Extracted from http://www.eia.doe.gov/emeu/cabs/iraq.html

 

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Status of Oil Development Deals with Foreign Companies
Prior to the toppling of Iraq's Ba'athist regime, the country reportedly had signed several multi-billion dollar deals with foreign oil companies mainly from China, France, and Russia. Deutsche Bank estimated that $38 billion worth of contracts were signed on new fields -- "greenfield" development -- with potential production capacity of 4.7 million bbl/d if all the deals came to fruition (which Deutsche Bank believed was highly unlikely). The former Ba'athist government reportedly had been growing increasingly frustrated at the failure of these companies actually to begin work on the ground, and had been threatening to no longer sign deals unless firms agreed to do so without delay. Iraqi upstream oil contracts generally required that companies start work immediately, but U.N. sanctions dissuaded companies from doing so for the most part.

Now, following the toppling of Saddam Hussein's regime, the legal status of these agreements is up in the air, increasing the uncertainty level for companies interested in doing business with Iraq. Besides legal issues, companies are also looking for a relatively stable security situation, a functioning government, and other conditions to be in place before they move heavily into the country. In May 2003, Philip Carroll stated that contracts signed under the previous regime would be assessed to determine whether "they were made in the best interests of the Iraqi people." In February 2004, Iraqi Interim Trade and Investment Minister, Ali Allawi, announced that negotiations with potential investors in Iraq's upstream oil sector would be left for an elected, sovereign government, possibly delaying such deals until 2005 at least.

Russia, which is owed billions of dollars by Iraq for past arms deliveries, has a strong interest in Iraqi oil development. This includes a $3.7 billion, 23-year deal to rehabilitate Iraqi oilfields, particularly the 11-15 billion barrel West Qurna field (located west of Basra near the Rumaila field). West Qurna is believed to have production potential of 800,000-1 million bbl/d. In a surprising development, the Iraqi Oil Ministry had announced in mid-December 2002 that it was severing its contract with the Lukoil consortium on West Qurna due to "fail[ure] to comply" with contract stipulations. Specifically, the Iraqis had cited Lukoil's failure to invest a required $200 million over three years. Two other, smaller, stakes in West Qurna by Russian companies Zarubezhneft and Mashinoimport apparently were left intact. As of early February 2004, Lukoil reportedly was discussing a Memorandum of Understanding with Iraq's Oil Ministry on West Qurna.

In addition, three exploration and production deals were signed between Iraq and Russian companies (Soyuzneftegaz, Stroytransgas-Oil, and Tatneft, to develop the 100,000-bbl/d Rafidain field, the Western Desert's Block 4, and the Western Desert's Block 9, respectively). Despite all this, Russia's Foreign Ministry had stated that it viewed the Iraqi decision on Lukoil and West Qurna "with regret." In May 2003, Lukoil said it would fight to keep the contract, and Russia's Deputy Foreign Minister said that Russia would seek compensation if contracts signed under the Saddam Hussein regime now were not honored.

In May 2003, another Russian company, Tatneft, set up a joint venture with Germany's MRH in order to win work in Iraq's oil sector. According to Tatneft's President, the company had been close to reaching a deal on exploring Block 9 in Iraq's Western Desert region prior to the war. In October 2001, a joint Russian-Belarus oil company, Slavneft, had signed a $52 million service contract with Iraq on the 2-billion-barrel, Suba-Luhais field in southern Iraq. Full development of Suba-Luhais could result in production of 100,000 bbl/d (35^o API) at a cost of $300 million over three years. In early February 2004, Iraq's Oil Ministry issued a tender for development of Suba-Luhais, with bids due by April 15, 2004.

In early April 2001, Russia's Zarubezhneft received U.N. approval to drill 45 wells in the Ajil (formerly"Saddam") field, plus Kirkuk and Bai Hassan, as part of an effort to reduce water incursion into the fields. The Ajil field contains 3 billion barrels of oil and 5 trillion cubic feet (Tcf) of associated gas. Iraq had been seeking foreign assistance for a second-phase Ajil development, which would raise oil production capacity to 50,000 bbl/d, as well as 300 Mmcf/d of gas.

In January 2004, Iraq's State Company for Oil Projects (SCOP) issued tenders for development of the Khurmala dome -- the largest complex in the Kirkuk field -- with the goal of increasing production at Kirkuk by 100,000 bbl/d. Development of Khurmala is aimed at compensating for declines in output at the mature Kirkuk field. SCOP also invited bids for the Hamrin field, north of Tikrit, for production of 60,000 bbl/d.

Another large oilfield slated for development is Majnoon, discovered by Braspetro of Brazil in 1975, and containing reserves of 11-30 billion barrels of 28^o-35^o API oil. Majnoon is located 30 miles north of Basra on the Iranian border. In the 1990s, French company Elf Aquitaine (now merged with Total) negotiated on a possible $4 billion deal with Iraq on development rights for Majnoon. In 1999, however, TotalFinaElf declined to sign a 23-year production sharing agreement (PSA) with Iraq on Majnoon. Following this, the field reportedly was brought onstream (under a "national effort" program begun in 1999) in May 2002 at 50,000 bbl/d. Future development on Majnoon ultimately could lead to production of 450,000 bbl/d within two years or so at an estimated (according to Deutsche Bank) cost of $4 billion. Eventually, Majnoon could produce significantly more oil than that, possibly as high as 3 million bbl/d.

In early June 2003, China's National Petroleum Company (CNPC) refuted a comment by Thamir Ghadban that CNPC's contract on the 90,000-bbl/d al-Ahdab development was now "void by mutual agreement." CNPC agreed in 1997 to spend $1.3 billion on Al-Ahdab, located in southern Iraq, but no progress was made while sanctions remained in place.

The 2.5-5 billion-barrel Halfaya project is the final large field development in southern Iraq. Prior to the war, several companies (BHP, CNPC, Agip/ENI) reportedly had shown interest in Halfaya, which ultimately could yield 200,000-300,000 bbl/d in output at a possible cost of $2 billion. Smaller fields with under 2 billion barrels in reserves also had received interest from foreign oil companies. These fields included Nasiriya (Eni, Repsol), Tuba (ONGC, Sonatrach, Pertamina), Ratawi (Shell, Petronas, CanOxy), Gharaf (Mashinoimport, Rosneftegasexport), Amara (PetroVietnam), Noor (Syria), and more.

In May 2003, Thamir Ghadban stated that three exploration agreements for blocks in Iraq's Western Desert were still valid. These included Indonesia's Pertamina on Block 3, Russia's Stroitransgas on Block 4, and Indian's Oil and Natural Gas Corp. for Block 8. In January 2003, Stroitransgas signed a $33.5 million contract for exploration on Block 4, and in July 2003, it indicated its interest in winning post-war business in Iraq. In September 2003, Pertamina announced that it planned to begin oil and gas exploration in Block 3, investing around $24 million over the next three years. The small Irish company, Petrel Resources, also has expressed interest in exploring and developing oil resources in western Iraq.