The oil giants are poised to return for the first time since 1972, writes DANNY FORTSON
This month an Iraqi politician will appear on television to open envelopes and reveal the winners of a long and hard-fought contest. In the balance hangs the wellbeing of 28m people, tens of billions of dollars of contracts and how much you and I pay for everything from yogurt pots to petrol.
It should make good viewing. For the hopeful contestants, it has been a long wait - since 1972 to be exact. That was when the Iraqi oil industry was nationalised and foreign operators booted out.
Now the oil giants have been invited back. At the ceremony on June 29 and 30, Hussain al-Shahristani, the oil minister, will reveal which of them will be the first to be let back into the south of the country, where most of its oil and gas resources are found.
Up for grabs are 20-year concessions to operate six huge oilfields and two gas fields. In all, 32 companies are bidding, including BP, Shell, Sinopec of China, Lukoil of Russia and Total of France.
"It's a once-in-a-lifetime opportunity," said Manouchehr Takin, analyst at the Centre for Global Energy Studies. "Fields like this don't exist anywhere else in the world."
The excitement is understandable. Iraq owns the world's largest oil reserves after Saudi Arabia and Iran, but produces the same amount per day, about 2.5m barrels, that it did in 1976. Decades of underinvestment, wars, Saddam Hussein's regime, and political infighting have meant that hundreds of billions worth of the black stuff has remained underground.
There have been many false dawns, however, and jumping back into the oil industry in Iraq brings as much risk as opportunity.
The country is still occupied by more than 130,000 American troops and nobody can be sure how the security situation will hold up. Visitors to Kurdistan, the most stable part of the country and where many of the early oil deals have been struck, still travel in armed convoy. Hotels are cordoned off behind blast walls patrolled by guards wielding AK47s.
The contracts have been put out to tender but a highly controversial hydrocarbon law - intended to govern how oil proceeds are split among the population - remains locked in parliament, more than four years after it was first proposed.
Al-Shahristani is fighting for his political life. He has been heavily criticised in recent weeks by Iraqi MPs angered over the stagnation of the industry at a time when the country desperately needs revenue.
Yet the oil companies are unfazed by the uncertainty. Iraq is sitting on 115 billion barrels of proven reserves. At a time when explorers are going to great lengths to get at new sources, Iraq's is the "easiest" oil in the world. It costs between dollars 2 and dollars 4 a barrel to extract, compared with dollars 50 or more for tar sands or deep-sea drilling.
In its annual review of world energy, BP announced last week that global reserves fell for the first time in more than a decade. Lambert Energy, a consultancy, predicts that at current rates of decline the world will need 40m barrels a day of new production capacity within a decade just to keep up with current demand.
Philip Lambert, its founder, said: "The world needs Iraq, both the north and the south, to work. There is nothing else that can fill the gap."
So will this latest initiative succeed? Industry insiders say it has a good chance. On June 1, Jalal Talabani, the Iraqi president, hosted a gala ceremony celebrating the connection of a pipeline out of Kurdistan, in the north of the country. It was a momentous occasion. It connected two fields, Taq Taq and Tawke - the first to be developed since the 1970s - to the port of Ceyhan in Turkey.
Talabani's presence was key. Since 2003, the Baghdad government and Erbil, the capital of the semi-autonomous Kurdistan, have been locked in a bitter row. Ashti Hawrami, the Kurdish oil minister, has signed 30 contracts with foreign companies without the blessing of the federal oil ministry. The so-called production-sharing agreements are generous. They give the oil companies a 10 per cent to 20 per cent cut of revenues.
The deals infuriated Al-Shahristani, who blacklisted any company that dealt with the Kurds. That is why no big oil company entered the region, leaving it to minnows such as Heritage Oil, Addax Petroleum and Norway's DNO.
Talabani's blessing at the opening was seen as a shift in the government's stance. Uncertainties remain, though. The Kurdish contracts have yet to be ratified by parliament, while the law to determine how oil income - 95 per cent of Iraq's GDP - will be distributed remains mired in controversy.
The deals offered to the oil giants in the south won't be nearly as attractive as those in Kurdistan. They are technical contracts, under which companies are paid a fee to increase production. Oil groups have found such deals in other countries such as Iran unappealing. However, the contracts do provide for additional payments if production targets are hit.
Fortunes are already being made. Last week Heritage, the group run by Tony Buckingham, agreed a merger with Genel Enerji, a Turkish group that shares ownership of the Taq Taq and Tawke fields. After the deal, Buckingham's 16 per cent stake in the new group, which is set to enter the FTSE 100, will be worth about dollars 1billion (pounds 610m).
Sinopec and Korea National Oil Company are circling Addax, the London and Toronto-listed group that also has operations in Kurdistan. It could be taken over for as much as dollars 8billion, which would mean a dollars 2billion payday for boss Jean Claude Gandur, who owns 24 per cent of the company.
Since 2003, the oil giants have been manoeuvring for position. BP sent in workers to help the government carry out field studies.
The big prizes lie in exploration because much of the country's oil remains undiscovered - Takin estimates that up to 200billion barrels could be realised - and that would put Iraq comfortably ahead of Saudi Arabia as the world's largest owner of oil reserves.
The Iraqi government will this year auction off new blocks for exploration. Paul Atherton, chief financial officer of Heritage Oil, said: "It's all about getting in early and cherry- picking the best assets."
