Below you will find excerpts from Iraq’s Oil Challenge, a special report published by Gulf States Newsletter (GSN) in December 2008.
Extensively researched using GSN’s network of contacts, the report places the latest developments in the oil sector in the context of Iraq’s security and defence environment and political arena, including relations between Baghdad and Erbil.
In addition to the preview text below, the report also features an overview map, two oil maps and a series of data tables:
• Organigram: How industry might look in the medium term.
• Map – Iraqi hydrocarbons infrastructure, oil and gas fields map.
• Map – Exploration and production in the KRG area.
• The potential of Iraq’s major oil and gas fields
• Draft oil and gas law annexes: major fields
• Iraq’s oil production
• Iraqi refining capacity and output
• Forecast increase in oil demand
• Refined products balance
GSN Internet subscribers may 
download the complete PDF report as part of their subscription.
Non-subscribers may purchase the report as a package of a colour printed copy and PDF file for £63.75 (15% discount) .
Order the report online now or email nick@cbi-publishing.com
POLITICS
Time for the Baghdad government to tackle Iraq’s oil challenge
The political, economic, security and bureaucratic challenges are immense, but Iraq cannot afford to wait any longer before developing its oil industry. It isn’t just that the long-term prospects are vast, with spare production capacity already greater than any other country, including Saudi Arabia. Short-term demands are acute, and Iraq urgentlyneeds oil revenues to continue its tortuous journey back to normality.
As the United States prepares to withdraw both militarily and financially over the next three years, Iraq’s leaders are facing the reality that the country’s future now depends on getting the oil sector working. Unwilling to wait any longer, the Ministry of Oil (MOO) has delved back into the archive of Saddam Hussein-era legislation to find a justification to move forwards with a bid round, which by mid-2009 could see international oil companies (IOCs) participating in eight major producing fields.
CONSTITUTIONAL AND CONTRACT ISSUES
Oil in the post-2003 Constitution
Control of oil policy and revenue has been a source of major tension between Iraq’s main three communal/confessional groups – Shiites, Sunnis and Kurds. The majority Shiites, who for years were under the thumb of the minority Sunni community, and the Kurdish majority in northern Iraq are now demanding a bigger slice of the oil pie
What will the model contract look like?
The final form of the MOO’s field development and production contract is still the subject of great debate. Legal experts expect it to be a form of hybrid contract. Thameur Ghadhban – one of the most authoritative sources to have commented on the subject – describes it as a mixture of joint venture and service contract.
THE INDUSTRY
How to harness oil resources: the great debate
How is Iraq’s huge potential to be harnessed for the benefit of the population? The debate is split between resource nationalist politicians who argue that Iraq should develop its own oil resources without bringing in foreign participants, and pragmatists who say the country cannot go it alone.
Major industry institutions profiled
• THE MINISTRY OF OIL
• FEDERAL OIL AND GAS COUNCIL
• IRAQI NATIONAL OIL COMPANY
• SOUTH OIL COMPANY
• NORTH OIL COMPANY
• STATE OIL MARKETING ORGANISATION
• STATE COMPANY FOR OIL PROJECTS
Key power brokers profiled
Big players on the local energy scene over the past few years have included the following:
• Prime Minister NOURI AL-MALIKI
• Oil Minister HUSSEIN AL-SHAHRISTANI
• THAMER GHADHBAN – Chairman of the PM’s Oil Advisory Commission
• IBRAHIM BAHR AL-ULLOUM
• AHMED CHALABI
• ABDELJABAR AL-LUAYBI
• MOHAMMED AL-WAELI
Key officials at MOO
• ABDELSAHIB SALMAN AL-QUTB
• MUTASSAM AKRAM HASSAN
• AHMED AL-SHAMAA
• NATIQ AL-BAYATI
Baghdad purges SOC
Prime Minister Nouri Al-Maliki moved quickly to build upon the success of June’s security operation in Basra, which disrupted militia control of oilfields and ports. He changed South Oil Company (SOC)’s top management bringing the company more firmly under the government’s control. The creation of Maysan Oil Company followed the Basra purge, while SOC’s highly experienced director general (DG) Jabbar Al-Lueiybi was ‘promoted’ out of his position – becoming an adviser to Oil Minister Hussein Al-Shahristani.
DEFENCE AND SECURITY
Post-‘surge’ security improving but still difficult
As half a dozen major IOCs and other operating and services companies begin to make their first tentative steps into Iraq proper, their focus has shifted to the tactical situation on the ground in their likely operating locations.
Iraq’s first post-war mid-stream licensing round and the earlier technical service agreement negotiations focused minds on the thorny issues of operating on the ground. With political and security risks delicately entwined in almost every major oil or gas field, companies are increasingly looking towards a blend of security and stakeholder engagement services to manage the risks of market entry. The approval of a new State of Forces Agreement (SOFA) under which US forces will withdraw to bases outside the cities by mid-2009 and will withdraw from Iraq entirely in three years time, has focused minds even more powerfully both in Baghdad and in IOC boardrooms.
Militant groups in the Basra region
Prior to Maliki’s March of the Knights offensive and crackdown of mafias and militias earlier this year, rural Basra had never been policed properly. The following groups are list profiled, including their status after Maliki’s offensive:
• JEISH AL-MAHDI/OFFICE OF THE MARTYR SADR
• AL-FADHILA AL-ISLAMIYA
• THAR’ALLAH
• SAID AL-SHUHADA
• BAIT ASHOUR
ENERGY: UPSTREAM OIL
MOO embarks on fresh attempt to attract IOCs to exploit potentially huge resources
After the TSA formula failed, attention is now focused on Baghdad’s first competitive bid round.
