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05 March 2010 (Arab News)

While the Iraqi government has made overtures to its Kurdish counterpart in the north to end an oil standoff, much remains in doubt without an actual law keeping the industry in check - rules which this time the Kurds are pressing for rather than Baghdad.

For a long time, the northern Kurdistan region was seen as the most attractive oil market in the country but the latest bid rounds in December and subsequent contract signings in the south have made it suddenly "less clear that Baghdad actually needs an oil law with Kurdistan, because they're actually doing pretty well on their own," said David Bender, an analyst in the Middle East practice of the Eurasia Group's Washington office.

Iraq's government initially pushed for petroleum-sector legislation, but lately the Kurdistan Regional Government (KRG) has been motivated to act "so they don't get sort of left behind, with this new international oil interest in Iraq," Bender argued.

Thirty-eight companies from 17 countries have exploration and production contracts in the Kurdistan region, according to Ashti Hawrami, the KRG's national resources minister. Several medium and large discoveries have been made, while one private sector refinery has been built and another is almost finished, Hawrami noted in a press release.

Baghdad has never viewed oil contracts signed independently by the Kurds as legitimate and blacklisted companies involved in the northern region's oil fields from working in the south. Oil exports from the Kurdish area stopped last year when companies were not reimbursed.

In recent days, however, the government of Prime Minister Nouri Al-Maliki has been considering covering the development costs of foreign firms working in the north, according to media reports, which also cite that oil exports would flow again soon from the north's Tawke field, operated by Norway's DNO and Turkey's Genel Energy.

The central government's ban on companies operating in the Kurdish area will probably remain until the implementation of an oil law, which outlines the sharing of profits, the signing of contracts and the role of Iraq's National Oil Company, Bender told OilPrice.com. He added the Kurds will presumably want to continue to forge contracts without Baghdad's involvement.

As of now, only small interests have been doing business with the KRG, "but if the Kurds ever want to attract major oil companies, they will have to come to some understanding with the Iraqi government," added Bender.

Baghdad's interest these days in reaching out to Irbil, capital of the Kurdish north, is "more politically based rather than anything having to do with oil," he maintained. With March 7 parliamentary elections looming, the Kurds may be the "king maker in whatever the next government is, and one of their prices is probably going to be some sort of progress on an oil law," he argued. He said eventually an oil bill will be passed but conceded it is "somewhat worrisome that there is no time table."

Without clearly defined rules in the petroleum sector, heightened international participation in the Middle Eastern country's oil market has forced dealing with certain issues through a budgetary process, Bender said. This year's budget spells out that provinces will be paid $1 per barrel for oil or gas they produce, while the provinces, namely the Kurdish north, have to agree to export oil or face a fine, he continued.

The whole country's proven oil reserves were last estimated at 115 billion barrels, and analysts have speculated Iraq will boast some six million to 10 million barrels a day over the next several years.

While different stakeholders argue over spreading around the oil wealth, some doubt the optimism of these predictions.

Robert Ebel, a senior adviser in the energy and national security program at the Center for Strategic and International Studies, a Washington-based think tank, told OilPrice.com he has heard Iraqis boast that more oil will flow from their country than from Saudi Arabia.

"I take all that with a huge grain of salt because I don't think it's doable," Ebel said, adding he has a "huge doubt" about how quickly Iraq can produce oil, sell it abroad and bring back money into the country. Responding to all of these contracts will take time, as well as a "tremendous amount of equipment" and personnel, he added.

And the key, Ebel said, is the fate of all that money. "Is it spent properly, or is it lost to the corruption and the variety of projects that don't really have that much importance to the economy?"

While the petroleum law remains paramount, the dispute over the Kirkuk region is also a major stumbling block that may cause problems for the nascent oil industry. Kirkuk finds itself front and center in the fight between Iraqis and Kurds over certain disputed territories.

"In the case of the Kurds, Kirkuk remains an extremely volatile situation. Right now, the US is sort of forcing Kurdish and Arab security forces to cooperate and even that is highly controversial," Bender added. US forces are set to depart next year. Whether such strategic cooperation between local militaries will continue is a lingering question, he warned, and "whether the security forces will start fighting is certainly a possibility."

Abu Dhabi National Oil Co., the state-owned producer, cut February prices on all its crude grades by about 4 percent after Persian Gulf suppliers including Saudi Arabia, Iraq and Iran lowered rates for buyers in Asia, according to Bloomberg.

The price for Murban crude, its largest export grade, was lowered to $74.20 a barrel.Upper Zakum crude was cut the most, by 4.6 percent to $72.55 a barrel.