COPYRIGHT - THE SUNDAY TIMES, LONDON
This month an Iraqi politician will appear on television to open envelopes and reveal the winners of a long and hard-fought contest. In the balance hangs the wellbeing of 28m people, tens of billions of dollars of contracts and how much you and I pay for everything from yogurt pots to petrol.
It should make good viewing. For the hopeful contestants, it has been a long wait - since 1972 to be exact. That was when the Iraqi oil industry was nationalised and foreign operators booted out.
Now the oil giants have been invited back. At the ceremony on June 29 and 30, Hussain al-Shahristani, the oil minister, will reveal which of them will be the first to be let back into the south of the country, where most of its oil and gas resources are found.
Up for grabs are 20-year concessions to operate six huge oilfields and two gas fields. In all, 32 companies are bidding, including BP, Shell, Sinopec of China, Lukoil of Russia and Total of France.
"It's a once-in-a-lifetime opportunity," said Manouchehr Takin, analyst at the Centre for Global Energy Studies. "Fields like this don't exist anywhere else in the world."
The excitement is understandable. Iraq owns the world's largest oil reserves after Saudi Arabia and Iran, but produces the same amount per day, about 2.5m barrels, that it did in 1976. Decades of underinvestment, wars, Saddam Hussein's regime, and political infighting have meant that hundreds of billions worth of the black stuff has remained underground.
There have been many false dawns, however, and jumping back into the oil industry in Iraq brings as much risk as opportunity.
The country is still occupied by more than 130,000 American troops and nobody can be sure how the security situation will hold up. Visitors to Kurdistan, the most stable part of the country and where many of the early oil deals have been struck, still travel in armed convoy. Hotels are cordoned off behind blast walls patrolled by guards wielding AK47s.
The contracts have been put out to tender but a highly controversial hydrocarbon law - intended to govern how oil proceeds are split among the population - remains locked in parliament, more than four years after it was first proposed.
Al-Shahristani is fighting for his political life. He has been heavily criticised in recent weeks by Iraqi MPs angered over the stagnation of the industry at a time when the country desperately needs revenue.
Yet the oil companies are unfazed by the uncertainty. Iraq is sitting on 115 billion barrels of proven reserves. At a time when explorers are going to great lengths to get at new sources, Iraq's is the "easiest" oil in the world. It costs between dollars 2 and dollars 4 a barrel to extract, compared with dollars 50 or more for tar sands or deep-sea drilling.
In its annual review of world energy, BP announced last week that global reserves fell for the first time in more than a decade. Lambert Energy, a consultancy, predicts that at current rates of decline the world will need 40m barrels a day of new production capacity within a decade just to keep up with current demand.
Philip Lambert, its founder, said: "The world needs Iraq, both the north and the south, to work. There is nothing else that can fill the gap."
So will this latest initiative succeed? Industry insiders say it has a good chance. On June 1, Jalal Talabani, the Iraqi president, hosted a gala ceremony celebrating the connection of a pipeline out of Kurdistan, in the north of the country. It was a momentous occasion. It connected two fields, Taq Taq and Tawke - the first to be developed since the 1970s - to the port of Ceyhan in Turkey.
Talabani's presence was key. Since 2003, the Baghdad government and Erbil, the capital of the semi-autonomous Kurdistan, have been locked in a bitter row. Ashti Hawrami, the Kurdish oil minister, has signed 30 contracts with foreign companies without the blessing of the federal oil ministry. The so-called production-sharing agreements are generous. They give the oil companies a 10 per cent to 20 per cent cut of revenues.
The deals infuriated Al-Shahristani, who blacklisted any company that dealt with the Kurds. That is why no big oil company entered the region, leaving it to minnows such as Heritage Oil, Addax Petroleum and Norway's DNO.
Talabani's blessing at the opening was seen as a shift in the government's stance. Uncertainties remain, though. The Kurdish contracts have yet to be ratified by parliament, while the law to determine how oil income - 95 per cent of Iraq's GDP - will be distributed remains mired in controversy.
The deals offered to the oil giants in the south won't be nearly as attractive as those in Kurdistan. They are technical contracts, under which companies are paid a fee to increase production. Oil groups have found such deals in other countries such as Iran unappealing. However, the contracts do provide for additional payments if production targets are hit.
Fortunes are already being made. Last week Heritage, the group run by Tony Buckingham, agreed a merger with Genel Enerji, a Turkish group that shares ownership of the Taq Taq and Tawke fields. After the deal, Buckingham's 16 per cent stake in the new group, which is set to enter the FTSE 100, will be worth about dollars 1billion (pounds 610m).
Sinopec and Korea National Oil Company are circling Addax, the London and Toronto-listed group that also has operations in Kurdistan. It could be taken over for as much as dollars 8billion, which would mean a dollars 2billion payday for boss Jean Claude Gandur, who owns 24 per cent of the company.
Since 2003, the oil giants have been manoeuvring for position. BP sent in workers to help the government carry out field studies.
The big prizes lie in exploration because much of the country's oil remains undiscovered - Takin estimates that up to 200billion barrels could be realised - and that would put Iraq comfortably ahead of Saudi Arabia as the world's largest owner of oil reserves.
The Iraqi government will this year auction off new blocks for exploration. Paul Atherton, chief financial officer of Heritage Oil, said: "It's all about getting in early and cherry- picking the best assets."
COPYRIGHT - THE SUNDAY TIMES, LONDON
