Iraq Oil Almanac

Transcription

Iraq Oil Almanac

Iraq Oil Almanac
An OpenOil Reference Guide
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Table of Contents
List of Abbreviations............................................................................................................ 7
Preface.................................................................................................................................. 9
History and Context
Rise and Fall of the Iraq Petroleum Company................................................................. 10
Iraq National Oil Company (INOC).................................................................................... 12
Nationalisation of Iraqi Oil Industry................................................................................ 13
Impact of Wars and Sanctions on Iraq............................................................................. 15
Iraq's Oil Industry post-2003............................................................................................. 18
Iraqi Membership of OPEC................................................................................................ 21
Oil theft in Iraq................................................................................................................... 22
Oil Unions in Iraq............................................................................................................... 25
Federal Iraq and the KRG
Federalism, Factionalism and Regional Differences.......................................................26
Revenue Sharing Procedures in Iraq................................................................................ 29
KRG Contract Disputes....................................................................................................... 30
KRG Export Disputes.......................................................................................................... 32
Energy Industry Background
Iraqi Hydrocarbon Reserves and Production..................................................................34
Dependence on Extractives Revenues.............................................................................. 38
The 'Energy Mix'................................................................................................................ 39
Generic Oil and Gas Terms
Resource Curse................................................................................................................... 43
Definition of Hydrocarbon Reserves................................................................................ 46
Oil Field Depletion.............................................................................................................. 48
Enhanced Oil Recovery (EOR)........................................................................................... 49
Crude Oil Qualities............................................................................................................. 50
Natural Gas......................................................................................................................... 53
Natural Gas Flaring............................................................................................................ 55
Liquefied Natural Gas (LNG).............................................................................................. 56
Liquid Petroleum Gas (LPG).............................................................................................. 56
Unconventional Energy Sources...................................................................................... 58
Fuel Subsidies..................................................................................................................... 59
Oilfield Services Industry.................................................................................................. 62
Regulatory Framework
Overview of Regulatory Framework in Iraq.................................................................... 64
Types of Oil Contracts........................................................................................................ 64
Treatment of Oil in Iraq's 2005 Constitution................................................................... 67
Hydrocarbon Legislation in Iraq....................................................................................... 68
Oil and Gas Licensing Round
Iraq's First Licensing Round (2009).................................................................................. 71
Iraq's Second Licensing Round (2009).............................................................................. 73
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Iraq's Third Licensing Round (2010)................................................................................ 74
Iraq's Fourth Licensing Round (2012).............................................................................. 76
Regional Dynamics
Iran-Iraq.............................................................................................................................. 79
Saudi Arabia-Iraq............................................................................................................... 82
Kuwait-Iraq......................................................................................................................... 83
Turkey-Iraq......................................................................................................................... 86
The 'Southern Corridor' Gas Transit Route to Europe...................................................89
International Entities
Operating Environment in Iraq........................................................................................ 93
BP......................................................................................................................................... 94
Chevron Corporation......................................................................................................... 97
China National Offshore Oil Corporation (CNOOC).........................................................99
China National Petroleum Corporation (CNPC)............................................................101
DNO International............................................................................................................ 104
Dragon Oil......................................................................................................................... 106
Eni...................................................................................................................................... 107
ExxonMobil....................................................................................................................... 110
Gazprom............................................................................................................................ 114
Genel Energy..................................................................................................................... 116
Heritage Oil....................................................................................................................... 119
Hunt Oil............................................................................................................................. 120
Inpex................................................................................................................................. 122
Japan Petroleum Exploration Company (Japex)...........................................................123
KazMunaiGas (KMG)........................................................................................................ 125
Kogas (Korea Gas Corporation)....................................................................................... 126
Kuwait Energy Company................................................................................................. 129
Lukoil................................................................................................................................. 131
Marathon Oil Corporation............................................................................................... 133
Occidental Petroleum...................................................................................................... 135
Pakistan Petroleum.......................................................................................................... 137
Petronas............................................................................................................................ 138
Shell................................................................................................................................... 140
Sonangol........................................................................................................................... 143
Statoil................................................................................................................................ 145
Talisman Energy............................................................................................................... 147
Total.................................................................................................................................. 148
Türkiye Petrolleri Anonim Ortaklığı (TPAO).................................................................151
Companies with contracts with the KRG....................................................................... 154
Iraqi Entities
Ministry and its operating companies
O inistry of Oil.................................................................................................................. 157
State Oil Marketing Organisation (SOMO)..................................................................... 158
Petroleum Contracts and Licensing Directorate (PCLD)..............................................159
North Oil Company (NOC)............................................................................................... 160
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South Oil Company (SOC)................................................................................................ 161
Iraq Drilling Company (IDC)............................................................................................ 162
Maysan Oil Company (MOC)............................................................................................ 163
Other Iraqi Entities.......................................................................................................... 164
Other Iraqi actors
Iraqi Ministry of Finance................................................................................................. 167
Central Bank of Iraq (CBI)............................................................................................... 168
Iraqi Prime Minister's Office........................................................................................... 169
Kurdistan Regional Government (KRG)......................................................................... 170
Key Infrastructure
Overview of Infrastructure in Iraq................................................................................. 173
Refineries
Baiji Refinery.................................................................................................................... 175
Basra Refinery.................................................................................................................. 176
Daura Refinery................................................................................................................. 177
Erbil Refinery................................................................................................................... 178
Terminals
Khor al-Amaya Oil Terminal (KAAOT)........................................................................... 179
Basra Oil Terminal (ABOT).............................................................................................. 179
Pipelines
Kirkuk-Banias Pipeline (IPC)........................................................................................... 180
Iraq Pipeline through Saudi Arabia (IPSA)....................................................................181
Taq Taq-Khurmala Oil Pipeline....................................................................................... 183
Kirkuk-Ceyhan Oil Pipeline............................................................................................. 183
Strategic Pipeline............................................................................................................. 184
Islamic Gas Pipeline......................................................................................................... 185
Erbil-Dohuk gas pipeline................................................................................................. 185
Other infrastructure projects
South Gas Utilisation Project.......................................................................................... 186
Environmental Impacts of Iraq's Oil and Gas Industry................................................188
Oil and Gas Fields
Fields awarded by central government
Ahdab Oil Field................................................................................................................. 192
Akkas Gas Field................................................................................................................. 193
Badra Oil Field.................................................................................................................. 195
Bai Hassan Oil Field.......................................................................................................... 196
'Eastern Fields'................................................................................................................. 197
East Baghdad Oil Field..................................................................................................... 198
Garraf Oil Field................................................................................................................. 199
Halfaya Oil Field............................................................................................................... 200
Majnoon Oil Field............................................................................................................. 201
Mansuriyah Gas Field...................................................................................................... 203
Maysan Oil Fields............................................................................................................. 204
Middle Furat Oil Fields.................................................................................................... 205
Nahr Bin Umar Oil Field.................................................................................................. 206
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Najmah Oil Field............................................................................................................... 207
Nasiriyah Oil Field............................................................................................................ 208
Qayara Oil Field................................................................................................................ 209
Rumaila Oil Field.............................................................................................................. 210
Siba Gas Field.................................................................................................................... 212
West Qurna Field (Phase 1)............................................................................................. 213
West Qurna Field (Phase 2)............................................................................................. 215
Zubair Oil Field................................................................................................................. 216
Fields awarded by KRG
Taq Taq Oil Field.............................................................................................................. 217
Tawke Oil Field................................................................................................................. 219
Disputed fields
Kirkuk Oil Field................................................................................................................ 219
Resource Transparency Opportunities
Transparency of Contracts.............................................................................................. 223
Natural Resource Charter (NRC)..................................................................................... 224
Extractive Industries Transparency Initiative (EITI)....................................................226
Publish What You Pay (PWYP)........................................................................................ 233
Revenue Watch Institute (RWI)...................................................................................... 234
Global Witness.................................................................................................................. 236
Transparency International............................................................................................ 237
Directories
Iraq Directory of Contacts............................................................................................... 241
Iraq Oil Industry Listings................................................................................................. 245
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List of Abbreviations
ABOT
al-Basra Oil Terminal
boe
barrels of oil equivalent
BOR
Baiji Oil Refinery
bpd
barrels per day
CBI
Central Bank of Iraq
COFE
Iraqi Committee of Financial Experts
CPA
Coalition Provisional Authority
DFI
Development Fund for Iraq
EIA
US Energy Information Administration
EITI
Extractive Industries Transparency Initiative
FOGC
Federal Oil and Gas Council
FTP
Final Tender Protocol
GUOE
General Union of Oil Employees
IEA
International Energy Agency
IFOU
Iraqi Federation of Oil Unions
IMF
International Monetary Fund
INOC
Iraq National Oil Company
IOC
International oil company
IOTC
Iraqi Oil Tankers Company
IPC
Iraq Petroleum Company
ITP
Initial Tender Protocol
KAAOT
Khor al-Amaya Oil Terminal
KRG
Kurdistan Regional Government
LNG
Liquefied Natural Gas
LPG
Liquid Petroleum Gas
MRC
Midland Refineries Company
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NGC
North Gas Company
NOC
North Oil Company
NRC
Natural Resource Charter
OEC
Iraqi Oil Exploration Company
OPEC
Organisation of Petroleum Exporting Countries
PCLD
Petroleum Contracts and Licensing Directorate
PKK
Kurdistan Workers' Party (Turkey)
PRDC
Petroleum Research & Development Center
PSA
Production Sharing Agreement
PSC
Production Sharing Contract
PUK
Patriotic Union of Kurdistan
PWYP
Publish What You Pay
RWI
Revenue Watch Institute
SCOP
State Company of Oil Projects
SGC
South Gas Company
SOMO
State Oil Marketing Organisation
SPM
Single point mooring
SRC
South Refineries Company
tcf
trillion cubic feet
tcm
trillion cubic metres
TI
Transparency International
TSC
Technical service contract
TTSF
Training, Technology and Scholarship Fund
UN
United Nations
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History and Context
Rise and Fall of the Iraq Petroleum
Company
The Iraq Petroleum Corporation (IPC) was a consortium of major Western oil companies which held a monopoly on all Iraqi production from the beginnings of the industry
until 1962, and continued to dominate production until nationalisation in the early
1970s.1
Foundation
The company was founded in 1912 as the Turkish Petroleum Company (TPC), so called
because although it was formed to prospect for oil inside Iraq, Iraq was then a
province of the Ottoman Turkish empire.2 The largest shareholder in the company was
the Anglo-Persian Oil Company, an antecedent of today's BP, at the time controlled
directly by the British government.3 Other major shareholders on its creation were
Shell and Armenian oil magnate Calouste Gulbenkian, who owned 5 percent of the
shares.
The company received a concession from the Ottoman authorities but then the First
World War broke out, ceasing all exploration activity. It would be 15 years before any
oil at all was discovered in Iraq,4 but that did not prevent the IPC from being the subject of fierce political battles. The Allies realised the importance of oil during the
World War. The status and ownership of the company was a prominent issue at the
San Remo Conference of 1920, which discussed the fate of non-Turkish parts of the Ottoman Empire.2
Discovery of oil
In 1925 the British government, by now ruling Iraq as a direct mandate after the collapse of the Ottoman Empire, granted a fresh concession to the TPC. According to Rex
Zedalis of the University of Tulsa, the modern history of oil and gas in Iraq begins with
this agreement.5 This concession covered the whole of the Mosul and Baghdad
provinces, constituting most of Iraq but excluding the southern Basra province. At the
time the shareholders in the TPC were the Anglo-Persian Oil Company with 45 per1 'Iraq's Oil Sector: Past, Present and Future', James Baker Institute for Public Policy, March 2007
2 'The Turkish Petroleum Company', US Library of Congress, retrieved 4 January 2013.
3 'From Anglo-Persian Oil to BP Amoco', BBC, 11 August 1998.
4 'Iraq Petroleum Company Archive', Archives Hub, retrieved 13 January 2012.
5 Zedalis, Rex ' The Legal Dimensions of Oil and Gas in Iraq', Cambridge University Press, November
2009.
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cent, Royal Dutch-Shell with 22.5 percent, the Compagnie Francaise des Petroles with
25 percent, and Calouste Gulbekian with 5 percent. In 1927 oil was struck at Baba Gur gur, just outside Kirkuk, transforming Iraq into one of the most valuable concessionary areas in the world.6 By the end of 1930 twenty producing wells had been completed.
In July 1928 the Americans, under the Near East Development Corporation, were allowed into the concession, taking some of Anglo-Persian's share to hold a 23.75 percent stake,6 and in 1929 the TPC reorganised itself as the Iraq Petroleum Company
(IPC).7
According to John Blair's book 'Control of Oil', the US and UK-based companies in the
TPC consortium deliberately held down production in their Iraq concessions in order
to maximise their worldwide profits, during an era in which the Great Depression had
resulted in a global glut of oil and low prices. These delaying tactics were employed in
drilling and development activities, as well as negotiations over pipelines and export
routes. Although the 1925 concession covered most of Iraq, the IPC limited its production to fields constituting only one-half of 1 percent of the country's total area. By
1950 the only field being developed was Kirkuk and only then did commercial production in substantial quantities begin until this year, eighteen years after the first exploration of the area.8
In 1960, the same year in which the Organisation of Petroleum Exporting Countries
(OPEC) was established in Baghdad, the Iraqi government revoked the IPC's concession
for 99 percent of Iraqi territory, limiting their concession area to plots in operation at
the time.9
Creation of the Iraq National Oil Company
The Iraq National Oil Company (INOC) was created in 1964, leaving the country in the
unusual situation of having two production tracks which were in competition with
each other. At the time the IPC and its subsidiaries the Mosul Petroleum Company and
the Basra Petroleum Company were still responsible for the vast majority of Iraqi pro duction,9 which by the 1960s was reaching 1 million barrels per day (bpd). In the late
1960s, Iraq signed a series of deals with other foreign companies, notably Entreprise
des Recherches et des Activites Petrolieres (ERAP), for offshore areas in southern Iraq,
and the Soviet Union under the Iraq-Soviet pact of 1967 which eventually led to the
development of the Rumaila field10.
Meanwhile relations between the government and the IPC continued to deteriorate.
When Syria raised transit fees on the Banias pipeline in 1966, the IPC refused to pay,
6 Bamberg, James ' The History of the British Petroleum Company: Volume 2', Cambridge
University Press, 1994.
7 Zedalis, Rex ' The Legal Dimensions of Oil and Gas in Iraq', Cambridge University Press, November
2009.
8 'Iraq and the Battle for Oil. A Historical Insight', Global Research, 17 May 2011.
9 'Iraq's Oil Sector: Past, Present and Future', Revenue Watch Institute, retrieved 34 January 2013.
10 'Iraq - Post World War II Through the 1970s', US Library of Congress, retrieved 4 January 2013.
