Baghdad (UPI) Dec 31, 2009
The preliminary deals signed by Angola's state oil company, Sonangol, Wednesday to develop two small fields in the most dangerous part of Iraq constituted a major breakthrough for Baghdad's high-risk drive to attract international oil companies to help it restore its flagging fortunes and transform the global energy market.
Over the next 20 years Sonangol will develop the Qayara and Najmah fields, which between them contain an estimated 1.66 billion barrels of oil, in Nineveh province, where al-Qaida and other Sunni insurgents operate.
But the Oil Ministry will pay the company $5-$6 for every barrel its produces. That's three times higher than the fees awarded bigger companies that shunned the high-risk zones for the bigger, but safer, fields in the central and southern regions in a recent auction.
But it was well below what the Algerian outfit had initially demanded, between $8.50 and $12.50 a barrel, underlining Baghdad's reluctance to make concessions even on the riskiest projects.
Undeterred by the rising spiral of sectarian violence as parliamentary elections loom, Oil Minister Hussain al-Shahristani says Baghdad still has scores of oil fields, including the so-called superfields that contain more than 5 billion barrels, to offer foreign companies.
He believes that the bloodletting, including a recent wave of suicide bombings that killed some 500 people, will not undermine his plans to quadruple Iraq's oil production to 12 million barrels a day in the next six years.
He pointed to the string of recent 20-year drilling deals with two dozen oil majors from around the world.
"The terrorists tried to send a message to the companies through the bombings that Iraq is unstable and investment will be overshadowed by risks," he told state television a few days ago.
"But this message was not delivered and never deceived them. They came and submitted competitive offers that surprised the global oil industry."
It remains to be seen whether Sonangol will become a target for the insurgents. But it says that several U.S. and European companies have shown some interest in joining it in Nineveh, where the Algerians plan to invest $2 billion in refurbishing the rundown oil infrastructure.
"There are at least five companies that have approached us and showed an interest in working with us to invest," Sonangol's exploration manager, Paulino Jeronimo, told the BBC.
Al-Shahristani, a former nuclear scientist who endured years of suffering as a political prisoner in Saddam Hussein's gulag of death camps, is determined to catapult Iraq into the front rank of oil producing state to rival Canada, Saudi Arabia and Russia.
The seven major contracts awarded in the auction held in Baghdad Dec. 11-12 marked a major step forward to restoring Iraq's long-neglected oil infrastructure and tapping its vast reserves of oil and gas for postwar reconstruction.
These involved Britain's BP Plc, Anglo-Dutch Shell, Total of France, Lukoil and Gazprom of Russia, China's CNPC and Eni of Italy. These secured major fields like Majnoon and Rumailah, most of which lie in the relatively stable Shiite-dominated south.
But U.S. majors did not even present bids, let alone win any of the important fields, although Exxon Mobil was part of a consortium with Royal Dutch Shell that won the West Qurna Phase 1 field.
This came as a surprise. The big prizes had been expected to go to the Americans as foreign oil companies made their first big incursion into Iraq in four decades.
The U.S.-led invasion of March 2003 was widely seen at the time to be aimed at securing Iraq's vast energy wealth, with U.S. oil giants moving in to take charge of oil fields they lost in 1972 when Saddam nationalized Iraq's oil industry.
The American oilmen were clearly not prepared to take any risks for the comparatively paltry rewards Baghdad was offering, while their European and Asian rivals, with lower labor costs and no shareholders to answer to, were less inhibited.
Perhaps al-Shahristani has it in mind to award some of the remaining superfields to U.S. companies. But it may be that they're not prepared to take risks as U.S. forces withdraw from Iraq and the threat of political instability grows.
And, despite al-Shahristani's exuberant optimism, the prospect of further bloodshed cannot be ruled out as the Sunni-Shiite confrontation in the wider regional arena grows more dangerous.
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