Sunday Times – Rush For The Easiest Oil In World

Originally published:
http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article6493356.ece

Rush for ‘easiest oil in the world’

June 14, 2009

The oil giants are to return to Iraq for the first time since 1972

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 were 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 of dollars worth of the black stuff have 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 MPs angry about 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 $2 and $4 a barrel to extract, compared with $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 present 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. These so-called production-sharing agreements are generous. They give oil companies a 10%-20% 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% 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 passed.

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% stake in the new group, which is set to enter the FTSE 100, will be worth about $1 billion (£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 $8 billion, which would mean a $2 billion payday for boss Jean Claude Gandur, who owns about a third of the firm.

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 200 billion 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.”

31 Comments

  1. Very comprehensive, and we’ll detailed. Illuminating in every respect. Now if only folks saw this instead of excerpts of this doc, taking an hour from their time to See this video in its Entirety, it would be well worth it and important for our future freedom

  2. comrades, I’m starting a small podcast on conspiracy theories debunked or not??? pls subscribe…..many thanks

  3. James, your video may be one of the best i’ve ever seen, so much so that it seems to have finally woken up(partly) members of my family and relatives.
    However, now some of them are severely upset and some of them seem depressed. can you make a video that gives primary focus to realistic, tangible solutions, so that as people have a “rude awakening”, they dont feel tossed adrift in a stormy chaos and sea of confusion of how to turn this around? … and moreover, so they don’t give up entirely and think such solutions are impossible?
    Personally, i believe we can solve this for sure, though your perspective and calm presentation manner, would be appreciated. i often get too emotional when trying to talk with them about this and similar subjects.

    personally i see this as that the people have the power but have acquiesced it to these elite through this long and complex deception. once we see the game and know the playbook, we can be effective in our response. a response that must come from, calm, wise action, and a mindset of holistic, root-cause-oriented solutions. (ie. mere overthrow or ousting individuals in power is not the root solution, nor is new legislation. it is just a band aid….)

    can you please address this, James, and any positive solutions would be appreciated.

    Thank you again for this excellent work. May we all find our way through this.

  4. “Henry Kissinger … engineered the Yom Kippur war, and provoked OPEC’s response.”

    ^^^^[CITATION NEEDED]

  5. If anything, Prohibition pushed large alcohol distilleries towards the ethanol business as the only way to survive. It makes a great story: the Big Oilman versus the small independent ethanol distributors, but is that the real story?

  6. Please turn the background noise up. I can’t control my moods, so i need you to do it. But worse, i almost can make out some of your words.

  7. And, yes, agreed, this is an excellent expose’ that will be forwarded do as many as possible. Despite the overriding entertainment.

  8. i wonder how many views Eddie Bravo got this video. cuz millions of people listen to the JRE podcast. and everyones commenting about it. i think Mr. Bravo needs his commission check.

  9. WOW! One of truly the BEST documentaries I’ve ever seen! And I’ve seen a lot! All based entirely on actual unmitigated FACTS!

  10. Amazing work, James! I spend the whole DAY listening to your report-blog on various topics 😀 ! Good job through-out it all!

    Looks like there are winners and loosers in this world. Sadly enough, its not going to lead to good things.

    A financial collapse is looming in the very vicinity. Its obvious just looking at the developement of the money-supply, and the value of same….

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