100 Mbbl) to Russia's Gazprom. Other fields (East
Baghdad, the four "Eastern Fields", and the three Middle Furat cluster)
received no bids in part due to the fluid security situation in the country.
A third of a century ago, the legendary Seven Sisters of the global oil
industry would have had these fields to themselves, but since then there has
been an enormous diffusion of expertise and know-how to other companies. These
have the technology necessary for less complicated developments, are able form
partnerships for access to more complex technology when necessary, and are able
to compete on a cost basis.
So despite the earlier award of West Qurna 1, it is turning into an energy
bonanza in Iraq for almost everyone except the Americans, whose erstwhile vice
president, Dick Cheney, is widely reported to have been one of the driving
forces of the military intervention following energy task-force meetings with
US energy companies where maps of Iraqi oil deposits were closely examined.
The country's proven natural gas deposits are meanwhile estimated at slightly
over 100 billion cubic meters (bcm), with probable reserves up to nearly three
times that figure. At the end of September, Turkey signed an agreement to take
8 bcm per year from deposits in Iraqi Kurdistan to help kickstart the Nabucco
pipeline long under negotiation to channel gas from the Caspian Sea region to
Europe. This story is far from over.
Dr Robert M Cutler (http://www.robertcutler.org), educated at the
Massachusetts Institute of Technology and The University of Michigan, has
researched and taught at universities in the United States, Canada, France,
Switzerland, and Russia. Now senior research fellow in the Institute of
European, Russian and Eurasian Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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