Kuwait signs oil pact with Iraq

Agreement calls for joint production from giant border oilfield.

KUWAIT CITY //Kuwait has signed an agreement to share oil from cross-border fields with Iraq and is waiting for its northern neighbour to reciprocate, the emirate's oil minister has said. The deal could help to smooth the often thorny relationship between the two countries 20 years after Saddam Hussein's armies occupied Kuwait - an incursion that sparked the First Gulf War.

A committee representing both governments met this month, the Kuwaiti minister, Sheikh Ahmed Abdullah Al Sabah,said last Wednesday. "The Kuwaiti side already signed the declaration, and now we've sent it to Iraq to sign it," Sheikh Ahmed said. The agreement stipulated that a company had been created to work on both sides of the border "so nobody will claim that one side took more oil than the other", he said.

"An international adviser will come and look at the field and say how much is allowed [for] this side and the other side, and the cost will be shared equally," Sheikh Ahmed said. Production from cross-border oilfields has been a problem between the Gulf neighbours. In the run-up to the 1990 invasion, Iraq accused Kuwait of stealing its oil by slant-drilling into the Iraqi side of the giant Rumaila oilfield - which is known as Ratqa south of the border - to steal its oil. Kuwait denied the allegation.

Whether the allegation was true or not, Saddam used it as an excuse to invade Kuwait. After an eight-year war with Iran, Iraq was left heavily in debt to Kuwait and Saudi Arabia. Iraq also accused Kuwait of producing more oil than allowed by OPEC's quota system,driving down international oil prices and hurting the Iraqi economy. Manouchehr Takin, an analyst for the London-based Centre for Global Energy Studies who wrote the 2008 report "Stealing Iraq's Oil: Is the Iraqi Press Right?", said Rumaila was the most contentious of several oilfields that straddle the border.

A high rate of production on one side of the border essentially "sucks the oil from the other side", Mr Takin said. "They will damage the surface reservoir," he said. "Ultimately, both sides will lose because overall there will be less oil produced." Mr Takin said in his report that he had proposed a bilateral solution. "The obvious thing is to do joint development: unitisation. This is standard practice all over the world," he said. "It's the optimal way to develop the field for conservation."

A border that was agreed to by the UN in 1993 and formally accepted by Iraq in 1994 is still the cause of friction with Iraqi politicians, and the issue could complicate the efforts of international advisers to allocate resources from cross-border oilfields. Other issues that cause tension between the two countries include billions of dollars in outstanding loans and war reparations owed by Iraq, the identification and repatriation of citizens who died as a result of the occupation, and the return of stolen documents.

Even if Iraq does not to sign the agreement, it is pushing ahead with plans to develop its southern oilfields, including Rumaila, which is the country's largest and thought to hold 17 billion barrels. Baghdad has stated its intention of increasing production within six years to as much as 12 million barrels per day (bpd) from about 2.5 million bpd today. BP, China National Petroleum Corporation and Iraq's state-owned South Oil Company recently announced that they would drill as many as 100 wells by the end of next year to increase Rumaila's production by about 10 per cent to 1.1 million bpd.

Other deals are expected to boost production at West Qurna and Zubair oilfields, which are also in the country's south. Mr Takin said the agreement described by Sheikh Ahmed appeared to be the best solution for both countries. "If they do it this way, both sides will win," he said. "They will maximise the oil that both sides can take." business@thenational.ae