The U.A.E., holder of almost 8 percent of the world’s oil reserves, is OPEC’s fourth-largest producer, pumping 2.28 million barrels of crude a day in January, according to a Bloomberg survey. The country, which exports most of its crude oil to Asia, has capacity to produce about 2.8 million barrels a day, Oil Minister Mohamed Al-Hamli said in Abu Dhabi today.

To contact the reporter on this story: Anthony DiPaola in Dubai at [email protected].

(Bloomberg)

Crude oil supply from OPEC is rising to the highest in 14 months led by Angola and Saudi Arabia, a survey showed, further reducing compliance with output targets.

Supply from the 11 OPEC members with output targets, all except Iraq, is averaging 26.80 million barrels per day (bpd), up from a revised 26.69m bpd last month, according to the survey of oil firms, officials and analysts.

The survey implies OPEC has made 53 per cent of promised supply cutbacks versus 56pc last month.

OPEC meets to set policy on March 17 and the widening gap between its supply target and actual output is likely to be a main topic of debate.

Even so, analysts said the extra barrels were not unwelcome in the market given that oil prices remain within the range favored by many members and inventories, which ballooned last year due to falling demand, were coming down.

'OPEC told us that given the current economic environment, their goal is oil at $70 to $80. As long as prices are in that range, they are happy,' said Societe Generale analyst Mike Wittner.

(Gulf Daily News)

There were no downgrades in any sovereign ratings in the Middle East in 2009 by Moody's, which indicates the comparative resilience of the region's credit fundamentals and the sovereign ratings should "stay the course" this year, Moody's said in its first annual "Middle East Sovereign Outlook" report.

According to the rating agency, 2010 should be a year of improvement for the Middle East as a sluggish global recovery gains momentum and investor confidence rebuilds.

Moody's only sovereign rating actions in the region so far this year have been positive: the upgrade of Saudi Arabia's government bond ratings to Aa3 from A1 and Oman's to A1 from A2 based on the strong state of their government finances.

"The Middle East had a relatively 'mild crisis' in that it suffered less damage as a result of the global economic and financial turmoil of the past two years than some other regions. This stands it in good stead as the world economy recuperates," said Tristan Cooper, a Vice-President and Senior Credit Officer in Moody's Sovereign Risk Group.

"Overall, the Middle East sovereigns did not experience anything like the deterioration in credit metrics that we saw in some other regions in 2009 - most notably the advanced industrialized countries and Eastern Europe," he said.

According to the report, financial sectors in the region were not heavily exposed to "toxic" assets or failed western financial institutions during 2008 and 2009.

(Emirates Business)

Iraq has signed a raft of deals with foreign oil companies that could take its crude output capacity up to 12 million barrels per day, rivaling top producer Saudi Arabia.

There are still hurdles in the way, not least a March 7 parliamentary election that could usher in a new government inclined to try to renegotiate some of the deals.

At the same time, the lure of billions of dollars in revenues could persuade whoever forms the next Iraqi government to allow the contracts to stand unchallenged.

(Reuters)

Kuwaiti telecoms firm Zain (ZAIN.KW), which is selling its African assets to India's Bharti Airtel, will concentrate on the Gulf and Middle East region and is open to new investments, its chief executive said on Tuesday.

On Feb 16, Zain said it would pocket up to $5 billion from the planned sale of its African assets, excluding Sudan and Morocco, to Bharti Airtel in a $9 billion deal and use the rest to pay down debt. Nabil bin Salama, who took over the chief executive post earlier this month, said returns from the sale of most of its African assets will provide it with the cash for possible new investments.

Bin Salama said Zain has gained a strong foothold in the Middle Eastern market during its expansion period under the group's outgoing chief executive Saad al-Barrak. Its client base in seven Arab countries is over 31 million, he said.

He said the company's share in the Iraqi market could be increased, and Zain "expects a lot from the Saudi market" despite tough competition." The Sudanese and Lebanese markets were also promising, he added.

The Economist reports that Chinese oil companies are shifting their focus from Iran to Iraq, as Iraq attracts the latest technology to increase its oil production.

“Iraq will have to pull off an unprecedented feat. In the history of the modern oil industry, no country has increased output with the speed the Iraqis envisage. Over the next seven years Iraq intends to go from producing 2.5m barrels per day to 12m b/d, a target that exceeds Saudi Arabia’s current output by more than 30%.”

The scale of the challenge is huge, involving not just increased port and pipeline capacity, and “countless pumping stations”, but even the provision of paved roads.

