Iraq Nears First Major Deals With Western Oil Giants

The Western oil giants negotiating service deals to help Iraq boost its crude production are surely hopeful the relationships will lead to greater access to the country's massive oil fields, industry experts say.

It's unclear, however, whether the leverage the companies gain by providing technical support to Iraq over the next couple of years will lead to a greater role tapping Iraq's vast reservoirs.

Iraq's oil ministry said Thursday the country is close to signing oil-service deals with several major oil companies — the first major Iraqi contracts with big Western companies since the 2003 U.S.-led invasion.

The pending deals, once signed, would be something of a stopgap to help Iraq begin to increase production until the country is able to approve a new national oil law — now held up by political squabbles among Sunnis, Shiites and Kurds.

But they also could mark the beginning of an important long-term toehold by Western companies into Iraq's potentially lucrative oil industry, giving the companies a bidding advantage over others in the future.

The relationships would be established at a time when international oil companies are finding it harder and more expensive to gain access to new sources of hydrocarbons. State-run oil companies, like those in Saudi Arabia and Venezuela, control almost 90 percent of global oil reserves and, given today's historic prices, are keeping a tight grip on their assets.

Fadel Gheit, an analyst at Oppenheimer & Co. in New York, said he has no doubt the oil companies said to be involved in negotiations — BP, Chevron, Exxon Mobil and Royal Dutch Shell, among them — are eyeing possible production-sharing agreements with Iraq as the country's oil business evolves.

"There's no question in my mind that's the case," Gheit said. "These companies are in it for the money, not to make friends."

Iain Brown, an analyst with research and consulting firm Wood Mackenzie who keeps tabs on the Middle East, said it's pretty clear the idea for now is to hire the companies to help Iraq get more oil flowing by providing technical support and other expertise.

Once that happens, in fields that don't require sophisticated production methods, there would be little incentive for Iraq to strike production-sharing agreements, or PSAs, Brown said.

"But there's always possibilities, and no more than that, of PSAs being available, perhaps, for exploration or for technologically challenging fields," he said. "I don't think the Iraqis themselves have come to a decision on that. A lot of that will wait until the oil law is concluded."

Iraq's oil ministry spokesman would not name the companies set to get the deals.

But last December, four major companies — Royal Dutch Shell PLC, BP PLC, Exxon Mobil Corp. and Chevron Corp. — submitted technical and financial proposals for five oil fields and received counterproposals from the Iraqi side.

The New York Times reported Thursday that Shell, BP and Exxon Mobil, plus Total, were the four major companies close to signing deals, along with Chevron and some smaller companies.

Ministry spokesman Assem Jihad told The Associated Press in a telephone interview the names would be announced June 30, after the proposals are sent to the Iraqi Cabinet for final approval.

A spokesman for Paris-based Total SA said Total and Chevron were in joint discussions with the Ministry of Oil on a technical-services agreement. Europe's BP and Shell also confirmed negotiations but declined to release more details.

Texas-based Exxon Mobil said if the Iraqi government decides it wants international oil companies to partner with it to develop the country's resources, Exxon Mobil would be interested in participating.

In March, Iraq's Cabinet gave the nod to the Oil Ministry to sign the deals worth around $500 million each. Baghdad hopes to eventually add another 600,000 barrels per day of output to its current 2.5 million barrels per day.

Jihad, who would not discuss details of the contracts, said the deals will be for two years, renewable for a third. The Times reported the deals were essentially made for the first two years on a no-bid basis.

In the third year, the contracts would be opened to competitive bidding — but the original holders would have an advantage in bidding through a clause that would allow them to match bids from competitors to retain the work, the Times reported. It cited the Iraq country manager for a major firm, who spoke on condition of anonymity.

Such a deal would give the original holders of the no-bid contracts an important competitive advantage precisely at the time when Iraq's oil industry would be most likely to take off.

The predecessors of the four oil "majors," as they're called, first had a presence in Iraq in 1920 when they were the original partners in Iraq's Petroleum Company. They lost their licenses when the oil industry was nationalized in 1972.

Iraq sits on an estimated 115 billion barrels and it also has an estimated 112 trillion cubic feet of natural gas reserves, according to the ministry.

Iraq's oil law, one of benchmarks set by the U.S. administration to achieve progress toward national reconciliation, will regulate the work of foreign companies in the Iraqi oil sector. But it is stalled over who will have final authority to manage the country's oil and gas fields.