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the Syrians closed the pipeline and the Iraqi government lost a lot of revenue. When
the Suez Canal was closed as a result of the 1967 Middle East War, the government demanded a premium on oil arriving directly at the Mediterranean by pipeline that was
comparable to rates paid to Libya. The IPC refused, responding that Iraqi oil was a
heavier grade and more expensive to process. IPC continued to control the core of Iraqi production but the government maintained its power by at one stage increasing
transit fees through Basra port overnight by 1200 percent. 11 In 1970 the IPC was fully
nationalised.9
Iraq National Oil Company (INOC)
Iraq's state-owned oil company the Iraqi National Oil Company (INOC) was founded in
1964 and took over all aspects of the industry after nationalisation of the Iraq Petro leum Company until it was dissolved by the government of Saddam Hussein in 1987
into its subsidiary operating companies.12
From 2007 onwards, various pieces of legislation were put before the Iraqi parliament
proposing the revival of the INOC.13
Creation & coexistence with the IPC
The company was created to build Iraqi national expertise in the industry, which at
the time was still dominated by Western majors, including the leading consortium in
Iraq at the time, the Iraq Petroleum Company (IPC). The INOC was granted exclusive
rights under Iraqi law to develop oil concessions in the 99.5 percent of territory that
had been expropriated from the IPC by Law 80 in 1961. The INOC chairman of the
board was given cabinet rank, to allow the company the political authority to develop.
In 1967 the Iraq-Soviet protocol brought in Soviet expertise to develop the Rumaila
field. It was one of a number of agreements with experts from countries outside the
companies in the IPC, as the INOC sought to develop its own internal capacities. 10
Sole control
The nationalisation of the industry in stages between 1961 and 1975 left the INOC as
sole operator in Iraq. The company managed to increase production from 1.4 million
barrels per day (bpd) in 1974 to 3 million bpd in 1980, although production was then
hit by the outbreak of war with Iran.14
But just as it gained sole control over the industry, the Iraqi government imposed
more political control. A law in 1976 made the Oil Minister, a political appointee,
11 'Iraqi oil post-World War II Through the 1970s', US Library of Congress, undated.
12 'Iraq's Oil Sector: Issues and Opportunities', James Baker Institute for Public Policy, December
2006.
13 'Creation of Iraq national oil company not essential', Saudi Gazette, retrieved 4 January 2013.
14 'BP Statistical Review 2010', BP, retrieved 13 January 2012.
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chairman of the board of the company while another law in 1979 removed all financial
independence from INOC, stipulating that all revenues from oil had to pass to the
Treasury and that the company would be allocated an annual operating budget by the
government15.
Upon nationalisation of the IPC, the INOC also took over the IPC subsidiaries the Mosul
Petroleum Company and the Basra Petroleum Company, which together became the
South Oil Company (SOC). But a series of Ba'ath Party decrees in the 1980s established
a range of new regional operating companies which reported directly to the Oil Ministry, bypassing the INOC.15
Dissolution in 1987
Iraq's oil industry was hit immediately when war broke out between Iran and Iraq in
1980. Export facilities at Basra and Khor al-Amaya were damaged in the first weeks. As
a result, the INOC's energies in the 1980s were concentrated on building new export
capacity, such as expanding the Kirkuk-Ceyhan Oil Pipeline and building the IPSA
pipeline across Saudi Arabia. In addition, the company trucked up to 250,000 bpd
through Jordan and Turkey.16
In April 1987, under newly appointed Oil Minister Issam Chalabi, Decree 267 merged
the INOC with the Oil Ministry, which became the direct operator in the industry as
well as its regulator. Its subsidiaries were now broken off into North Oil Company
(NOC), South Oil Company (SOC) and the Oil Exploration Company (OEC). 15
Mooted recreation
See also: Draft laws concerning hydrocarbons in Iraq
The vast majority of Iraqi oil experts would like to re-establish the INOC, including
former Oil Minister Ibrahim Bahr al-Uloum 17, former INOC founding chairman Tareq
Shafiq among others.
Nationalisation of Iraqi Oil Industry
Iraq gradually took control of its own oil industry from international oil companies
(IOCs) in a process which began in 1961 and ended in 1975 with the complete national isation of all assets and production in the country.18
15 'Iraq National Oil Company, An Historical And Political Perspective', Middle East Economic Digest,
21 September 2009.
16 'Iraq - Oil in the 1980s', US Library of Congress, retrieved 4 January 2013.
17 'Interview with Ibrahim Bahr al-Uloum', Niqash, retrieved 25 July 2010.
18 'Iraq's Oil Sector: Past, Present and Future', James Baker Institute for Public Policy, March 2007.
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Prelude
From 1961, when the revolutionary regime of Abdel Karim Qassim passed a law depriving the Iraq Petroleum Company (IPC) of the right to prospect in 99.5 percent of
Iraqi territory, Iraq envisaged the creation of a nationally owned and run oil industry.
The creation of the Iraq National Oil Company (INOC) in 1964 confirmed this, even if
the INOC was originally set up with limited powers. 15
Expropriation of IPC assets
During the late 1960s and early 1970s Iraq continued to be dissatisfied with the way
the IPC managed production levels in Iraq based on their commercial interests elsewhere, and there were various disputes about pricing 19. Iraq also demanded a 20 percent equity stake in IPC, something which the San Remo Conference of the great
powers in 1920 had envisaged but which the international partners in the IPC had
denied them.20
On the back of the rising tide of economic nationalism in Iraq and more broadly across
the Middle East, the IPC offered in May 1972 to increase the Iraqi state's profits, raise
production, and agree to some advance payments on royalties. 21 But the offers did not
prove enough and on the 1 June 1972 the Iraqi government expropriated all of the
IPC's assets in Iraq. Saddam Hussein, then formally vice-president to Ahmed Hassan alBakr, led the nationalisation process for the Ba'ath Party. 22 Only the parent company
IPC was affected by this move. Neither the Mosul nor the Basrah companies were in cluded.23
In 1973, Iraq and the IPC settled their claims and counter-claims. The IPC agreed to
pay nearly US $350 million to Iraq as compensation for revenue lost to Iraq over the
years when IPC was selling Iraqi oil. In return, the government agreed to provide the
IPC with 15 million tons of Kirkuk crude free of charge, valued at the time at over $300
million, in a final settlement of IPC claims. The Mosul Petroleum Company surrendered its concession to the government.23
Nationalisation of the Basra Petroleum
Company
Even following the outbreak of the 1973 Yom Kippur war, Iraq did not nationalise the
entire Basra Petroleum Company (BPC). On the 7 October the government announced
that it had nationalised the shares of the American companies (Exxon and Mobil) in
retaliation for the United States' support of Israel, and later that month it also nation 19 'Post-World War II Through the 1970s', US Library of Congress, retrieved 4 January 2013.
20 'Iraq - the Turkish Petroleum Company', US Library of Congress, retrieved 4 January 2013.
21'The Nationalization of the Iraqi Petroleum Company', International Journal of Middle East Studies,
29 January 2009.
22 Aburish, Said ' Saddam Hussein, the Politics of Revenge', Bloomsbury UK, 2001.
23 Shwadran, Benjamin ' Middle East Oil: Issues and Problems', Schenkman Publishing, 1977.
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alised the shares of Royal Dutch Shell for similar reasons. However in December 1975
President Bakr announced the complete takeover of foreign interests in the BPC, completing the nationalisation process.23
Impact of Wars and Sanctions on Iraq
Between 1980 and 2013 Iraq has endured three major wars 24 and strict economic sanctions between 1990 and 2003.25 Iraq's oil infrastructure was damaged in the Iran-Iraq
War of the 1980s, the Gulf War of the early 1990s and the Iraq war of the early 2000s,
while UN sanctions from 1990 to 2003 severely limited the country's ability to export
oil26 and gain access to the latest technology to develop its fields. 27 The combined effect of wars and sanctions have resulted in dramatic fluctuations in Iraq's oil production and economic involvement in the world market.26
Iran-Iraq War 1980-1988
Iraq's oil production reached its all-time peak of 3.5 million barrels per day (bpd) in
1979 prior to its invasion of Iran, but the war had a quick and debilitating impact on
Iraq's production capability.26 Iraq's two primary offshore export terminals on the Persian Gulf, Mina al Bakr and Khawr al Amayah, as well as the Basra refinery, were
severely damaged by Iranian attacks in the opening weeks of the conflict. 28 The destruction of Iraq's Persian Gulf terminals caused it to rely exclusively on pipelines to
the Mediterranean for exports.29 Then in 1982 Syria, allied with Iran, closed the
650,000 bpd Banias pipeline, which had been a vital Iraqi access route to the Mediterranean Sea and European oil markets, 30 leaving Iraq with only the pipeline to Dortyol
in Turkey.31 Oil production dropped to 2.5 million bpd in 1980 and by 1983 had fallen to
less than 1 million bpd. 32 By 1983, Iraq's export capabilities were only 700,000 bpd, or
less than 30 percent of operable field production capacity at that time. 30
Partially in an attempt to break a stalemate that had settled by 1984, 33 Iraq intensified
its attacks on Iranian commercial shipping. According to author Efraim Karsh, Saddam
Hussein had hoped this would provoke Iran to close the Straits of Hormuz, a critical
shipping lane in the Persian Gulf. This might have left powers such as the United
24 'Iraq profile', BBC, retrieved 28 November 2011.
25 'Were Sanctions Right?', New York Times, retrieved 27 July 2003.
26 'CRS Report for Congress', US Library of Congress, 23 September 2004.
27 'Playing for Iraq's jackpot', CNN Money 16 April 2003.
28 'Oil in the 1980s', US Library of Congress, retrieved 29 November 2011.
29 El Azhary, M.S.' The Iran-Iraq war: an historical, economic, and political analysis', Routledge,
1984.
30 'Iran-Iraq War (1980-1988)', Global Security, retrieved 12 December 2011.
1984.
32 'CRS Report for Congress', US Library of Congress, 23 September 2004.
33 'Iran-Iraq War (1980-1988)', Global Security, retrieved 12 December 2011.
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States little choice but to intervene. 34 Instead, Iran reciprocated the new wave of assaults by attacking tankers carrying Iraqi oil from Kuwait, along with any tanker of
other Persian Gulf states supporting Iraq. 35 The resulting "tanker war", as it has come
to be known, brought extensive damage to Iraqi and Iranian shipping capability and
that of other Gulf states, and reduced shipping in the Gulf by 25 percent by 1984. 33
While damage to oil installations both in Iraq and Iran was extensive, some observers,
such as El Azhary, have suggested that the real damage to Iraqi and Iranian oil sectors
came in the form of lost revenue.36 The war depleted Iraq's foreign exchange reserves,
devastated its economy, and left the country saddled with foreign debt of more than
US $40 billion,37 particularly to Saudi Arabia and Kuwait. By 1988, Iraq had to rely on a
shrinking source of oil revenue which generated only $11 billion, compared with $26
billion in 1980.38
Persian Gulf War 1991
After Iraq invaded Kuwait in August 1990, a US and UK-led coalition initiated a
massive aerial campaign against them in January 1991. Nearly a month of air strikes 39
targeted primarily Iraq's electricity and fuel production infrastructure, 40 dropping
around 1200 tons of bombs to shut down the national refining and distribution system.41 Iraq's three biggest refineries, Baiji, Basra and Doura, were all bombed in the co alition air campaign,42 as was the strategic Faw peninsula, site of the Khor Al Amaya
and Mina al Bakr export terminals, 39 which had only recently been restored to near
full capacity after the Iran-Iraq war.42
The air campaign wiped out many of Iraq's oil facilities 38 and approximately 80 percent of its refining capacity was damaged. 41 Additionally, more than half of Iraq's 20
electrical generator sites were completely destroyed,40 rendering its remaining unbombed assets dysfunctional,43 and 42 of its 53 bridges were rendered impassible.44
Sanctions 1990-2003
Iraq was under sanctions imposed by the United Nations Security Council (UNSC) from
August 1990, when Iraq invaded Kuwait, until May 2003, after Saddam Hussein's re34 Karsh, Efraim ' The Iran-Iraq War, 1980-1988', Osprey Publishing, 2002.
35 'Tanker War 1984-1988', Military History Encyclopedia, 27 October 2002.
1984.
37 'Iraq: Economy', TDS, retrieved 12 December 2011.
38 'Iraq: economic sanctions and consequences, 1990–2000', Third World Quarterly, 9 August 2010.
39 Tucker, Spencer' The Encyclopedia of Middle East Wars', ABC-CLIO, 2010.
40 'Hyperwar - the legacy of Desert Storm', Federation of American Scientists, retrieved 12 December
2011.
41 'Chapter VI - the air campaign', Federation of American Scientists, retrieved 12 December 2011.
42 Ghareeb, Edmund and Dougherty, Beth, ' Historical dictionary of Iraq', Scarecrow Press, 2004.
43 'Iraq: economic sanctions and consequences, 1990–2000', Third World Quarterly 9 August 2010.
44 'Hyperwar - the legacy of Desert Storm', Federation of American Scientists, retrieved 12 December
2011.
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gime had been toppled. According to Foreign Affairs magazine the sanctions were the
longest running, most comprehensive, and most controversial in the history of the
United Nations,45 virtually cutting Iraq off from the world economy with catastrophic
consequences for both the economy and the people of Iraq. 43
The sanctions included a ban on all trade, an oil embargo, a freezing of Iraqi government financial assets abroad, an arms embargo, suspension of international flights,
and banned financial transactions. The UNSC also called upon member states to enforce naval and air blockades against Iraq.43
Economic impacts included, but were not limited to: decreased imports of industrial
and commercial parts and fuel, decreased exports and access to foreign currency, loss
of trade partners leading to the closure of business and industry, inflation, emergence
of black (parallel) markets, decreased overall economic activity (industry, commerce,
agriculture, etc), and the collapse of public and private infrastructure. Sanctions also
took a large human toll, with close to 1 million estimated by UNICEF to be dead
between 1991 and 1998 due to mass starvation and disease.46
Beginning in 1996, the United Nations implemented its Oil-for-Food Program, which
allowed Iraq to sell oil to finance the purchase of humanitarian goods. Iraq was permitted to sell $2 billion worth of oil every six months, with two-thirds of that amount
to be used to meet humanitarian needs. In 1998 the limit on the level of Iraqi oil exports under the program was raised to $5.26 billion every six months, and in December 1999 the ceiling on Iraqi oil exports under the program was removed. 47 The program made available vast funds for the purchase of food, medicine, and essential civilian goods and $24.4 billion worth of goods were delivered to Iraq from the program's
inception until November 2002.45
US-led invasion 2003
Iraqi oil installations suffered little damage during the 2003 US-led invasion of Iraq,
with an estimated nine wells set on fire. But oil infrastructure was targeted for attack
by insurgents and smugglers on many occasions in the invasion's immediate aftermath and in the following years.4849 In addition, as most of Iraq's power is generated
from oil, without a steady supply power plants were unable to reach capacity and
blackouts were frequent in the months following the invasion.50
Most attacks focused on pipeline systems in northern Iraq, especially the Kirkuk-Ceyhan oil pipeline, which impacted the governments ability to gain export revenues.
Southern pipeline infrastructure was also targeted as a means of making oil and refined products more vulnerable to theft and diversion. Highly-organised smuggling
45 'Containing Iraq: Sanctions Worked', Foreign Affairs, July-August 2004.
46 'Effects of Iraq Sanctions', Global Issues, 2 October 2005.
47 'About the Oil-for-Food Programme' ,UN, retrieved 13 December 2011.
48 'Iraq: Oil and Gas Legislation, Revenue Sharing, and U.S. Policy', US Congressional Research
Service, 3 November 2009.
49 'Iraq Pipeline Watch', Institute for the Analysis of Global Security, 27 March 2008.
