Iraq's Oil Deals Dominate PM Election Campaign

BASRA - AP,03/03/2010

International oil executives have flocked to this southern Iraqi city to survey their potentially lucrative prizes: the fields that it is hoped will one day dramatically increase output of cheap, plentiful crude.

For their companies, the fields that they won the rights to develop in two biddings rounds last year are their first foray into Iraq's oil sector in over three decades.

For Iraqi Prime Minister Nouri al-Maliki, the executives and their investments are a vital part of his bid to win a second term in March 7 elections. Al-Maliki has billed himself to voters as the leader that can ensure the development of Iraq's dilapidated oil sector and bring in billions of dollars to rebuild the country's struggling economy.

Al-Maliki's promises could take years to fulfill and many experts see his predictions for increasing oil output as wildly optimistic. But what matters for the premier is persuading voters to keep him in his post to shepherd the process.

"Al-Maliki can present himself as a guarantor to these plans ... whether they are going to meet their huge targets or not," Mideast oil analyst Samuel Ciszuk of the London-based IHS Global Insight said.

Iraq sits atop 115 billion barrels of crude, the world's third largest proven reserves of conventional crude oil. But current production of about 2.4 million barrels per day remains well below levels before the 2003 U.S.-led invasion that toppled Saddam Hussein.

Al-Maliki's government has vowed, based on developers' promises, to raise output to more than 12 million barrels a day within six to seven years. The production increase would translate into hundreds of billions of dollars in sorely needed revenue for a government that relies on crude sales for 95 percent of its revenues.

Iraqi officials hailed the multibillion dollar deals as the dawn of a new day in the oil sector after two international auctions since June secured commitments from international firms to develop 10 oil fields. The government plans to develop 11 others left over from the two biddings on its own.

But meeting the government's timetable will be difficult. After decades of neglect because of years of war and Saddam-era sanctions, infrastructure is poor. Also, continuing violence in the country means security costs to keep workers safe as the U.S. looks to withdraw all its troops from the country by 2011.

"Bottlenecks are everywhere and it is going to be very tall order," Ciszuk said. "It's going to be very, very tough to do."

The southern city and province of Basra -- home to 70 percent of Iraq's daily oil output and its only Persian Gulf outlet -- is a key litmus test for al-Maliki. Five of the fields awarded in the auctions are located near the city, and representatives from 11 oil companies have been visiting since early this month to meet with oil officials and tour the fields.

Yet Basra, Iraq's second largest city with 3 million residents and a Shiite stronghold crucial for al-Maliki's Shiite-led government looks like a city that fortune overlooked.

Its dust-covered streets are strewn with mounds of garbage around which some of its poorest residents compete with sheep and goats for discarded food. Streets are packed with cars jostling for space with donkey carts and, in a few neighborhoods; residents still endure water and electricity shortages.

Al-Maliki's Coalition of State and Law secured a sweeping win in Basra and other parts of the mainly Shiite south in last year's provincial elections, boosted by his crackdown on militants and image as the protector of Iraq's security.

But his stature in Basra has been hurt by the continued lack of basic services and the faltering fight against corruption -- as well as continued militant attacks in Baghdad.

"During the last elections, they promised to change everything, but they didn't honor their word and instead they focused first on lining their pockets, then those of their aides," said Jassim Riadh Mohammed, a 43-year-old supermarket owner. Mohammed won't be voting for al-Maliki.

Al-Maliki also faces sharp competition in the south from rival Shiite parties, some of which harshly criticized his oil deals. The Sadrist party, loyal to radical cleric Muqtada al-Sadr, Fadhila Party and nationalist Iraqis, accused him of surrendering the nation's oil wealth to international companies.

Al-Maliki is hoping the promise from Basra's giant oil fields will be enough to win over voters. But years of neglect weigh heavily on that possibility.

About 60 kilometers (38 miles) northwest of Basra, roaring flames billow from Rumaila, Iraq's biggest oil field. The flames are the result of the burning of natural gas that is extracted along with the crude -- a reminder that Iraq desperately needs foreign help even in capturing and selling the gas instead of burning it off.

Rumaila, with an estimated 17.8 billion-barrel reserve, is considered the workhorse of Iraq's oil industry, producing about 1.1 million barrels per day. It was snapped up at the oil auction by British giant BP PLC teaming up with the China National Petroleum Corp.

Their consortium plans to drill 56 wells and upgrade equipment to boost output by 10 percent by the end of 2010, Dhia Jaafar, the director-general of the state-run South Oil Co., told The Associated Press.

They hope to ramp up ramp up production to 2.85 million barrels per day within seven years. Like other firms, the BP-CNPC consortium offered production targets in exchange for a per barrel fee in a 20-year contract.

The work in Basra's four other fields will begin in the next two months, Jaafar said.

Casting a shadow over development hopes is the lack of a legal rule book to govern foreign oil investments. The proposed national oil law has been in limbo since 2007 amid bickering between the Baghdad government and the semiautonomous Kurdish government in the oil-rich north.

That fight could put these deals in danger of being scrutinized or canceled by the new government.

The political rivalries among Shiites in the south also make investors wary.

"I think that's why we have not seen a lot of investment before the elections and before the results that will allow the companies to see who has become stronger and who has become weaker," said Ciszuk.

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