Baghdad’s first serious attempt to bring international oil companies (IOCs) into the management of its producing fields ended in failure in September, when Oil Minister Hussein Al-Shahristani admitted that time had run out on his attempt to bring in six majors – BP, BHP Billiton, Chevron, ExxonMobil, Royal Dutch Shell and Total – to provide technical service agreement (TSA) deals worth around $3bn. These were intended as bridging arrangements to boost production by some 0.5m b/d by early 2009. However, the TSA structure was fundamentally flawed: the Ministry of Oil (MOO) didn’t offer sufficiently attractive incentives to the IOCs, while the deals’ no-bid structure attracted sharp criticism within Iraq, where many people remain deeply suspicious of western ‘big oil’.
Attention is now focused on the first competitive bid round, which was announced even before the TSA process had collapsed. Eight blocks are on offer, including six oil and two gas fields.
Details of the bid round
The Ministry of Oil (MOO) has issued tender documents and data packages and invited prequalified bidders to give feedback on the contracts up to March 2009. It will hold a workshop in February during which the model contract will be finalised. However, the road show made clear the kind of fiscal requirements that the ministry is demanding.
First bid round prequalified companies
The list of 40 companies prequalified by the Ministry of Oil (MOO) to bid in the first licensing round for oil and gas contracts contains few surprises. The five super majors BP, Chevron, ExxonMobil, Shell and Total are all present, as are major IOCs and NOCs from every continent. Some 120 companies presented documentation to MOO and 35 of them prequalified in April.
Oil production profile
The failure to sign six short-term technical service agreements with oil majors earlier in 2008 means oil output will fall next year by as much as 10%. A senior State Oil Marketing Organisation (Somo) official told GSN that average exports could slip to between 1.6m-1.8m b/d.
Key international players and bilateral deals
It is no coincidence that the first major oil deal since Saddam Hussein’s removal was the resurrection of an earlier deal, when in September China National Petroleum Corporation (CNPC) signed a 20-year service contract covering the 1bn bbl Al-Ahdab field inWasit province.
ENERGY: DOWNSTREAM HYDROCARBONS AND MARKETS
Export outlook improves as outlets reopen and projects get under way
Whisper it softly, but Iraq is on the cusp of getting more of its oil to market. Three-quarters of Iraq’s oil is exported by the Basra oil terminal in the south and the remainder via the Northern Pipeline leading from Kirkuk to the Turkish port of Ceyhan. Both these export routes need major upgrades before greater export volumes can be achieved. Bad weather hampers efforts to increase loadings from the Basra oil terminal.
Getting to grips with smuggling
A series of well-organised operations have done much to disrupt the massive smuggling of oil from the southern oil fields, which was a significant block to increasing official output figures, as well as depriving the budget of much needed revenue. The extension of government garrisons to Basra’s ports and also the smuggler’s coves at Abu Al-Khaseeb and Abu Floos was a major strike against the organised gangs.
Gas production and export
Iraq has 112trn ft3 of proven gas reserves. Current production comes exclusively from southern fields but is only 400m ft3/d, with twice that amount flared. As more than 80% of gas reserves are associated, officials have contemplated integrating gas development into future oil field contracts. The most important potential gas project under discussion is Shell’s controversial proposal for gathering flared gas at the Basra fields.
Refining and other downstream developments
Iraq suffers from a huge deficit in refining capacity forcing it to import approximately half its consumption of refined products. The Ministry of Oil (MOO) has been pushing a $4bn downstream investment plan that aims to increase refinery capacity by 1m b/d, but security concerns and lack of financing has blocked progress.
IRAQI KURDISTAN
Erbil and Baghdad inching towards compromise
When will the cost of not agreeing become too great?
Intensive negotiations to resolve Baghdad and Erbil’s oil and gas dispute continued in December following the announcement that two PSC holders in Iraqi Kurdistan would soon be able to export oil via the northern pipeline controlled by the federal Ministry of Oil.
True to the fractious nature of the complex relationship between Baghdad and the Kurdistan Regional Government (KRG) – and the fundamental political and constitutional principles involved – the agreement to allow export of Kurdish oil apparently hammered out in late November was immediately put in doubt. Less than a week later, federal Ministry of Oil (MOO) officials said the agreement had been rescinded, following Kurdish insistence that it would decide future contracts and the division of royalties.
Kurdistan’s aspiring E&P players
Profiles of key players operating in the upstream opening offered by the Kurdistan Regional Government, including the following:
• Kurdistan Exploration and Production Company (Kepco)
• DNO International ASA
• Addax Petroleum/Genel Enerji
• Sterling Energy International Ltd
• Korea National Oil Corporation (Korea NOC)
• Norbest: Russians in Hawler area
• Prime Natural Resources (Shakal Production), Petoil, Oil Search: Shakal licence
• Hawler Energy, Petoil (A&T Petroleum) and Oil Search
• Heritage Petroleum Corporation: Miran
• Reliance Industries: Rovi and Sarta
• Ross Perot Jnr’s HKN Energy in the Sarsang Block
• Hunt Oil: Political questions about Assyan block
• Aspect Energy plans Atrush seismic
• OMV: Mala Omar and Shorish
• Gulf Keystone Petroleum (GKP): Shaikan, Akri-Bijeel plays
• Perenco: Sindi-Amedi
• WesternZagros Resources (WZR): Kalar Bawanoor
• Talisman Energy: Kalar-Bawanoor and K39