50 'Iraq's Oil Sector One Year After Liberation', Brookings Institution, 17 June 2004.
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operations leveraged supply and price imbalances in the Iraqi refined fuel market to
create lucrative oil sale opportunities. The US Department of Defense estimated that
in one case as much as 70 percent of the fuel processed at Baiji was lost to the black
market, possibly as much as $2 billion a year” 48 (see also Oil Theft in Iraq). The sabotage
of Iraq's network of pipelines served to create an inhospitable environment for international oil companies (IOCs), leading many to halt their operations in Iraq and divert
investments to more stable security environments.50
Initiatives such as the Pipeline Exclusion Zones (PEZs), established in 2007 in order to
restrict access to vital oil arteries and build obstacles for attacks, helped improve the
security of some of Iraq's oil infrastructure. 51 But violence and attacks on infrastructure continued and, as of late 2011, the security situation in Iraq remained difficult. 52
Iraq's Oil Industry post-2003
During the insurgency
According to industry analyst Daniel Yergin, in 2003 the Iraqi oil industry was suffering from years of neglect and lack of investment, as well as chaotic management following the collapse of the Ba'athist regime. At this stage, of 80 discovered oil fields
only 23 had been put into production due to the disruption of war and sanctions in
place since the 1980s. Thamir Ghadhban (who became head of the Ministry of Oil) and
Philip Carroll (former CEO of Shell Oil USA) became the core of the team charged with
reviving the industry. The two men set a target of reaching a production level of 3 mil lion barrels per day (bpd) by the end of 2004. Carroll stated that the urgent priority for
the restoration of the oil industry and the rest of the economy must be security. 53
As the anti-American insurgency began to intensify and the security situation deteriorated, oil industry infrastructure also came under attack. Pipelines were regularly
bombed from 2003 onwards54 and in 2004, insurgents mounted an attack against the
Al-Amiya platform using suicide bombers in three small crafts, which reached within
30 yards of the installation before they were shot by Iraqi guards. 55
From the fall of Saddam up until 2008, there were well over 300 incidents affecting the
integrity of oil facilities, and oil production remained below target levels. Production
fell short of the goals set and the new goal for oil production by 2007 was dropped in
2006 to 2.1 million bpd.56
51 'Iraqi oil pipeline protection earns award for U.S. Engineer', UPI, 9 March 2009.
52 'US military winds down Iraq withdrawal', Al Jazeera, 8 December 2011.
53 Yergin, Daniel, 'The Quest', Penguin Press, London, 2011.
54 'Iraq Pipeline Watch', IAGS, retrieved 24 November 2011.
55 'Iraq oil hopes hinge on shielding industry', Energy Daily 8 October 2010.
56 Cordesman, Anthony and Davies, Emma ' Iraq's insurgency and the road to civil conflict',
Greenwood Publishing Group, 2008.
18
Restructuring of economy in occupied Iraq
On the 22 May 2003, the United Nations Security Council (UNSC) passed Resolution
1483, abolishing sanctions against Iraq and recognizing the US and the UK as the country's occupying powers.57
On the 20 September 2003, Order 39 was issued by Paul Bremer, head of the Coalition
Provisional Authority (CPA), the transitional government established by the US and its
allies following the invasion of Iraq. This order abolished Iraq's ban on foreign investment, allowing foreigners to own up to 100 percent of all sectors other than natural
resources. Over 200 state enterprises, including electricity, telecommunications and
pharmaceuticals were privatized.58 Under the reforms, income and corporate taxes
were capped at 15 percent and tariffs slashed to a universal 5 percent rate, with none
imposed on food, drugs, books and other 'humanitarian' imports. 59
The reforms implemented were described by World Bank economist Joseph Stiglitz as
“an even more radical form of shock therapy than pursued in the former Soviet
world.”60 and Iraq was branded by the Economist magazine as a 'capitalist dream'.59 BBC
correspondent Nick Springate warned at the time that many Iraqis may see the moves
to privatize as a 'sell-off', with US multinationals seen to get the majority of the 'rewards'. However US Treasury Secretary John Snow rejected the suggestion that the US
dominated the drafting of reforms, asserting that they were based on the ideas of the
Iraqi Governing Council.61
As of June 2010 the United States had allocated $1.9 billion to the Iraqi oil and gas sector with the objective of modernisation, but ended its direct involvement in the first
quarter of 2008. According to reports by US government agencies and international
organisations, long-term Iraq reconstruction costs could reach US $100 billion or higher.62
Proposed new legislation
See also: Hydrocarbon Legislation in Iraq.
In February 2007 the US-backed Iraqi cabinet approved the first draft of a new Oil and
Gas Law which would give foreign companies the long-term contracts and safe legal
framework they had been seeking.
Some analysts and labour groups criticized the process of the drafting of the law,
warning that it is skewed in favour of foreign firms and that it could heighten tensions
and spread instability. The initial draft specified that up to two thirds of Iraq's known
reserves would be developed by multinationals under contracts lasting for 15 to 20
57 'Resolution 1483', UN Security Council, 22 May 2003.
58 'Coalition Provisional Authority Order Number 39', Iraq Coalition, retrieved 25 November 2011.
59 'Let's all go to the yard sale', Economist, 25 September 2003.
60 'Baghdad Year Zero', Harpers, September 2004.
61 'Iraq adopts sweeping reforms', BBC, 21 September 2003.
62 'Doing Business in Iraq', US Commercial Service, 2012.
19
years. This would represent a break from normal practice in the Middle East, according to IPS, and civil society groups and union leaders complained that they had been
left out of the drafting process. Critics claimed that under the law, ownership of the oil
reserves would remain with the state in form, but not in substance. 63 Following repeated delays and several further drafts, as of late 2012 no framework hydrocarbons
law had yet been passed for Iraq.
The prospect of the privatization of Iraq's oil industry was particularly opposed by
trade unions in occupied Iraq, and was described by The Guardian as "a red line" for the
unions and a "red rag" to the workers on the front line. They vowed to resist any
privatisation of what they see as their national assets. 64 Concerned that the new hydrocarbon legislation would lead Iraq's oil industry to full privatisation, in February
2007 the labour unions sent a letter to Iraqi President Jalal Talbani urging him to reconsider the Oil Law draft, commenting that "production-sharing agreements are a
relic of the 1960s... they will re-imprison the Iraqi economy and impinge on Iraq's sovereignty since they only preserve the interests of foreign companies." Officials from
the Iraqi government defended the law, saying it represented a step forward for the
war-torn country and that oil revenues would be distributed to all 18 provinces based
on population size, and regional administrations would have the authority to negotiate contracts with international oil companies. 63
Licensing rounds 2009-2012
(For further detail, see separate articles on individual bidding rounds).
Hussein Shahristani, a nuclear scientist by training who had been imprisoned during
Hussein's regime, returned from exile in Canada and was appointed as Oil Minister in
2006. He was to oversee upcoming bidding rounds and was deemed by Iraq Energy News
as the 'architect of Iraq's oil future'. 65
Under his mandate, from 2009 onwards Iraq held a series of open bidding rounds for
oil contracts, beginning with the first licensing round which took place in 2009, which
experienced varying levels of success. These became the main avenue for foreign companies looking to invest in the sector after a 2008 decision by the Iraqi government to
scrap plans to award no-bid short-term contracts to a handful of Western companies,
including Chevron, ExxonMobil, Total and BP.66
The contracts on offer at the bidding rounds were technical service contracts, by
which companies are paid on the basis of a per-barrel fee for the oil they extract. 67
63'New Oil Law Seen as Cover for Privatisation', IPS, 27 February 2007.
64 'Oil and troubled waters', Guardian, 9 July 2008.
65 'Shahristani, Architect of Iraq's Oil Future' Iraq Energy News, 17 January 2011.
66 'Iraq Rejects No-Bid Contracts', Washington Post, 12 September 2008.
67 'Oil Companies Reject Iraq's Contract Terms', Wall Street Journal, 1 July 2009.
20
Iraqi Membership of OPEC
Iraq is a Founder Member of the Organization of the Petroleum Exporting Countries
(OPEC)68 but had its production quota suspended in 1990 due to Iraq's invasion of
Kuwait under Saddam Hussein69
Foundation
Iraq hosted the conference that led to the foundation of OPEC in Baghdad in September 1960, along with Iran, Kuwait, Saudi Arabia and Venezuela. 70. However after the
initial years, the Iraqi government began to become frustrated with the reluctance of
member countries to adopt a unified negotiating stance with international oil companies. Instead each member country had decided to negotiate separately, with the
result that the oil supermajors were able to switch production away from Iraq in reaction to harsher governmental demands.71.
OPEC played a key part in the nationalisation process in 1972, providing loans to compensate for a transitional period where Baghdad would lose revenues from the Iraq
Petroleum Company.72
Rivalry with Iran
Iraq was locked in rivalry with neighbouring producer Iran in the 1980s over OPEC
production quotas, at the same time that they fought an eight-year war. Iraq demanded parity of quota with Iran at around 3.4 million barrels per day (bpd), but OPEC
consistently denied this as Iran's stated proven reserves were higher, and OPEC quotas
are based on reserves.73 In response Iraq flouted the quotas. In 1986 then Minister of
Oil Issam Chalabi said Iraq would ignore its OPEC quota of 1.54 million bpd of exports,
producing instead whatever amount would best serve Iraqi interests. 74
This rivalry continued in 2011 following the US occupation of Iraq, when Iran successfully opposed a move led by Saudi Arabia to raise OPEC oil output quotas in order to
meet shortfalls in supplies from Libya. 75As a result, no formal agreement on OPEC production levels could be reached.76
68 'Member Countries', Organization of the Petroleum Exporting Countries website, retrieved 27
November 2011.
69 'Opec leaves Iraq oil surge off agenda', Financial Times 17 December 2009.
70 'Member Countries', OPEC, retrieved 27 November 2011.
71 'Iraq - Post-World War II Through the 1970s', US Library of Congress, retrieved 30 November
2011.
72 'The Iraq Petroleum Company 1914-1982', Zajel, 1 February 2005.
73 'Iraq - Oil in the 1980s' US Library of Congress Retrieved 30 November 2011.
74 'Iraq - Oil in the 1980s', US Library of Congress, retrieved 30 November 2011.
75 'Iran calls for OPEC cuts, Arab members unlikely to agree', The Daily Star, 12 November 2011.
76 'Iran Energy Profile: Still OPEC's Second-Largest Oil Producer: Analysis', Eurasia Review News &
Analysis, 22 November 2011.
21
Suspension
After the 1991 Gulf War, the United Nations Security Council imposed a continuing
ban on Iraqi oil exports that remained in place until the Oil for Food program was initiated in 1996. As a result, in 1998, OPEC formally suspended Iraq's production quota, a
state of affairs that remains as of late 2012, however in October 2011 Iraq asked to re join the OPEC quota system by 2014."77
Iraq and OPEC following the 2003 war
Iraqi oil output reached its highest in two decades in February 2011 at an average of
2.08 million bpd, which also made it the biggest single contributor to world oil supply
growth that month. The website Live Oil Prices reported that this was deemed by OPEC
to pose a threat to its control of the global supply of oil, and Leo Drollas of the Centre
for Global Energy Studies stated that an extended period of stability for Iraq "could
have a major destabilising effect on OPEC and the oil price."78
In October 2011, the country asked to rejoin OPEC's quota system for crude input in
2014 as it reached an average of 2.9 million bpd. Falah al-Amri, director of the State Oil
Marketing Organisation (SOMO), stated that the country aieds to increase oil output to
3.4 million bpd by 2012 and to 4.5 million bpd by 2013. However, al-Amri indicated that
the country would "seek the biggest possible quota." 77
Iraq was selected to take over the OPEC presidency in 2012, taking over from Iran. The
OPEC presidency is a ceremonial post that rotates among the 12 members of the organisation, chosen on the consequence of members' alphabetical names, and is for a
one-year term.79
Oil theft in Iraq
Outright physical theft has been one of the major weak points in Iraq's industry since
the 1990s, particularly concerning oil produced at Kirkuk. 80 According to a report by
the Inspector General of the Iraqi Ministry of Oil, the smuggling of oil in the country is
a "grave phenomenon" that leads to a great loss of money and resources, which also
reflects flaws, weaknesses and shortcomings at various important levels within and
outside the oil sector.81
Bunkering, the illegal removal of oil from a pipeline or other distribution system, can
sometimes be as simple as drilling a hole in the pipeline and collecting the oil in a
77 'Iraq Aims to Join OPEC Quota System in 2014, Official Says', Business Week, 26 October 2011.
78 'OPEC member Iraq oil output may affect future oil prices' Live Oil Prices Retrieved 27
November 2011.
79 'Iraq Expects To Be Given OPEC Presidency In 2012 - Oil Min', Rigzone, 13 December 2011.
80 'A History Of Oil Smuggling In Iraq', Musings on Iraq, 5 January 2004.
81 'Smuggling Crude Oil and Oil Products: Second Transparency Report', Iraqi Oil Ministry, 2006.
22
drum. But more complex operations involve equipping tankers with false bottoms to
conceal illegal shipments.82 Oil bunkering in Iraq was described as 'endemic' by industry analyst Matthew Hulbert in 2012.83
According to blogger Joel Wing, wherever the oil is taken from, this theft can take different forms in Iraq. One form is the mixing of stolen oil with legitimate oil, when a
regular shipment is topped up and a separate payment made. It may also involve
filling boats or trucks with stolen oil and delivering the product in tankers to the Persian Gulf (he notes that in 2006 a sting operation carried out by the Ministry of Oil
found 166 craft lined up in rivers in Basra waiting to depart to meet larger boats in the
Gulf).84
A third form is filling up tanker trucks and driving the illegal oil to neighbouring
countries such as Iran, Syria or Turkey.80 After 2003, illegal trucking has continued,
sometimes on a large scale. In one operation in 2006, police seized 400,000 barrels of
oil destined for Syria and worth an estimated $28 million on the black market. 84
History of oil smuggling in Iraq
Smuggling of oil began on a large scale during the 1990s when the government used
smuggling to defy the United Nations sanctions on the country. During this period
trucks sent to Turkey, Jordan, Syria, Kuwait and Saudi Arabia, as well as boats going
through the Persian Gulf and Middle East, were adapted for these operations. However
the problem continued following the breakdown of order following the 2003 US invasion, provoked by the collapse of the state and economy, and the state of general anarchy, following the fall of Saddam.80
The subsidies on Iraqi fuel also made refined products being produced inside Iraq a
target for theft, especially those coming from the Baiji Refinery, where in 2007 the US
Department of Defence estimated 70 percent of the output was being stolen. 85The New
York Times reported that the number of retail petrol outlets near Baiji rose from just
eight in 2003 to over 50 by 2008 as the station owners could gain access to oil products
at the subsidised price and then re-sell them on the black market. 86 However the government took steps to reduce oil product subsidies in 2007. 87
Connection to insurgency
According to the US Ministry of Defence, a variety of criminal, insurgent, and militia
groups engage in the theft and illicit sale of oil to fund their activities. 85
Since 2003 there have been hundreds of attacks on Iraq's oil industry and analysts
82 'Exploring Oil Data', OpenOil, 2012.
83 'Iraq's Rise To No. 2 Oil Producer In OPEC Is Bad News For World', Forbes, 13 August 2012.
84 'How Iraqi Oil Smuggling Greases Violence', Middle East Forum, 2006.
