Tuesday, March 15, 2005

The world’s major oil companies are dusting off their Baghdad Rolodexes as Iraq’s political factions move closer to forming a new government.

Through 15 years of conflict and sanctions, major oil companies never lost sight of Iraq’s massive reserves — the world’s second-largest after Saudi Arabia. Efforts to form the nation’s first elected government in more than half a century are making the prospect of major contracts more tantalizingly real, even if that government could still be more than a year away.

The Shi’ite alliance that won a slim majority in January’s Iraqi election held talks yesterday with Kurdish parties, with both sides saying a deal was close. The new parliament is set to convene for the first time tomorrow.

The world’s three biggest integrated oil companies — BP PLC, Exxon Mobil Corp. and the Royal Dutch/Shell Group of Cos. — recently struck cooperation or training deals with Iraq. France’s Total SA regularly invites Iraqi engineers to Paris for training.

“It’s a way to maintain contact and get the oil officials to know about them,” said former Iraqi Oil Minister Issam Chalabi, who fled Saddam Hussein’s regime in 1991.

Speaking from Jordan, where he works as a consultant, Mr. Chalabi said some 20 companies have offered Iraq’s interim government training for oil personnel, free geological studies or other technical assistance.

The oil powerhouses stayed on the sidelines as oil-services companies such as Halliburton Co. were awarded billions of dollars in contracts to renovate Iraqi pipelines and other infrastructure. The U.S.-led postwar administration and the provisional government that followed lacked the democratic or legal legitimacy to approve full-blown production deals, which typically guarantee companies a share of oil extracted from fields they invest in.

Such long-term contracts may still have to wait until after the framing of a new constitution and a second round of elections slated for the end of this year, and perhaps even until the adoption of a new energy law.

Iraq’s crude is badly needed to fund the country’s reconstruction and to feed surging global demand. Iraq is exempt from OPEC’s quota system to aid its reconstruction.

With proven reserves of 112 billion barrels, but current production of just 2 million per day, “Iraq has more oil fields that have been discovered, but not developed, than any other country in the world,” Mr. Chalabi said.

If rapid improvements are made to Iraq’s damaged oil infrastructure, Mr. Chalabi sees the potential to triple output to 6 million barrels per day within about five years.

Yesterday, Saudi Arabia’s support of a 2 percent increase to OPEC’s output target failed to calm oil markets, though it appeared to reflect growing concern within the cartel about the effect high prices could have on the global economy.

Even if the Organization of Petroleum Exporting Countries raised its daily production ceiling by 500,000 barrels, the impact on actual supplies would be muted because member nations — eager to maximize profits with crude futures trading near $55 a barrel — are already overshooting the existing quota by about 700,000 barrels.

The price for light, sweet crude for April delivery fell early yesterday, but then reversed course, rising 52 cents to $54.95 per barrel on the New York Mercantile Exchange. Brent crude rose 56 cents to settle at $53.66 per barrel on London’s International Petroleum Exchange.

The high cost of oil has led to surging prices for heating oil, diesel, jet fuel and unleaded gasoline, which in the United States averages $2 a gallon, or 26 cents higher than a year ago.

While they wait for Iraq’s new government to form, the world’s oil leaders are lining up contracts.

Britain’s BP agreed last month to analyze Iraqi oil ministry data on the Rumailah oil field near the southern city of Basra, in the zone patrolled by British forces. Such studies are vital when preparing to start new drilling operations.

Exxon Mobil Corp. has an agreement covering technical assistance, training and potential studies, while Royal Dutch/Shell won a contract in January to carry out study work on Kirkuk, a major oil field in the north.

Total SA, which negotiated production contracts for two Iraqi oil fields in the early 1990s but never signed them, argues that its 80 years of experience in Iraq could be crucial. Total was founded by a group of investors who took over the French government’s 24 percent stake in Iraq Petroleum.

Former oil company geologist Ibrahim Mohammed, who works as a London consultant in contact with Iraqi officials, says Baghdad oil ministry staff expects the major U.S. companies to win the lion’s share of contracts.

“Among people who are high up in the ministry of oil and the national Iraqi oil company,” the feeling is that “the new government is going to be influenced by the United States,” he said.

That perspective may have been a factor in OAO Lukoil’s decision in September to team up with ConocoPhillips Co. as it evaluates the 68.5 percent stake in the large West Qurna oil field that Lukoil negotiated with Saddam’s Iraq.

Lukoil is based in Russia, which also opposed the war. The company is granting ConocoPhillips, based in Houston, a 17.5 percent stake in the southern oil field — giving the project a solid U.S. connection. ConocoPhillips, which holds a 10 percent stake in Lukoil, declined to further discuss the deal or comment on reports that post-Saddam administrators have canceled Lukoil’s production rights.

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