As this oil starts to come on stream, the question of OPEC quotas will become an issue, but the Oil Minister “makes the plausible argument that Iraq under-produced for decades and deserves to catch up, but this has irritated the Saudis”.

The New York Times reports on how terrorist attempts to derail the auctions of Iraqi oilfield development rights have failed, and the process went ahead as planned. “The terrorists tried to send a message to the oil companies through the bombings,” the oil minister, Hussain al-Shahristani, declared on Iraqi television. “But this message was not delivered.”

After decades of decline, Iraq’s oil industry looks set to recover its place among the world’s leading producers, perhaps even to challenge Saudi Arabia for the top spot by the end of the decade.

“[If the IOCs] are reasonably successful in delivering on the commitments we’ve made, it is quite likely we will see Iraq increase its production to around 10 million barrels per day within about 10 years,” Tony Hayward, chief executive of BP, told the World Economic Forum at Davos, Switzerland, last month. “[Absent unforeseen political events] the resources there are relatively easy to bring on-stream.”

But Associated Press quotes a more sceptical source from the International Petroleum Week conference in London as saying "I haven't found a single person who finds that target [12 million bpd] achievable … it's much lower than that, but even so, Iraq is a complete game-changer, even if it delivers half of that."

And the oil services companies are set to benefit hugely from all this. The success of the auction in December “implies a huge amount of service activity over the next two or three years,” said Andrew Gould, chief executive of Schlumberger, the oil field services giant.

Repairing pipelines, rebuilding terminals, and upgrading all the other infrastructure needed to get the oil to the market should be worth billions to the likes of Halliburton, Schlumberger and Bechtel.

(Sources: New York Times, Associated Press)

Azzaman reports that Russian energy giant Lukoil is discussing with local officials in Basra the details of implementing its contract to develop the West Qurna-2 oil field.

Governor Shaltah Aboud is reported to have promised the Russians “to engage in full cooperation and do his best to remove all obstacles.”

“We have discussed with Russia’s Lukoil and its partner Norway’s StatoilHydro, which have won the contract to develop the giant field of West Qurna-2, ways to solve the problems they might face,” Aboud said.

One important issue is employment – Aboud wants to see Lukoil and StatoilHydro employing as many Iraqis as possible.

“Lukoil expressed readiness to accommodate (certain) numbers of Iraqis and work for their career development,” the governor said. “We are planning more meetings with Lukoil and StatoilHydro on the nature of the services they intend to offer the province’s population.”

The Iraqi government ratified the agreement last month; it will last 20 years with a possible extension of five years. Lukoil has a 56.25% share, StatoilHydro 18.75%, and Iraq’s North Oil Company 25%.

The Qurna oilfield, just 65 kilometers from the port of Basra, has proven reserves of around 13 billion barrels. Under the deal the firms are to substantially raise the field’s output to 1.8 million barrels a day.

Production is expected to start by the end of 2011 and will involve drilling more than 500 wells, but it will take several more years to hit the 1.8 million bpd target. A meeting also took place on Friday between the consortium and the Iraqi Ports Company, to discuss methods of getting the oil to Basra port.

Iraq has the world’s third largest oil reserves, behind Saudi Arabia and Iran, with an estimated 115 billion barrels of proven reserves.

(Sources: Azzaman, Oil & Gas Financial Journal, Aswat Al Iraq)

Iraq's oil minister Hussain al-Shahristani just made it clear at a press conference that Iraq is gunning to knock Saudi Arabia out of the top slot for oil production.

Markets won't to wait too long for this to happen either, and OPEC better not try to stop them:

Hellenic Shipping News: “We can’t find a reason to prevent Iraqi production becoming higher than any other OPEC state or even states outside OPEC. We expect that to happen in the next six to seven years with co-ordination and agreement with other OPEC producers,” he said. Iraq has signed a series of oilfield development deals with global oil firms – which bid on prime fields at two energy auctions last year – in a nation with the world’s third largest crude reserves, emerging from years of conflict and sanctions.

Unlike OPEC’s 11 other members, Baghdad is not subject to the output targets the group uses to set supply levels. OPEC exempted Iraq in the 1990s, when it was under sanctions. “Iraq has been deprived of having a fair export level over the last years, during which we were not able to produce or export oil while other states got benefit from this and were able to export at higher levels,” Shahristani told reporters.

“Opec should put into consideration Iraq’s need for oil revenues to rebuild its economy and country. Iraq has a definite need for these revenues.”