85 'Measuring Stability and Measuring Stability and Security in Iraq Security in Iraq', US Ministry
of Defence, June 2007.
86 'Iraq’s Insurgency Runs on Stolen Oil Profits', New York Times, 16 March 2008
87 'Iraq Energy Outlook', International Energy Agency, 9 October 2011.
23
think that many such attacks, which are billed as political acts of insurgency, may in
fact be the work of organized crime syndicates in order to maximise the potential for
theft. According to reports in the New York Times, pipelines are damaged in order to
force transport of oil by truck, so it can then be stolen. Finance Minister Ali Allawi es timated in 2006 that insurgents were getting between 40 percent and 50 percent of
Iraq's oil revenues.88
Joel Wing reported in his blog that some of the security forces deployed to protect the
lines also colluded in these illegal activities. For instance in 2004 the Defence Ministry
hired the Jabouri tribe to defend the pipeline to Turkey in Saladin and Tamim
provinces, but the tribe was reported to be involved in smuggling since and beyond
the Saddam Hussein period. A 2009 investigation by the Oil Ministry's Inspector General found that army units were stealing from the same line, most destined for mobile
refining stations in Iraq or sold to fuel factories and power stations. 89
Metering
Iraq has suffered a lack of correct metering from its wellheads and pipelines since at
least 2003. The International Advisory and Monitoring Board (IAMB), created in 2003
to oversee management of Iraq's natural resources during a transitional period, said in
2006 that years of requesting an accurate metering system had brought no results 90.
The IAMB first expressed concern at the lack of metering in July 2004. 91 A 2011 review
of an audit by PricewaterhouseCoopers of Iraq's oil revenue management found that
the plan to fully install and calibrate a metering system by 2012 was only 39 percent
complete.92 According to the IAMB the absence of metering infrastructure represented
an internal weakness that could lead to the diversion of oil resources. The absence of
such a system meant the CPA was unable to estimate the amount of petroleum that
was smuggled in 2004.93
The lack of effective metering can lead to large quantities of crude being stolen, since
even a 1 percent discrepancy in the stores of an ultra-large crude carrier (ULCC) with
350,000 tonnes dead weight capacity would be equivalent to 500 entire truckloads of
about 1,000 gallons each. In 2007 Ghaith Abul-Ahad reported in The Guardian that one
tribe in Basra was paying US $250,000 a week to armed gunmen to secure the Basra Oil
Terminal while they loaded tankers with unmetered cargoes of oil. 94
88 'Oil corruption fuels insurgency in Iraq', New York Times, 5 February 2006.
89 'A History Of Oil Smuggling In Iraq', Musings on Iraq, 5 January 2004.
90 'Iraq's Oil Metering System Mysteriously Delayed', Reuters, February 9, 2006
91 'IAMB Reviews KPMG Audit of the Iraq Development Fund', ReliefWeb, 15 July 2004.
92 'Iraq is far behind on oil metering system, audits find', Platts, 10 May 2011.
93 'Report of the International Advisory and Monitoring Board of the Development Fund for
Iraq', IAMB, 22 May 2003.
94 'Oiling the wheels of war: smuggling becomes the real economy of Iraq', Guardian, 9 June 2007.
24
Oil Unions in Iraq
Following the fall of Saddam Hussein, unions formed since 2003 with the goal of blocking privatisation of infrastructure and raising concerns about new draft laws viewed
as too friendly towards international oil companies (IOCs). However in 2010 oil unions
were still technically illegal in Iraq, a legacy of the Hussein regime, 95 which banned
them in 1987.96
The country's labour movement was described as "weakened" by the Global Policy Forum. Parliamentarian Nassir al-Esawi said unions had no special protections under Iraqi
law and some in the labour movement accuse the Maliki government of trying to
weaken them even further.96
In 2009 the Iraqi unions lobbied against Iraq's new oil contract signed with international oil companies BP and CNPC for the Rumaila oil field. The principal complaints
were that the deal was brokered in the absence of new national energy legislation,
stalled by a feud between Iraq's Arabs and Kurds, concerns that the terms of the con tract would overcompensate companies, and the possibility deals would lead to greater unemployment in the sector.96
In March 2010 a strike and demonstration was held at the South Refineries Company
(SRC) headquarters near Basra, with workers calling for a greater percentage of the
company's budget to go to employees, and for key members of the administration to
be sacked. There was an ensuing crackdown by the Iraqi Army and the Oil Ministry
transferred five unionist workers from the Basra refinery to the Baghdad office of the
Iraqi Drilling Company (IDC) in an effort to reign them in.95
Iraqi Federation of Oil Unions
The Iraqi Federation of Oil Unions (IFOU) represents around 26,000 workers from 10
oil unions.97 As of 2010 the organisation was headed by Hassan Juma. The General Secretary was Faleh Abood Umara. In 2010 charges were brought against Juma and Abood
Umara by the state-owned South Oil Company (SOC), accused them of "impeding the
work" at oil developments in Basra and making threatening remarks towards foreign
oil companies that could put the economy in danger.98
The IFOU was previously known as the General Union of Oil Employees (GUOE), the
forerunner to which was the Southern Oil Company Union (SOCU), founded in May
2003 by worker activists from the South Oil Company. This and other unions from Amara, Basra and Nasiriyah provinces, then merged to form the GUOE. 99
95 'Union leaders taken to court for oil sector dissent', Iraq Oil Report, 2 July 2010.
96 'Iraq’s Weakened Unions Fight Foreign Oil Firms', Global Policy Forum, 13 July 2009.
97 'Letter to the American Labor Movement from the IFOU', Solidarity Center.
98 'Union leaders taken to court for oil sector dissent', Iraq Oil Report, 2 July 2010.
99 'Support Iraqi Oil Workers', Iraqi Occupation Focus, retrieved 30 November 2011.
25
Federal Iraq and the KRG
Federalism, Factionalism and Regional
Differences
Iraq's 2005 Constitution defines the country as a federal republic 100 comprising of 18
governorates or 'provinces", three of which make up Iraq's only semi-autonomous region, the Kurdistan Regional Government (KRG). 101 According to the US Institute of
Peace, the Iraqi state established by the constitution falls short of best-practice federal
models and the central government's foundation is "possibly the weakest of any federal model in the world."102
The constitution allows for the creation of semi-autonomous federal regions comprised of one or more of the administrative governorates in Iraq. To the extent that its
powers do not conflict with federal authority, a region may have its own constitution
and exercise legislative, executive and judicial authority over itself. 103 A province can
become a "region" in one of two ways: either one third of the provincial council votes
to hold a referendum on the issue or one-tenth of registered voters in the governorate
ask for one. A referendum can then be held, in which federal status is established only
if a majority of voters approves it.104
The only federal region existing as of late 2012 was the Kurdistan Regional Government (KRG). However nearly half of Iraq's 18 provinces have either declared semiautonomy or plan to do so. 105 The question of exactly what federal structure Iraq
should pursue and how power should be shared between those who rule from Baghdad, the autonomous government in Erbil and the country's provincial leaders, remains unresolved.106
Iraqi Prime Minister Nouri al-Maliki has traditionally been opposed to greater independence for Iraq's regions, and vowed in a 2011 speech to block any efforts by the
provinces to break away, asking "what's the reason for having a ruler in Baghdad?"
and warning that “power-sharing cannot be the foundation of solving our
problems."107 According to a study for Al Jazeera, the requirement that governorates
100 'Iraqi Constitution' UN Iraq, retrieved 13 December 2011.
101 'Background Note: Iraq', US Department of State, 2 May 2011.
102 'Weak Viability: The Iraqi Federal State and the Constitutional Amendment Process', United
States Institute of Peace, July 2006.
103 'Iraq Investment guide – second edition', Herbert Smith LLP, retrieved 13 December 2011.
104 'The Empowerment of Governorates in Iraq', Al Jazeera Center for Studies, 12 July 2012.
105 'The breakup: More Iraqis bid for autonomy', Al Jazeera, 22 December 2011.
106 'Iraq's Federalism Quandary', International Crisis Group, 28 February 2012.
107 'Iraq premier Nouri al-Maliki challenges restive provinces', Washington Post, 24 December
2011.
26
seeking to form a region must submit any request to Parliament for a vote has allowed
the Prime Minister to block such applications by refusing to refer them to Parlia ment.108
Kurdistan semi-autonomous region
Iraqi Kurdistan is recognised as a federal region in the Iraqi Constitution and consists
of three provinces, Dahuk, Arbil and Sulaymaniyah. The Kurds have their own Parliament and President and command their own security forces. 109
As far as hydrocarbons are concerned, under the KRG's interpretation of the Constitution (which states that such resources are “owned by the people of Iraq in all the re gions and governates”), the regional government has the right to sign their own contracts for oil exploration and production. However Baghdad disagrees and considered
such contracts as illegal. 110 Tensions between the central government and the northern region escalated following the entry of a series of oil majors such as ExxonMobil
and Total into Iraqi Kurdistan, as well as ongoing disputes over arrangements for exports of hydrocarbons.
See also: KRG Contract Disputes and KRG Export Disputes
Southern provinces
Federalist tendencies have arisen in multiple provinces in Iraq's oil-rich south, including Maysan, Karbala, Najaf and Babel, but Basra has the south's most evident and persistent pro-federal tendency.111
The Basra region is home to Iraq's only sea port and, according to Niqash newspaper,
to potentially 60 percent of the country's oil. 112 However just one percent of Basra's
residents use the public water network (compared to 65 percent nationwide) because
the desalinated water is undrinkable, according to a study by the United Nations. According to a report by Al Jazeera, Basra seeks independence over what it sees as an unfair distribution of the province's energy revenues, with leaders particularly angry
over a $17 billion deal with oil major Shell to develop three oilfields in southern Iraq,
which they say the central government negotiated without their input. 113
In August 2011, the Basra provincial council sent a demand to the Council of Ministers
in Baghdad to activate the legal measures (that is, to set up a referendum) to transform Basra into a federal region. However as of late 2012 the request for a referendum
remained with the Council of Ministers. Uday Awad, member of parliament from the
Sadrist movement, advised the province to reconsider its demands to become an independent region and to settle for the 'Basra, Economic Capital of Iraq' project awaiting
108 'The Empowerment of Governorates in Iraq', Al Jazeera Center for Studies, 12 July 2012.
109 'Clash Over Regional Power Spurs Iraq’s Sectarian Rift', New York Times, 23 December 2011.
110 'An ocean of reserves waiting to be tapped', Financial Times, 9 December 2012.
111 'Shahristani and Maliki in Federalism Crossfire', Iraq and Gulf Analysis, 6 September 2011.
112 'Escape from centralism: basra postpones bid for independence' Niqash, 1 February 2012.
27
approval by parliament as of 2011, which would grant the province a greater share of
crude oil revenues in addition to wider powers. 114
Sunni federalism and Saladin
According to reports by the BBC, there was a general upswing in pro-federal sentiments in Sunni-majority areas of Iraq in late 2011, headlined by a visit to Britain by
Parliament speaker Usama al-Nujayfi. Al Nujayfi said that Sunnis of Iraq feel they are
being treated by the central government in Baghdad as second-class citizens, and if no
improvement takes place many will feel compelled to call for the establishment of
"geographically-based federal regions". 115
The central-northern governorate of Saladin ("Salah ad Din") has been one of the leading Sunni territories with federalist movements in the post-2005 era. In October 2011,
the Saladin governorate council declared its own federal status. 116 According to a report by the International Crisis Group Saladin's council emphasised that it wished to
remain part of a "united Iraq". 117 However the province's move was met with stern opposition from Iraqi Prime Minister Nouri al-Maliki's Shia-dominated government, who
rejected the call, saying the formation of regions on a "sectarian basis" would lead to
"dividing Iraq and to rivers of blood".118
As the form of the demand made by the Saladin governorate council was illegal (because it was not founded on the basis of a popular referendum) it failed to affect
Saladin's status within Iraq. 119 In February 2012 Saladin officials submitted the signatures of two percent of the region's voters to the electoral commission as part of their
request for autonomy.120
Other provinces
Anbar
Following the moves by the Saladin governorate in 2011, other Sunni-majority
provinces such as gas-rich Anbar also began to make claims for a more autonomous
status if Baghdad did not respond to their demands. 121 The unemployment rate in Anbar province is twice that of Baghdad, adding to the sense among residents that they
are receiving an unequal share of essential services and government jobs from Baghdad. A majority of the provincial council in Anbar supports a bid for autonomy, but as
114 'Basra, Iraq's Economic Capital, Wants Southern Federal Region' Al Monitor 13 September
2012.
115 'Nujayfi Uses the F Word Again', Gulf Analysis, 15 October 2011.
116 'In Salahaddin, a Confused Federalism Bid', Iraq and Gulf Analysis 27 October 2011.
118 'Iraq PM chides Sunni sections pushing for autonomy', Yahoo News 24 December 2011.
119 'Saladin is preparing for a referendum on the establishment of the Region', Investors in Iraq 7
December 2012.
120 'Salahaddin hands autonomy signatures to electoral commission', AK News 26 February 2012.
28
of December 2011 the issue had not yet come to a vote. Anbar's governor has said that
Baghdad's neglect is pushing people towards autonomy. 122
Diyala
In December 2011 in the mixed Sunni-Shia-Kurd province of Diyala in the east of the
country,121 the provincial council announced that Diyala would become an autonomous region following a vote of 18 to 11 in favour. But the announcement was reversed
within days pending further discussion, following protests outside the council building in provincial capital Baquba and threats to burn down the governor's house. 122
Autonomy would give Diyala more power over finances, administration and laws, as
well as more control over public property in the region. 123
Revenue Sharing Procedures in Iraq
The 2007 draft hydrocarbon law states that Iraq’s hydrocarbon wealth belongs to all of
its citizens,124 but does not contain specific guidelines for how oil and gas revenues
should be distributed.125
Concerns over the equitable distribution of Iraq's oil revenues are one of the central
issues in the ongoing dispute between the Kurdistan Regional Government (KRG) and
the federal government in Baghdad.125 Other regions, such as Anbar in Iraq's northwest and the oil-rich Basra region in the south, have also demanded more control over
their natural resources.126 A primary focus of the revenue sharing debate in Iraq is the
issue of whether or not governorates should retain the right to make decisions over
revenues from oil and gas produced in their territory. 127
The mechanisms through which Iraq's oil revenues are collected and distributed remain contested. Chief economist at the IEA Faith Birol warned in 2012 that unless
"consensus" was reached on revenue-sharing legislation, Iraq's oil output growth
could be significantly slowed, but noted that there had been 'encouraging signs' of cooperation between the central government and the KRG on this front. 128
123 'Iraqi Shi'ite rally against autonomy push in Diyala', Reuters, 15 December 2011.
124 'Parliament studying draft law on petro dollars; Integral to oil and gas law', The Currency
Newshound 30 June 2011.
125 'Iraq: Oil and Gas Sector, Revenue Sharing, and U.S. Policy', US Congressional Research Service 3
March 2010.
126 'Anbar Province, Once a Hotbed of Iraqi Insurgency, Demands a Say on Resources', New York
Times 27 October 2010.
127 'Iraq: Oil and Gas Sector, Revenue Sharing, and U.S. Policy', US Congressional Research Service 3
March 2010.
128 'Iraq the Makeweight in Global Supply', Petroleum Economist, 9 October 2012.
