Chaos over Iraq's oilfields spills over

Kurds suspend crude exports because foreign companies pumping the oil have not been paid.

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It is business as usual in Iraq's chaotic oil patch, with prospective deals inflaming a conflict between the country's parliament and its oil minister. The ministry has also released conflicting information on a high-profile auction of licences and Iraqi Kurds have suspended crude exports from their semiautonomous northern enclave.

No sooner had Baghdad announced that three teams of foreign energy firms had agreed to the ministry's tough terms for developing two of Iraq's biggest oilfields, than the Iraqi parliament summoned the oil minister for another grilling over his handling of Iraqi oil wealth. The minister, Dr Hussain al Shahristani, would face questioning on October 27, said Jabir Khalifa Jabir, a member of the parliament's oil and gas committee.

Analysts said the minister, who is a key supporter of the Iraqi prime minister Nouri al Maliki, could also face a vote of confidence as preparations are under way for national elections in January. Dr al Shahristani said yesterday a consortium led by Italy's Eni had agreed to Baghdad's offer of US$2 (Dh7.34) a barrel to lift output from the Zubair oilfield in southern Iraq to 1.125 million barrels per day (bpd) from about 227,000 bpd within six years. He said two competing teams, led respectively by the US oil company ExxonMobil and Russia's Lukoil, were willing to accept $1.90 a barrel for raising production from the West Qurna field.

Long-term contracts to develop the two oilfields, each containing billions of barrels of reserves, were among those snubbed in June by foreign oil firms at Iraq's first post-war auction of oil and gas licences, after most participants baulked at the government's tough terms. Only one contract emerged from the bidding round, after Britain's BP and China National Petroleum Corporation agreed to halve the payment they wanted for increasing output from Iraq's biggest oilfield, Rumaila.

Dr al Shahristani nonetheless claimed the bidding round was a success, because it had yielded an agreement that would enable the ministry to achieve its goal of raising Iraq's oil output to 4.5 million bpd by 2015 from about 2.5 million bpd and had been a model of transparency. But now, parliamentarians are reviving their previous objections to direct negotiations between the ministry and foreign oil companies and to any contracts for foreign firms to work on fields already producing oil.

"After a major effort from the oil ministry, our price was accepted," Dr al Shahristani said yesterday in reference to the negotiations over West Qurna. "Iraq has an opportunity to go ahead and sign this contract with Iraqi conditions." But Paolo Scaroni, the Eni chief executive, said that as far as the Zubair agreement was concerned, some as yet unspecified elements of the deal had been sweetened considerably to compensate for the lower per barrel remuneration. "You cannot compare the $2 today to the $4.80 (sought) two months ago," he said.

That could make it difficult for Dr al Shahristani and Mr al Maliki to sell the politically charged contracts to a hostile parliament, said Samuel Ciszuk, the Middle East energy analyst at the consulting firm IHS Global Insight. The contracts would need to be ratified by an "increasingly moribund" Iraqi cabinet, he added. But Dr al Shahristani is pulling out all stops to ensure his oil development programme unfurls swiftly in the months leading up to the election. A second bidding round is scheduled for December, the ministry said yesterday, after announcing on Tuesday that it would be postponed for a month.

Dr al Shahristani told reporters yesterday that Baghdad was now aiming to raise Iraq's crude output to between 10 million and 12 million bpd within six years, more than doubling its previous target. One conflict that is unlikely to be resolved soon, however, is Baghdad's protracted dispute with the Kurds over territory and resource jurisdiction, which has already stalled for two years the passage of a crucial federal oil law for Iraq.

Yesterday, the Kurdistan regional government said Kurdish oil exports had been halted because the foreign companies pumping the oil had not been paid. "Oil exports from Kurdistan's fields have been stopped until an agreement is reached with the Iraqi oil ministry for mechanisms to pay the dues of the oil companies working in the region," said Ashti Hawrami, the Kurdish natural resources minister. According to Mr Ciszuk, Baghdad has responded by disqualifying China's Sinopec from participating in the Zubair development consortium over its recent agreement to purchase Addax Petroleum, one of the companies producing Kurdish oil.