29
2007 draft revenue sharing law
The KRG and the federal government in Baghdad agreed on a draft revenue sharing
law for Iraq in June 2007. 129 According to the draft law, the federal government is empowered to collect all of Iraq's oil and gas revenue, with a priority to allocate the funds
to support national priorities such as defense and foreign affairs. The remainder
would then be distributed to governorates automatically, on a monthly basis, based on
agreed population-density-based percentages until a census can be completed. Of this
remainder, the KRG would receive a 17 percent share. 127
Treatment in national budget
The Iraqi government presented its draft for the annual 2012 budget law in December
2011; the total budget was 117 trillion Iraqi dinars (ID), or approximately US $100 bil lion,130 a 21 percent increase over Iraq's 2011 budget.131 According to Reidar Visser of
the Iraq and Gulf Analysis blog the 2012 draft budget is favorable to the interests of the
KRG. The budget projects Kurdistan's oil exports to amount to 175,000 barrels per day
(bpd) in 2012, roughly 6.7 percent of the anticipated total Iraqi daily exports of 2.6 million barrels. But the budget allocates 17 percent of the expenditure budget to the KRG.
Under the 2012 draft budget, other oil-producing governorates receive one US dollar
per exported barrel. This is expected to make up about 1.7 trillion ID in total, or less
than a tenth of what the KRG alone receives.130
However ahead of the release of the 2013 budget, Iraq Oil Report reported that allies of
Prime Minister al-Maliki were lobbying to reduce the KRG's budget allocation, with
many supporting a reduction from 17 to 12 percent, considering that current arrangements are too generous to the semi-autonomous region. A member of parliament from
the Iraqiya list reminded that Erbil and Sulimaniyah are more developed than the rest
of Iraq, claiming that the budget allocation is unjust.132
KRG Contract Disputes
The Iraqi Constitution of 2005 is unequivocal about the fact that the country's natural
resources, such as oil and gas, are owned by "all the people of Iraq in all regions and
governorates."133 The Constitution also states that the federal government will manage
oil and gas extracted from Iraqi fields with regional governments and governates.
However the document is ambiguous about the specific dynamics, revenue distribution and competencies of the various Iraqi governmental authorities involved. 134
129 'Oil & gas legislation and major developments', KRG, 21 June 2009.
130 'The Economics of Federalism in the Iraqi 2012 Draft Budget', Iraq and Gulf Analysis 9
December 2011.
131 'Iraq cabinet okays 2012 budget at $100 billion', Reuters, 5 December 2011.
132 'Baghdad targets KRG budget priorities', Iraq Oil Report, 17 December 2012.
133 'Iraqi Constitution', United Nations Assistance Mission for Iraq, retrieved 14 December 2011.
134 'Oil and gas contracts in Iraq', Who's Who Legal, July 2010.
30
This ambiguity in the Constitution has led to various conflicts, since the federal government maintains that contracts signed unilaterally by a regional government (i.e.
the Kurdistan Regional Government), after the draft federal oil and gas laws were approved by Iraqi Council of Ministers in February 2007, are "illegal" until review and
approval by the Iraqi Ministry of Oil. 134 The Kurdistan Regional Government (KRG)
maintains that the ambiguity in the Constitution allows for regional government's to
sign oil contracts with IOCs on their own. The KRG also maintains that objections to
their interpretation of the Constitution are actually attempts to limit Kurdish
autonomy.135
IOCs defy Baghdad and move into Kurdistan
In 2006, Norwegian energy company DNO drilled the first new oil well since the inva sion of Iraq in Iraqi Kurdistan. 136 Since then, other companies have entered the region,
such as: Genel Enerji from Turkey, Gulf Keystone Petroleum from the United Kingdom,
Hess Corporation and Marathon Oil Company from the United States, Repsol YPF from
Spain, OMV from Austria,137 Western Oil Sands from Canada via its subsidiary WesternZagros Resources,138 and Sterling Energy from the United Kingdom. 139
However the disputes over the KRG's contracts with IOCs reached a critical point when
the regional government announced, on 13 November 2011, that it had awarded six
exploration and production licenses to ExxonMobil Corporation, the world's largest oil
company.140 Exxon was later followed into the region by French Total in July 2012,
drawn by the more attractive fiscal terms offered than in the south of the country and
by the region's vast oil reserves, by buying a stake in two Kurdish exploration
blocks.141 Reuters reported in September 2012 that Shell had also been encouraged by
the activities of its commercial rivals to start talks with the KRG with a view to signing
energy deals, a move denied by Shell executives in talks with officials in Baghdad. The
Iraqi government had threatened Shell with "serious consequences" if it signed a deal
with the regional government. Reuters also reported that Norwegian Statoil had been
"looking closely" at KRG exploration deals.142
In retaliation for deals struck in Erbil, the central government began to 'blacklist' several of the companies which signed with the KRG. New-York based Hess was blacklisted in 2011 and in February 2012 a government spokesmen stated that Exxon would
not be allowed to participate in the upcoming fourth bidding round and warned that
in the future the US company would have to choose between its contract to develop
the southern West Qurna field and its newly signed contracts in Kurdistan. 143In July
2012 Chevron was also barred from bidding on contracts in wider Iraq after buying
135 'Wrapup 1: Kurd, Baghdad oil officials meet on Exxon spat', Reuters, 17 November 2011
136 'DNO ASA – PSA agreement in Iraqi Kurdistan', DNO , retrieved 21 November 2011.
137 'Trip report: The future of oil in Kurdistan', Financial Times, retrieved 21 November 2011.
138 'Operations' Western Zagros Resources, retrieved 21 November 2011.
139 'Operations: Kurdistan: Sangaw North', Sterling Energy, retrieved 21 November 2011.
140 'Giant Exxon Mobil enters Kurdistan oil market', Kurdish Globe, 19 November 2011.
141 'Iraq Blocks Exxon License Bid', Wall Street Journal, 13 February 2012.
142 'Iraq says Shell denies oil talks with Kurdistan', Reuters, 26 September 2012.
143 'Iraq Blocks Exxon License Bid', Wall Street Journal, 13 February 2012.
31
stakes in the north.144 However Adnan Al Janabi, chairman of the Oil and Energy Committee in the Iraqi Council of Representatives, has said that the Oil Ministry does not
in fact have the legal authority to blacklist Exxon over its Kurdistan contracts. 143
As of November 2012 Exxon continued to operate its West Qurna stake in southern
Iraq, however Iraq Oil Report reported that the major was taking steps to look for buyers for its stake in the development. 145 Commenting on the implications of the developments above, industry specialist Steve LeVine predicted that the companies signing
these deals could become "an unintentional fifth column in Kurdistan's move towards
economic autonomy".146
KRG Export Disputes
As a result of the deep-rooted political disputes between the Kurdistan Regional Government (KRG) and Baghdad, exports of Kurdish crude since 2009 have been governed
by a series of temporary political deals. The KRG has on several occasions decided to
shut in its growing production, as Baghdad controls the pipeline network and claims
exclusive rights to sell Iraqi crude. 147
With the KRG lacking pipelines to export its own oil, in January 2011 Iraqi Prime Minister Nouri al-Maliki and then-KRG Prime Minister Barham Salih struck a deal that enabled the KRG to export crude through pipelines controlled by the Iraqi central government in Baghdad. The deal mandated that the KRG would get half the revenues
from its exported oil.148 The deal covered 14 months of exports and US $514 millions in
payments by Baghdad. It called for Kurdistan to raise exports to 200,000 barrels per
day (bpd) that year, and for Baghdad to make two immediate payments totaling 1 tril lion dinars ($833 million).149
However in April 2012 the KRG responded to the payment dispute with the central
government by halting oil shipments. The KRG claimed that it was owed US $1.5 bil lion in backlogged payments from Baghdad 149 and Turkish oil company Genel complained that it had not been paid for most of the oil exported in 2009 and 2011, with
other operators such as DNO voicing similar grievances. 150 In turn Baghdad claimed
complete audits were not conducted and accused the KRG of selling crude and fuel
products unilaterally rather than sending the revenues back to the central govern ment as agreed.151
The Kurds later resumed exports through the Baghdad-controlled pipeline from
144 'Iraqi ministry 'bars Chevron over KRG deal', Upstream Online, 24 July 2012.
145 'Exxon pressing toward West Qurna sale' Iraq Oil Report, 8 November 2012.
146 'Will oil companies provide Kurdistan its de facto statehood?', The OIl and the Glory, 1 August
2012.
147 'Budget battle over Kurdistan exports', Iraq Oil Report, 25 October 2012.
148 'Kurdistan begins independent crude exports', Iraq Oil Report, 11 July 2012.
149 'Budget battle over Kurdistan exports', Iraq Oil Report 25 October 2012.
150 'KRG gets oil payment from Baghdad, exports to flow', Reuters, 8 October 2012.
151 'Exports start and Turkey line operational', Iraq Oil Report 8 August 2012.
32
Kirkuk to Ceyhan in Turkey, and in September 2012 the central government and the
autonomous region finally reached a settlement over the dispute, with the KRG promising to continue exports and Baghdad pledging to pay foreign companies working
there.150 On the 13 September 2012 Baghdad and Erbil announced that they had come
to a new agreement over exports of Kurdish oil. The new export agreement was signed
in Baghdad by Oil Minister Abdul Karim Luaibi, KRG Minister of Natural Resources
Ashti Hawrami and four other officials. 149 However by the end of 2012 this agreement
itself looked to be in doubt, according to Iraq Oil Report.152
In the first two weeks of 2013, the Turkish Hurriyet newspaper reported that the KRG
in a symbolic move had begun to export crude oil directly to world markets, in small
quantities from the Taq Taq field and via the Turkish port of Mersin. 153
The central government in Baghdad responded by threatening to seize what it views
as illegal exports, claiming that the State Oil Marketing Organisation (SOMO) is the
sole legally authorized entity that has the exclusive right to export and import oil and
gas.154
Kurdish export infrastructure
In July 2012 the Kar Group announced it had completed 23 percent of the first section
of a pipeline to carry oil from Iraqi Kurdistan north across the border to Turkey, bypassing Iraqi Arab regions. The pipeline project is to transport oil from the Taq Taq
field to Khurmala, a route currently managed by tanker, and also includes the construction of a gas pipeline from Erbil-Dohuk. . The project was described by fund man ager Ivor Pether as "quite provocative" and Prime Minister Al-Maliki has said that the
central government is worried that the planned pipeline may make the Kurds economically self-sufficient and embolden them to seek independence. 155
If this pipeline was to connect to Turkey, as some press reports have suggested, Iraqi
Kurdistan would be opened up to external markets. However the future of this export
route depends very much on energy cooperation between Turkey and northern Iraq
into the future.156 Meanwhile Sami Alaskary, a member of parliament and close advisor
to the Prime Minister, commented to Iraq Oil Report that "the Kurds can't rely on
pipelines to Turkey to survive", warning that they could risk losing the 17 percent of
the national budget currently allocated to the region. 157
153 'KRG starts independent crude oil exports', Hurriyet Daily News, 8 January 2013.
154 'Iraq threatens to seize oil shipments, sue dealers', Huffington Post, 11 January 2013.
155 'Tony Hayward Loads Trucks With Kurdish Oil Awaiting Pipe: Energy', Bloomberg, 30 July 2012.
156 'Kurdistan Oil Pipeline Would Test Turkish Policies on Iraq and Syria', Al Monitor, 24
November 2010.
33
Energy Industry Background
Iraqi Hydrocarbon Reserves and
Production
According to the BP Statistical Review of World Energy 2012, Iraq holds the fifth largest
proven petroleum reserves in the world, following Venezuela, Saudi Arabia, Canada
and Iran,158 and only a fraction of the country's known fields are in development. 159
Around 75 percent of Iraq's proven oil reserves are concentrated in the three southern
governorates, with 25 percent in the middle and the north. On the back of a 2012 report by the International Energy Agency (IEA) that claimed that Iraq would account
for nearly half of the increase in global oil production between 2012-2035, the organisation's chief economist described Iraq as a dream for the energy industry, with "high
oil reserves, easy geology and low production costs." 160 Drilling success rates, at
around 70 percent, are some of the highest in the world. 161
Many reports and sources estimate oil and natural gas reserves in Iraq and Iraqi Kur distan in ways that conflict, agree, or simply differ. Reliable and relevant estimates are
indicated and explained in the sections that follow.
Oil
Proven Reserves
The BP Statistical Review's estimate for proven reserves of crude oil rose to 143.1 billion
barrels (bbl) at the end of 2011, up from 34 bbl in 1980, bringing the percentage of total
global reserves to 8.7 percent.158 The major part of this increase in the estimates came
during the 1980s.
There have been a series of significant leaps in the estimate over this period.
• In 1982, early in the war with Iran, reserves estimates nearly doubled from 32 to 59
bbl.
• In 1987, as the Iraqi economy was suffering from the long war with Iran, and as it
appeared that OPEC was about to base production quotas on stated reserves, the
figure jumped from 72 bbl to exactly 100 bbl.
• In 1996, as the United Nations was finalising the terms of the Oil For Food program
158 'Statistical Review of World Energy 2012', BP, 2012.
159 'Iraq', Energy Information Administration, September 2010.
160 'IEA predicts boom in Iraq oil production', Financial Times, 9 October 2012.
161 'Will Iraq be the next oil superpower?', Petroleum Economist, 12 December 2012.
34
which would allow Iraq to export oil again after a total ban for several years, the
estimate increased from 100 billion to 112 bbl.
In 2000, only months before the United Kingdom and the United States carried out
bombing raids,162 the reserves estimate was calculated at 112.5 bbl. In 2009, the same
year in which Iraq assumed control of security in Baghdad's 'Green Zone', reserve estimates reached 115 bbl of oil, a figure that remained stable until December 2011.
However, as with other OPEC producers, it is not clear if the current estimate of 143.1
bbl also includes oil that has already been produced. The United States Geological Survey (USGS)'s World Petroleum Outlook of 2000 estimated that of the 100 bbl figure that
was then being used, 22 bbl had already been produced, leaving only 78 bbl yet to be
recovered from the proven reserves.163
Nevertheless it should be noted that BP defines "proved reserves of oil" in its annual
Statistical Review of World Energy, quoted in this publication, as "those quantities that
geological and engineering information indicates with reasonable certainty can be recovered in the future from known reservoirs under existing economic and operating conditions
[emphasis is report author's own]." BP also states that the estimates in their tables are
compiled using: "a combination of primary official sources, third-party data from the
OPEC Secretariat, Oil & Gas Journal and an independent estimate of Russian reserves
based on information in the public domain."
Ultimately recoverable reserves
Given that a large portion of Iraq remains unexplored, there have been numerous
claims of huge undiscovered reserves (oil thought to exist, and expected to become
economically recoverable), to the tune of hundreds of billions of barrels. According to
a Brookings Institute paper from 2003, the Petroleum Economist estimates that there
may be as many as 200 bbl of oil in Iraq; the Federation of American Scientists estimates 215 bbl; a study by the Council on Foreign Relations and Rice University claimed
that Iraq has 220 bbl of undiscovered oil.163 In 2003, Tareq Shafiq, a founding executive
of the Iraq National Oil Company (INOC) in the 1960s, endorsed a figure of 215 bbl as
Iraq's potential reserves.164
Production
BP's Statistical Review of World Energy shows the profound variations in oil production
throughout the decade 2000-2009 and until 2010. Average daily production was 2.1
million barrels per day (bpd) in 2002, dropped to a low of 1.3 million in 2003, rose back
to 2.0 million in 2004, and kept rising to eventually reach 2.8 million bpd in 2011. 165
The original production targets of the Iraqi government of 12 million bpd of output by
2017 have since been downgraded and deemed unrealistic by the industry, and as of
162 'Iraq Profile', BBC, 20 December 2011.
163 'How much oil does iraq have?', Brookings Institute, May 12, 2003.
164 'Iraq Oil Development Policy Options: In Search Of Balance', Middle East Economic Survey, 15
December 2003.
35
late 2012 the government was talking of 9 million bpd by 2020.A further threat to
Iraq's output goals are the limitations imposed by production quotas set by OPEC,
when Iraq eventually rejoins the organisation's quota system. 166
A report released by the International Energy Agency (IEA) in 2012 lays out a 'central
scenario', 'high case' and 'delayed case' for Iraq's future production profile towards
2035. According to this 'central scenario', Iraqi oil output would more than double
between 2011-2020 to 6.1 mbpd, reaching 8.3 bpd by 2035, with the largest production
increase coming from the cluster of super-giant fields around Basra in the south and
from Kurdistan in the north. According to the projections, these levels of production
could earn Iraq US $5 trillion in export revenues, however in order to realise these
gains the country will need strengthened institutions and human capacity, sound
long-term strategies for the energy sector and efficient and transparency management of revenues and spending.167
Gas
As of 2012, Iraq's proven gas reserves stood at 3.6 trillion cubic metres (tcm), the ma jority of which exist as 'associated gas' at the country's oil fields. 168
Proven reserves
BP's estimate of proven natural gas reserves changed little from the end of 1990 to the
end of 2010, increasing from 3.1 tcm in 1990 to 3.2 tcm in 2010. 169 At the end of 2011
the estimate stood at 3.6 tcm.165
Probable reserves
According to the Energy Information Administration (EIA), probable Iraqi reserves
have been estimated at 8.25-9 tcm, and a group of independent and international oil
companies are working on more accurate estimates of these reserves. The EIA estimates that 70 percent of gas reserves lie in Basra governorate, and two-thirds of reserves exist as 'associated gas' in oil fields, including Kirkuk in the north, and southern
Nahr Umar, Majnoon, Halfaya, Nasiriyah, Rumaila, West Qurna and Zubair. Just under
20 percent of known reserves are thought to be 'non-associated', the majority of
which are concentrated in the North, at the Ajil, Bai Hassan, Jambur, Chemchemal, Kor
Mor, Khashem al-Ahmar, and Mansuriyah fields.170
Production
BP's June 2011 Statistical Review of World Energy shows a serious decline in natural gas
production throughout the decade 2000-2009 and until 2010. From 2000 onwards, excluding gas flared or recycled, yearly production slowly dropped from 3.2 billion cubic
166 'Will Iraq be the next oil superpower?' Petroleum Economist, 12 December 2012.
168 'Country brief: Iraq', Energy Information Administration, September 2010.
169 'BP Statistical Review of World Energy June 2011: Natural Gas' BP, June 2011.
170 'Statistical Review of World Energy 2012', Energy Information Administration, September 2010.
36
meters (bcm) to 1.6 in 2003, 1 in 2004, rising to 1.5 in 2006 and 1.9 in 2008, dropping to
1.3 in 2010 but rising again to 1.9 bcm at the end of 2011.171
Kurdish reserves and production
Oil
Estimates of petroleum reserves in the Kurdistan region are unofficial and often vary.
In December 2011, United Press International (UPI) was one of the media sources that
stated that Iraqi Kurdistan had an estimated 45 billion barrels (bbl) of oil (roughly the
amount that the United Kingdom has produced from its North Sea fields). 172 However
Keith Myers of Richmond Energy Partners highlighted in a November 2012 letter to
the Economist that this 45-billion-barrel figure first appeared in a presentation by the
Kurdistan Regional Government (KRG) itself and refers not to recoverable oil but in
fact to discovered oil in place. Myers pointed out that much of Kurdistan's oil exists in
'tight' reservoirs and that the amount of oil likely to be produced in Kurdistan is closer
to 11 bbl. By these estimates, Kurdistan holds less than 10 percent of the Iraq's total
reserves, while the government is entitled to a 17 percent share of federal petroleum
revenues.173
While fluctuating production levels in 2012 remained modest compared to southern
Iraq, at around 200,000 barrels per day (bpd) (expected to climb to 250,000 bpd by
2013),174 oil companies exploring in the region have seen high success rates. 175 Depending on the level of international investment and accompanying technical expertise,
the KRG Minister of Natural Resources announced his goal to reach 2 million bpd of
production by 2019.176 KRG Prime Minister Nechirvan Idris Barzani announced at a
2012 conference in Erbil that the region hoped to reach the medium-term landmark of
1 million bpd in 2015.177
Gas
There are no official estimates for total gas reserves in Iraqi Kurdistan, and those estimates that have been made vary significantly in size. The KRG itself estimates the region's gas reserves at between 3 and 6 trillion cubic metres (tcm) 178 and news portal
172 'As Iraq smolders, Kurds sit on oil riches', UPI , 22 December 2011.
173 'Letters', Economist 24 November 2012.
174 'Iraqi Kurds count on Turkey as energy hub amid friction', Hurriyet Daily News, 20 September
2012.
175 'Iraqi Government and Kurdistan at Odds Over Oil Production', New York Times, 14 November
2012.
176 'As Kurdistan oil booms, deal-making accelerates', Iraq Oil Report, 3 December 2012.
177 'TOP Oil Market News: Crude Near Two-Week High; Bulls Boost Bets', Bloomberg, 3 December
2012.
178 'A new era in security and development', Kurdistan Regional Government', retrieved 3 December
2012.
37
UPI reported in November 2012 a figure for gas reserves of 3.36 tcm. 179 However an estimate by the US Geological Survey puts total "yet-to-find" gas at 60 trillion cubic metres
(tcm) of gas.180
However the Kurdistan region's ability to monetise these reserves will depend on export infrastructure. A role has also been suggested for the region in supplying gas for
the 'Southern Corridor' route (via the 'Nabucco' pipeline or one of the other compet ing proposals), a project aimed at diversifying gas supply routes to Western Europe.
An Oil Ministry spokesman has said that initial gas supply for this route could be expected between 2015-2017 but progress depends on a resolution between the central
government and the KRG over gas exports.181
Dependence on Extractives Revenues
Political scientist Michael Ross describes oil dependence as "the ratio of oil, gas and
coal exports to GDP". By this definition, the most highly oil dependent state in 1995
was Angola (68.5 percent), followed by Kuwait (49.1 percent). The most highly mineral-dependent states were Botswana (35.1 percent) and Sierra Leone (28.9 percent).
High levels of dependence can make states more susceptible to symptoms of the socalled 'resource curse', such as a higher propensity for violent conflict, weak institutions and stunted economic development. 182 A UN paper investigating patterns of resource dependency between 1960-1990 found a correlation between countries exhibiting high levels of fuel and mineral dependency and negative per capita annual growth
rates over that period.183
However there are two different measures of oil revenue dependence, the first being
the ratio of oil revenues to fiscal revenues, or the total income of the government and
the second is the ratio of oil revenues to total exports. The IMF estimated in 2003 that,
of the Gulf producers, the United Arab Emirates shows the least oil dependence, with
oil accounting for just over half of government income, and just under half of exports.184
Qatar, by contrast, showed a ratio of 70 percent of government revenues, and 80 per cent of total exports. The International Monetary Fund identified at least 30 countries
where revenues from oil and gas accounted for at least 25 percent of government income during the period 2005-8 and where sufficient information was available for
meaningful analysis:
Libya, Algeria, Angola, Azerbaijan, Bahrain, Bolivia, Brunei, Cameroon, Chad, Congo,
Ecuador, Equatorial Guinea, Gabon, Indonesia, Iran, Kazakhstan, Kuwait, Mexico, Ni179 'Iraqi Kurds defy Baghdad, export own oil', UPI, 1 November 2012.
180 'Hayward strikes $2bn Kurdistan deal', Financial Times, 7 September 2011.
181 'Iraq Wants to Play Role in Nabucco Pipeline', Natural Gas Europe , 1 October 2012.
182 'Natural Resources and Violent Conflict', World Bank, 2003.
183 'Meeting the Challenge Of the ‘Resource Curse’', UNDP, 2006.
184 'GCC Countries: From Oil Dependence to Diversification', International Monetary Fund, 2003.
38
geria, Norway, Oman, Qatar, Russia, Saudi Arabia, Sudan, Timor-Leste, Trinidad and
Tobago, UAE, Venezuela, Vietnam, and Yemen.185
It is important to note that oil revenue dependence is not related to the quantity of oil
produced or exported. Yemen, which exported around 448,000 barrels of oil a day
(bpd) in 2003, displayed a higher degrees of dependence on oil revenues than Saudi Arabia, which exported around 10.2 million bpd over the same period, or over twenty
times more.186
Dependence on extractives revenues in Iraq
According to the International Energy Agency (IEA), the heavy dependence of Iraq's
economic development on the success of its oil sector makes the economy highly vulnerable to changing conditions in the global oil market, accounting for sharp swings
in export revenues. Their report notes that, as oil revenue volatility is typically transmitted to the non-oil economy through fiscal policy, sound management of national
finances is essential to mitigating this risk. Iraq in particular, with a large and growing
population, must develop a self-sustaining and productive economy beyond the oil
sector, a task that the IEA perceives as complicated by the scale of the country's oil
revenues.187
Revenue Watch Institute reports that in In 2010 Iraq accumulated over $51.4 billion in
oil revenues, with oil accounting for over 75 percent of GDP and almost 90 percent of
government revenues.188
The 'Energy Mix'
What is the 'energy mix'?
The 'energy mix' refers to the distribution of consumption per energy source. Each
country uses energy differently, defining its own energy mix. 189
According to the BP Statistical Review, in 2010 oil consumption accounted for 34 percent
of the world's primary energy; coal accounted for 30 percent of the mix; gas contributed 24 percent; hydro-power contributed 6.5 percent and non-hydro renewables (in cluding biofuels) contributed 1.8 percent.190 BP's Energy Outlook 2030 report highlights
three key trends shaping the modern energy economy: industrialisation, urbanisation
and motorisation. These trends are led by:
185 'Fiscal Policy in Oil Producing Countries During the Recent Oil Price Cycle', International
Monetary Fund, February 2010.
186 'BP Statistical Review of World Energy June 2011', BP, June 2011.
187' Iraq Energy Outlook, IEA, 9 October 2012..
188' Iraq: Extractive Industries, Revenue Watch, retrieved 28 November 2012..
189 'The Energy Mix', Planete Energies, retrieved 1 February 2012.
190 'The world gets back to burning', Economist, 8 June 2011.
39
• increased energy consumption.
• increased efficiency of energy use in production and consumption.
• increasing diversification of sources of energy.
• increased demand for clean and convenient energy at the point of use. 191
Historical trends
One source of power has always dominated the energy mix. In the pre-industrial age
wood dominated, during the industrial revolution coal dominated and oil has dominated the 20th century. By 2030 BP predicts that natural gas will gain in importance,
however energy efficiency will mean that economic growth will be far less energy intensive across the globe.192
The first great wave of industrialisation was powered by coal, a fuel which remained
dominant until after the Second World War. The next major transition came with electricity and the internal combustion engine, which allowed diversification away from
coal. Coal gradually came to be replaced as the principal fuel in power generation by
natural gas and renewable energy sources.191
However between 2000-2011 coal's share of the energy mix increased by 4 percent on
the back of strong growth in China, most of whom's growth in the 21st century has
come from burning coal. Coal consumption in 2011 was up by 7.6 percent and was
growing faster than at any time since 2003. 193
Future projections
The IEA predicts that the share of natural gas in the global energy mix will increase
from 21 percent in 2011 to 25 percent by 2035 and the share of coal will decline. How ever according to their report, an increased share of natural gas in the energy mix is
far from enough to avoid an average global temperature rise of less than 2°C, as although gas is estimated to replace some coal and oil in the mix it will also displace
some nuclear power, thereby increasing greenhouse gas emissions. 194
According to BP's estimates, the fuel mix will change relatively slowly due to long asset lifetimes. However the fastest growing fuels will be renewables, which are expected to grow at 8.2 percent per year between 2010-2030. Among fossil fuels, gas is expected to grow at the fastest rate (2.1 percent per year). Their outlook predicts that oil
will continue a long decline in market share and that recent gains by coal in market
share, due to rapid industrialisation in China and India, will be reversed by 2030. 195
191 'BP Energy Outlook 2030', BP, January 2011.
192 'Watts next', Economist, 25 January 2012.
193 'The world gets back to burning', Economist, 8 June 2011.
194 'Are we entering the golden age of gas?', International Energy Agency, 2011.
195 'BP Energy Outlook 2030', BP, January 2011.
40
Unconventional energy sources
The Petroleum Economist predicts that unconventional resources such as shale gas and
coal bed methane will play a critical role in meeting global energy demand in the future, the "game changer" being the rise of unconventional gas in the US. However
nearly 75 percent of the world's total unconventional resources lie outside North
America.196
According to the IEA's 2011 report 'Are we entering a golden age of gas?', unconventional gas resources are now estimated to be as large as conventional resources, and
unconventional gas now makes up around 60 percent of marketed production in the
US.197
KPMG, in their report 'Shale Gas - A Global Perspective' argue that this resource has
the potential to turn the world's energy industry on its head and to displace fossil
fuels in the energy mix of selected locations, including China, America, Argentina,
Mexico and South Africa,198 potentially slowing the development of renewable resources. However the industry must first face considerable reputational and regulatory obstacles.199
Renewable energy sources
Renewable energy includes such sources as wind, photovoltaic and thermal solar, tidal
and wave power, among others. The renewable energy industry is still in its infancy in
terms of its contribution to the global mix, but while the global contribution is still
minor, it shows a high growth rate. Wind power, for example, showed growth rates
above 30 percent between 1997-2007.200 However, demand for fossil-based energy,
such as coal and oil, has outpaced demand for clean energy. 201
The 'Energy Mix' in Iraq
Iraq saw its domestic demand for oil rise to over 700,000 barrels per day (bpd) in 2011,
up from only 450,000 bpd in 2003. Neglect of refining infrastructure means that most
plants are only able to run at around 50 percent capacity, forcing Iraq to import refined products from neighbouring countries. The US Department of Energy estimates
that in 2011 Iraq relied on imports for a third of its petroleum consumption and a fifth
of its liquefied petroleum gas (LPG).202
According to the International Energy Agency (IEA) in 2012, natural gas can play a
much more important role in Iraq's future than it has previously, reducing the dominance of oil in the domestic energy mix. In order to achieve this, the country's associ196 'Unconventional gas's global potential', Petroleum Economist, 18 July 2011.
197 'Are we entering the golden age of gas?' ,International Energy Agency, 2011.
198 'The World in Figures: Energy', Economist, 17 November 2011.
199 'Shale Gas - A Global Perspective', KPMG Institutes, December 2011.
200 'World Energy and Population Trends to 2100', Approaching the Limits to Growth, October 2001.
201 'Clean Energy Progress Report', International Energy Agency, June 2011.
202 'Refining: Domestic processing capacity is rising quickly', Financial Times, 7 December 2011.
41
ated gas must be captured and processed, rather than flared. But according to their
projects associated gas alone will not satisfy Iraq's projected demand, estimated at 70
billion cubic metres (bcm) by 2035. Therefore Iraq's gas balance and the availability of
surplus gas for export will depend on creating incentives to develop the country's
non-associated gas reserves.203 In the meantime the growing demand means that the
country must rely on power imports in the short term. 204
However while Iraq is seeking to export the natural gas it produces, 205 because of
rising and unsatisfied demand the country suffers from chronic power cuts that led to
the Minister of Electricity standing down in 2010. 206 In 2012, for example, the average
Iraqi household received power for only 7.6 hours per day (a calculation which takes
into account homes in the semi-autonomous region of Iraqi Kurdistan, where citizens
have access to electricity around the clock). Many households rely on household or
neighbourhood generators for power.207
204 'Power generation a top priority in Iraq', Middle East Business Intelligence, 2012.
205 'Iraq eyes EU gas exports through Turkey', Petroleum Economist, 8 September 2011.
206 'Iraq electricity minister resigns over power cuts', Reuters, 21 June 2010.
207 'Power generation a top priority in Iraq', Middle East Business Intelligence, 2012.
42
Generic Oil and Gas Terms
Resource Curse
The 'resource curse' (sometimes termed the 'paradox of plenty') refers to the theory
that natural resource wealth and a high degree of dependency on natural resources
can sometimes paradoxically create negative development outcomes in producing
countries. This is due to weakened governmental institutions, neglect of other key sectors of the economy, corruption, high income inequality and other factors. 208
Evidence and research
The idea that natural resources can result in poor development outcomes has been in
play since the 1950s, when it was hotly contested by the ideological camps of the Left
and Right. Empirical data began to accumulate to support the idea over time. In the
1970s Gobind Nankani, a vice-president at the World Bank, showed that a group of
mineral exporting countries grew on average by 1.5 percent per year over the period
1960 to 1976, about half the growth in a control group of non resource-rich coun tries.209 In 1988 a study commissioned by the World Bank examined the windfalls accruing to six oil-rich countries during the boom of the 1970s and concluded that those
states had performed less well than other, resource-poor countries. 210
At the end of the 1990s Jeffrey Sachs and Andrew Warner's publication 'Natural Resource Abundance and Economic Growth' examined 97 countries over a period of 18
years (1971 - 1989) and found that states with a high abundance of natural resource
exports had abnormally slow economic growth in general, relative to other countries.
The study became the basis of a growing recognition of the need to address the prob lems that natural resource abundance can create in developing societies. 211
Opponents of the term
Some economists have resisted the term 'resource curse' because they claim it sounds
fatalistic.212 Oxford professor Paul Collier suggests that the term poses the problem the
wrong way round, since he estimates there are more natural resources in developed
countries than in developing ones. The dominance of natural resource industries in
some developing countries' economies is simply, he states, due to the fact that they
208 'Exploring Oil Data', OpenOil, 2012.
209 Nankani, Gobind 'Developmental Problems of Mineral Exporting Countries' World Bank, 1979.
210 'Oil Windfalls, Blessing or Curse?' Alan Gelb and Associates, 1988.
211 Sachs, Jeffrey and Warner, Andrew 'Natural Resource Abundance and Economic Growth',
Center for International Development and Harvard Institute for International Development, November
1997.
212 'Resource Curse, or Resource Trap?', Thinking Out Aloud, 23 February 2010.
43
have had few other options for economic development, which in turn is due to a whole
host of political and social factors. Collier argues that for the world's 'bottom billion' the poorest billion people on the planet - a greater problem is rather that their natural
resources have not been discovered or developed enough. 213
Others have resisted the conclusion that the phenomenon is inevitable, arguing that
any resource curse must be contingent. Paul Collier cites the case of Botswana, for ex ample, which has experienced rapid growth since the discovery of diamonds. 214
Attitudes of major institutions
International institutions
The International Monetary Fund (IMF) has published papers discussing how to address the resource curse in Nigeria 215 and Botswana.216 For its part, the World Bank
uses the term 'resource curse' 217218 while arguing that it is not inevitable and can be
avoided by good governance.
Oil companies
The attitude of private oil companies towards acceptance of the term varies, however
in a 2004 speech Nick Butler, BP's vice-president for Strategy and Policy Development,
made the following comment in acknowledgment of the phenomenon: "The reality of
the problems which have afflicted a number of different countries as a result of natural resource development is undeniable. I am convinced that there are things we can do
to mitigate many of the problems but it would be quite wrong to start from a position
of denial."216
On the other hand, in an advertisement from 2006, US major ExxonMobil rejected use
of the term 'resource curse', but did say it supported the Extractive Industries Transparency Initiative (EITI) process because it acknowledges that good governance is necessary to deliver benefits from oil production, and that transparency is a part of that.
The advertisement made the point that "disparaging the resource itself is not the answer.219
213 Collier, Paul 'The Plundered Planet: Why We Must--and How We Can--Manage Nature for
Global Prosperity', Oxford University Press, 2011.
214 'Laws and Codes for the ‘Resource Curse’' Oxford University, September 2007.
215 'Addressing the Natural Resource Curse: An Illustration from Nigeria', IMF, July 2003.
216 'Escaping from the Resource Curse: Evidence from Botswana and the Rest of the World', IMF,
2007.
217 'Property Rights and the Resource Curse', World Bank, 5 April 2007.
218 'Contributing to development’? Q&A with World Bank Group director', Critical Resource,
January 2010.
219 Garsten, Christina and Lindh de Montoya, Monica 'Transparency in a New Global Order',
Edward Elgar Publishing, 2008.
44
Economic symptoms
Dutch Disease
So-called 'Dutch disease' is the effect on a country's economy when it earns a lot of
revenues from exporting a natural resource. It was named after the period in the
Netherlands when a decline in the manufacturing sector was witnessed during the
1960s following the discovery of a major natural gas field. The theory goes that oil exports result in large inflows of foreign currency, which in turn tends to lead to the appreciation of the local currency and makes exports from other sectors uncompetitive.
Simultaneously the earning power of the oil sector draws in labour and capital from
other sectors of the economy, adversely affecting them, whether they are export-oriented or not.220
Oil and debt
Economists have long noted the link between oil revenues and higher fiscal spending.
Overspending during a commodity boom, thanks to access to cheap credit in international capital markets, can lead to the accumulation of high levels of debt, leading to
high interest rate spreads during periods of lower natural resource prices. Some have
attributed the 'resource curse' in oil-rich countries to the 'debt overhang' which occurred in the 1970s when these countries used commodities as collateral to take on excessive debt when oil prices were high. A collapse in oil prices in the 1980s left these
countries with no ability to service their debts.221
A 2005 study by the Institute for Public Policy Reform analysed data from 101 countries for the period 1991-2002 and concluded there was a statistical correlation
between increased oil production and exports, and public debt in the producing country.222 The case of Venezuela during the 1970s oil boom displays the symptoms detailed
above, where President Carlos Andres Perez increased public spending dramatically,
leading to high levels of debt and ensuing management problems through commodity
price cycles.223
Political symptoms
Weakening of institutions
Many political scientists have outlined a 'resource curse' which both makes rulers in a
state less accountable, and state institutions weaker. They are less accountable because the presence of resource revenues means a state is not under the same pressure
to raise taxes in order to provide welfare and public services (to a greater or lesser ex tent depending on the degree of their resource wealth). State institutions become
220 'Mineral-Rich Countries and Dutch Disease', World Bank, 2008.
221 Coutinho, Leonor ' The Resource Curse and Fiscal Policy', Cyprus Economic Policy Review, 2011.
222 'Drilling into Debt' Institute of Public Policy Research, 2005.
223 Hausmann, Ricardo and Rodriguez, Francisco ' Venezuela: Anatomy of a collapse', 2006.
45
weaker because they do not develop the same degree of discipline, through merito cracy and against measured goals and results. The most notable exponent of this theory has been Professor Terry Lynn Karl, who studied the cases of Venezuela, Nigeria,
Algeria and Iran for her analysis.224
Conflict
Analysts of the resource curse point to many cases where natural resource wealth creates or exacerbates conflicts, either between states or within them. Notable cases include:
• South Sudan, where the presence of oil renewed tensions between the Khartoum
government in Sudan and the newly formed country.
• The oil-rich Cabinda region of Angola, where a secessionist movement has flourished since the discovery of oil.
• Nigeria, where the concentration of oil in the Niger Delta was a contributing factor
to the Nigerian Civil War of 1966-70, and ever since has been a cause of significant
unrest.225
Avoiding the resource curse
Mechanisms and policies which have been proposed to avoid the 'resource curse' include: simply leaving the oil in the ground (one of the more extreme proposed solutions that allows an economy and society time to adjust before inflows arrive, but opposed by the private sector); economic diversification (to develop other sources of
value and reduce dependency on mineral exports); 'revenue sterilisation' (to neutralise the impact of windfall revenues by resisting spending pressures); and stabilisation
funds (set up to invest revenues outside the domestic economy and guard against fluctuating commodity prices).226
Definition of Hydrocarbon Reserves
Different systems have been used to classify reserves of oil and gas since the industry
first developed in the nineteenth century. But the most widely used definitions today
are provided by the Petroleum Resources Management System of the American Society of Petroleum Engineers (SPE).227
Reserve estimates are a major driver of value for exploration and production compan224 Karl, Terry Lynn, ' The Paradox of Plenty: Oil Booms and Petro States', University of California
Press, 1997.
225 'The Natural Resource Curse: A Survey', Harvard Kennedy School, February 2010.
226 'Resource Impact - Curse or Blessing?', University of Dundee, 25 March 2003.
227 'Petroleum Reserves & Resources Definitions', Society of Petroleum Engineers, retrieved 18
January 2012.
46
ies. All reserves are estimates of underground reservoirs which cannot be physically
inspected and always involve some degree of uncertainty. However such systems are
important in creating a 'universal language' of clear terms and definitions that result
in reliable and easily comparable reserve estimations for investors, regulators, governments and consumers.228 It should be noted that around the world, government
agencies and organizations use slightly different definitions.227
According to the vice-president of petroleum consultancy Ryder Scott, there has been
a trend towards commissioning external audits of estimated reserves. With increased
attention given to corporate responsibility in financial reporting, he asserts that oil
and gas companies are now engaging third-party engineers to evaluate or audit petroleum reserves.229
Categories of reserves
According to the SPE Guidelines, 'reserves' are a subset of 'resources', representing the
part of resources which are commercially recoverable and have been justified for development. Reserves can be subsequently divided into the following three categories
depending on certainty of recovery.228
Proved reserves
The highest valued category of reserves is 'proved' reserves. Proved reserves have a
'reasonable certainty' of being recovered, which means a high degree of confidence that
the volumes will be recovered. To be clear, reserves must have all commercial aspects
addressed. It is technical issues which separate proved from unproved categories. 228
The term 1P is frequently used to denote proved reserves. 228 BP publishes an annual
Statistical Review which details proved reserves for over 50 producing countries. 230
Probable and possible reserves
'Probable' or 'possible' reserves are lower categories of reserves, commonly combined and
referred to as 'unproved reserves,' with decreasing levels of technical certainty. Probable
reserves are volumes that are defined as 'less likely to be recovered than proved, but more
certain to be recovered than Possible Reserves'. Possible reserves are reserves which
analysis of geological and engineering data suggests are less likely to be recoverable than
probable reserves.231
The term 2P is used to denote the sum of proved and probable reserves and 3P the sum
of proved, probable and possible reserves. The best estimate of recovery from committed projects is generally considered to be the 2P sum of proved and probable re228 'SPE Petroleum Resources Management System Guide for Non-Technical Users',Society of
Petroleum Engineers, retrieved 18 January 2012.
229 'The Reserves Audit' Ryder Scott, retrieved 18 January 2012.
230 'BP Statistical Review 2009', BP, 2009.
231 'SPE Petroleum Resources Management System Guide for Non-Technical Users', Society of
Petroleum Engineers, retrieved 18 January 2012.
47
serves.231
Resources
'Resources' denotes less certainty than 'reserves' because some significant commercial
or technical hurdle must be overcome prior to there being confidence in the eventual
production of the volumes.231
Contingent resources
These are resources that are potentially recoverable but not yet considered mature
enough for commercial development due to technological or business hurdles. For
contingent resources to move into the reserves category, the key conditions, or
contingencies, that prevented commercial development must be clarified and removed. As
an example, all required internal and external approvals should be in place or determined
to be forthcoming, including environmental and governmental approvals. There also must
be evidence of firm intention by a company’s management to proceed with development
within a reasonable time frame (typically 5 years, though it could be longer). 231
Prospective resources
Prospective resources are estimated volumes associated with undiscovered accumulations.
These represent quantities of petroleum which are estimated, as of a given date, to be
potentially recoverable from oil and gas deposits identified on the basis of indirect
evidence but which have not yet been drilled. This class represents a higher risk than
contingent resources since the risk of discovery is also added. For prospective resources to
become classified as contingent resources, hydrocarbons must be discovered, the
accumulations must be further evaluated and an estimate of quantities that would be
recoverable under appropriate development projects prepared.231
Oil Field Depletion
Oil field depletion refers to the decline in an oil field's production over time, 232 when a
field's recoverable resources become exhausted and production is reduced due to the
physical limitations of the reservoir.233 Depletion is a natural process by which an oil
field produces an increasing volume of oil until output eventually hits a peak, after
which the volume that can be pumped out of that field gradually declines. 234
The analysis of depletion rates is a key element in forecasting the future production of
oil reservoirs.233 A metric often used to determine the remaining lifespan of an oil reserve is the 'reserves-to-production ratio', used to forecast the future availability of a
232 'The life of an oil reservoir', The Oil Drum, 14 August 2006.
233 'Depletion and Decline Curve Analysis in Crude Oil Production', Global Energy System, May
2009.
234 'Oil Fields and what they do (or might) produce, and when' ,Natural Hub, retrieved 1 February
2012.
48
resource.235
Enhanced Oil Recovery (EOR)
The life of an oil well goes through at least three distinct phases, with various techniques employed to keep oil production at maximum levels. Enhanced oil recovery
(EOR) is the third and most advanced stage in this process. EOR can substantially improve the efficiency of extraction.236
EOR can refer to any method of increasing oil production from a reservoir, using sophisticated technological techniques to add energy to a reservoir to stimulate oil production and increase recovery factor, or the amount of the reservoir's total oil that is extracted.237 EOR also has some considerable drawbacks, including the relatively high
cost of its implementation and, in some cases, the unpredictability of its effectiveness.238
According to the Petroleum Technology Transfer Council, about 10 percent of all oil
produced in the United States in 2009 used enhanced recovery techniques. 239
Three stages of oil field development
In the first stage of an oil field's development, oil is forced out by pressure generated
from gas present in the oil (also known as 'associated gas'). 240 The natural pressure of
the reservoir, or gravity, drives oil into the wellbore, combined with artificial lift techniques such as pumps which bring the oil to the surface. Only about 10 percent of a
reservoir's original oil in place is typically produced during primary recovery. 241
In the secondary stage, the reservoir is flooded with water or injected with gas to
maintain sufficient pressure levels to displace oil and drive it to the production wellbore.240 This stage extends a field's productive life and results in the recovery of 20 to
40 percent of the original oil in place.241
EOR refers to the tertiary stage of development, which involves the introduction of
fluids that the reduce the viscosity, or thickness, of the oil and improve its flow. Tertiary recovery enables producers to extract up to or over half of a reservoir's original
oil content, depending on the reservoir and the technique used. 240
235 'Reserves to Production Ratio', Investopedia, retrieved 8 January 2012.
236 'Enhanced Oil Recovery (EOR)', Teledyne ISCO, Retrieved 1 February 2012.
237 'Oil Field Glossary' Schlumberger, retrieved 1 February 2012.
238 'Enhanced Oil Recovery/CO2 Injection', Fossil Energy, Retrieved 1 February 2012.
239 'Enhanced Oil Recovery', Petroleum Technology Transfer Council, retrieved 1 February 2012.
240 'Enhanced Oil Recovery (EOR)', Teledyne ISCO, retrieved 1 February 2012.
241 'Enhanced Oil Recovery/CO2 Injection', Fossil Energy, retrieved 1 February 2012.
49
Categories of EOR techniques
The primary categories of EOR are thermal recovery, gas injection and chemical injection.241
• Thermal EOR has historically been the most widely applied. 240 This method involves the introduction of heat, most commonly in the form of steam, into a reservoir to reduce the viscosity of the oil to be extracted. 241
• Gas injection uses gases such as nitrogen or carbon dioxide that expand in a reservoir to push additional oil to the production wellbore. Other gases can also be used
to dissolve in the oil to lower its viscosity and increase its flow rate. 241 Other gases,
such as hydrocarbon gases and flue gases (the combustion exhaust gas of a power
plant, for example), can also be used in this method of EOR. 240
• Chemical EOR generally involves the flooding of a reservoir with water-soluble
polymers, or long-chained molecules, to help reduce the surface tension that often
prevents oil from moving through a reservoir. 241 This effects a more efficient displacement, and therefore better recovery, of moderately viscous oils. 240
A number of other EOR processes have also evolved, including the injection of carbonated water, microorganisms, foams, alkaline, and other substances. These have shown
varying degrees of promise but require additional development to enter into more
common use.240
According to the US Department of Energy in December 2011, thermal techniques accounted for over 40 percent of EOR production in the United States, gas injection accounted for nearly 60 percent, and chemical techniques accounted for about one percent.242
Crude Oil Qualities
Density
Oil density is generally expressed in degrees using an API scale. This is a specific gravity scale developed by the American Petroleum Institute (API), designed to measure
the relative density of various petroleum liquids. The measure is expressed in degrees
and most values fall between 10° and 70°. 243 The specific gravity of oil is its relative
density to water at 60° Farenheit.244
242 'Enhanced Oil Recovery/CO2 Injection', Fossil Energy, Retrieved 1 February 2012.
243 'API Gravity', Schlumberger Oil Glossary, retrieved 22 January 2012.
244 'Tech Talk - Venezuela, heavy crudes, API gravity and refinery gains', The Oil Drum, 9 January
2011.
50
Light oil
Otherwise known as 'conventional oil', light oil has an API gravity of 22° or over. 245
For example, Saudi Arabia's new blend of super light crude has an API gravity of 44°. 245
The oil produced from Libyan fields is also typically very 'light' and the country's nine
export grades have API gravities that range from 26-43.3°.246
Heavy oil
Heavy oil is a dense, viscous oil with low API gravity. Definitions vary, but it is generally accepted that the upper limit for heavy oils is 22°API. In Venezuela for example,
the Bachaquero Heavy Crude Oil has an API gravity of 17º. 247
Heavy oils are usually not recoverable in their natural state through a well or using ordinary production methods. Most need to be heated or diluted so that they can flow
into a well or through a pipeline.245
Extra heavy oil
Extra heavy oil has an API gravity of less than 10°. 245
Bitumen
Otherwise known as "oil sands", bitumen shares many attributes of heavy oil but is
even more dense and viscous.248
Sulphur content
Crude oil can also be measured in terms of sulphur content (ranging from 'sweet' to
'sour'). 'Sweet' crude is usually defined as oil with a sulphur content below 0.5 percent,
while 'sour' crude has a sulphur content of 0.5 percent or over. 249
Impact on refining
The density and 'sourness' of crude oil feedstocks affects the amount of processing
and conversion necessary to achieve what is known as an optimal mix of products.
Light, sweet crude demands a higher price than heavier, sourer crude as it requires
less processing and produces a greater percentage of value-added products, such as
gasoline, diesel and aviation fuel. Heavier grades of fuel generally require additional
processing to producer lighter products.249
245 'What is Heavy Oil and How is it Formed?' ,Rigzone, retrieved 22 January 2012.
246 'Saudi's New Super Light Crude Blend To Hit Market In April -Source', Internationa Energy
Agency, 31 March 2011.
247 'Crude Oil Types', A Barrel Full, 31 March 2011.
248 'What is Heavy Oil and How is it Formed?', Rigzone, retrieved 22 January 2012.
249 'Types of Crude Oil', Neste Oil, retrieved 23 January 2012.
51
Crude oil blends
Blended crude is a mixture of crude oils, blended in the pipeline to create a crude with
specific physical properties. This may be to reduce viscosity and ease transportation,
or alternatively to create added value compared to the raw crude. 250
Oil producing countries, particularly those with a many different qualities of crude
from their fields, must decide which brand they will put on the international market.
There were around 160 crude grades marketed globally as of 2012. In order to optimise
investments in pipelines and storage facilities, countries tend to reduce the number of
marketable streams by blending different oil grades. For example, the Brent blend in
fact comes from the blending of 15 different grades of oil from the North Sea. 251
Crude Oil Qualities in Iraq
Crude oil found in Iraq varies significantly in quality, with API gravities generally ranging from 22° (heavy) to 35° (medium - light). 252 Over 70 percent of national oil reserves are below 28° API251 and the International Energy Agency (IEA) predicted in its
2012 report on Iraq that future production is likely to include a larger share of heavier
crudes.253 However some of the crudes produced at the Taq Taq field in the norther
semi-autonomous Kurdistan region are as light as 48° API, dubbed by Reuters as "champagne crude".254
Reuters reported in November 2012 that Iraq was struggling to find buyers for its 2013
oil output due to complaints from refiners in Asia, Europe and the US over high prices
and variable quality.255
Export blends
The main export crudes come from Rumaila and Kirkuk, the two largest active fields.
The two blends used for export are the Basra Light blend, transported by tanker from
the south, and the Kirkuk blend, by pipeline to the north. 256 In terms of quality, the
Basra Light blend is in the middle of the market, close to the global average density of
32.5° API.256
The API gravity and sulphur content for each blend is shown in the table below.
Crude
API Gravity
Sulphur content
Basra Light
34°
2.1%257
250 'Blended Crude', Schlumberger OIl Glossary', retrieved 29 November 2012.
251 'Iraq oil: The crude oil quality dilemma', Gulf News', 11 November 2012.
252 'Iraqi Crude Heavier Due to Fuel Blending: Traders' Iraq Energy, 1 June 2011.
253 'Iraq Energy Outlook', International Energy Agency, 6 September 2012.
254 'Kurdistan Taq Taq oil exports rise ahead of Sept deadline' Reuters, 9 October 2012.
255 'Light crude surplus spins world oil trade compass' Reuters, 16 November 2012.
256 'Iraq oil: The crude oil quality dilemma' Gulf News', 11 November 2012.
257 'Iraqi Crude Heavier Due to Fuel Blending: Traders', Iraq Energy, 1 June 2011.
52
Basra Medium
30°
2.6 %
Basra Heavy
22-24°
3.4%
Basra Blend
32°
1.95%
Kirkuk
257
35.8°
n/a
Due to the large number of fields and differing grades of crude (particularly in the
South), as well as the limited sea outlet and export routes, the crude blending process
in Iraq can be problematic 256 and according to the IEA, the country "has to offer discounts to compensate for the specification of the delivered oil being heavier than the
contractual figures, as a result of the heavier crudes and heavy fuel oil being blended
into the export stream."258
A former official at the OPEC Secretariat comments that Iraq lacks a proper blending
system to ensure a relatively stable quality of its crude oil export streams. 259 However
the IEA report also notes that much of future demand for Iraqi crudes is to come from
Asia, where large, modern refineries are equipped to deal with processing a range of
specifications.260
Natural Gas
What is natural gas?
About 85 percent of natural gas produced from conventional wells is methane, a
highly flammable compound made up of one carbon atom and four hydrogen atoms. 261
It is colourless and, in its pure form, odourless. As the gas has no odour, gas companies
often add a chemical to the gas to give it a distinctive smell so that gas leaks may be
detected by smell.262
The units of measurement used for natural gas are generally based on volume and
measured in cubic feet (a cubic foot being one foot long, by one foot wide, by one foot
deep). This volume is usually expressed in BCF (billion cubic feet), TCF (trillion cubic
feet) and MCF (thousand cubic feet).263 It can also be measured in terms of cubic
metres.
According to the US Department of Energy, for many years natural gas was considered
worthless and discarded, and is still released by flaring today in many countries. 262
Natural gas can be found as either associated gas, non-associated gas, wet gas (a type
of non-associated gas) or coal bed methane.261
259 'Iraq oil: The crude oil quality dilemma', Gulf News', 11 November 2012.
261 'Oil and Gas Resources and Their Uses', TEEIC, retrieved 13 February 2012.
262 'Natural Gas', US Department of Energy, retrieved 13 February 2012.
263 'Natural Gas Measurement', KGM, retrieved 13 February 2012.
53
Non-associated gas
Non-associated gas is gas which is found in reservoirs which do not contain significant
quantities of crude oil. 264 It often occurs at greater depths where heat has split all of
the hydrocarbons into smaller, lighter gas molecules. Shale gas is one type of unconventional non-associated gas.261
Associated gas
Associated gas is found in association with crude oil, either dissolved in the oil or as a
'cap' of free gas above the oil. Where it cannot be used, associated gas is either reinjec ted into the well, flared or vented.265
Coal bed methane
Coal bed methane (CBM) or coal seam gas (CSG) is the natural gas extracted from coal
beds during underground coal mining.
History of natural gas
Through the 1800s the natural gas which was found was used almost exclusively as a
fuel for lamps. However the invention of the 'bunsen burner' in 1885 proved that gas
could be used to provide heat for cooking and warming buildings.
The construction of pipelines allowed natural gas to be brought to new markets. One
of the first substantial pipelines was built in 1891 in the US, however few pipelines
were built until after the Second World War in the 1940s. 266
Role of natural gas in the energy mix
The International Energy Agency (IEA) estimated in 2011 that natural gas could overtake coal and rival oil by 2035 to account for over 25 percent of global energy demand.267
According to the London-based Petroleum Economist, the growing interest in gas as an
element in today's energy mix represents a "structural shift in energy markets." Natural gas holds several benefits as a fuel for a low-carbon future, including:
• the lowest carbon footprint of all fossil fuels.
• a shorter lead time to build gas-fired power plants and greater operational flexibility.
• ability to reduce greenhouse gas emissions by 25 percent in the transport sector
264 'NON-ASSOCIATED GAS DEFINITION', Oil and Gas Glossary, retrieved 13 February 2012.
265 'Associated Gas', A Barrel Full, retrieved 13 February 2012.
266 'The History of Natural Gas', US Department of Energy, retrieved 13 February 2012.
267 'Gas could make up 25% of global energy mix by 2035: IEA', Platts, 2011.
54
compared to traditional motor fuels.268
The IEA also points out that gas can help to diversify energy supply and so improve
energy security.269
Natural Gas Flaring
Gas flaring is the disposal by burning of unwanted associate natural gas released from
an oil field by burning it. It is widely used where there is no infrastructure to make use
of the gas. However it is widely recognized as a waste of energy and as environmentally dangerous in contributing carbon emissions to the atmosphere. 270
The top four 'flarers' internationally by the Global Gas Flaring Project (GGFP)'s 2011
statistics were Russia, Nigeria, Iran and Iraq. However according to Iraq Oil Report, gas
flaring is a global problem on the descent as producing countries are increasingly
magnetising the gas in a maturing market for the fuel. Between 2009-2012 the practice
saw a 22 percent decrease on a global level, despite outliers such as Iraq where the
level increased.271
Natural Gas Flaring in Iraq
In 2012, as Iraq was ramping up production of crude oil, Iraq flared an estimated 9 billion cubic metres (bcm) of associated gas, ranking it among the top five flaring nations
in the world, according to the Word Bank. The gas being flared was enough to fuel all
of Iraq's electric power needs272 and, according to advisor Fabrice Mosneron Dupin, the
wasted gas itself is worth around US $5 million per day.271 Of the 1,838 million cubic
feet (mcf) per day of natural gas produced in the second half of 2012, an average of
1,253 million (68 percent) was flared.273
As of 2012 Iraqi laws and regulations allowed flaring of natural gas and by contract, oil
field operators were not compensated for gas produced in association with crude oil,
thus 'incentivising' flaring activities.272 However the South Gas Project, a joint venture
between the Oil Ministry and oil major Shell is intended as an attempt to address the
problem by capturing and utilising associated gas from a number of southern oil
fields.273 In 2012 Shell announced that the preliminary work it had done in capturing
associated gas in Basra cut down flaring by around 20 percent. 271
268 'Unconventional Gas's Global Potential', Petroleum Economist, 18 July 2011.
269 'Are We Entering a Golden Age of Gas?', International Energy Agency, 2011.
270 'Global Gas Flaring Estimates',NOAA, retrieved 15 February 2012.
271 'Wasted money, global concern over Iraq’s persistent gas flaring',Iraq Oil Report, 1 November
2011.
272 'My encounter with gas flares in Iraq', World Bank, 18 July 2011.
273 'Gas flaring hits unprecedented levels in Iraq', MEED, 8 November 2012.
55
Liquefied Natural Gas (LNG)
LNG is liquefied natural gas, a clear, colourless, non-toxic liquid, 274 produced by cooling natural gas to -260° Fahrenheit (-160ºC), at which point it becomes a liquid. This
process occurs to allow more efficient transport of natural gas, either by truck or by
sea.275 LNG takes up 600 times less space than natural gas in its gaseous form. 276
Converting natural gas into LNG can make stranded natural gas deposits more economically viable, as constructing pipelines can be expensive. In addition, LNG will not
explode in an unconfined environment, so in the unlikely event of an LNG spill, the
natural gas has little chance of igniting an explosion. Other benefits of LNG include
that the liquefication process removes oxygen, carbon dioxide, sulphur and water
from the natural gas, resulting in LNG which is almost pure methane. 276 Once it
reaches its destination, LNG is stored as a liquid until it is warmed back to natural gas
via the process of regasification.275
Production
As of early 2012, there were 20 LNG production and export terminals worldwide, 63
import terminals and nearly 300 LNG ships altogether handling approximately 170
million metric tons of LNG every year. Oil major ConocoPhillips notes that these numbers are predicted to increase dramatically over the next decade due to the growing
popularity of this clean fuel source. 277
LNG plants are capital intensive and rely on heavy debt. 278 But while LNG is reasonably
costly to produce, advances in technology are reducing the costs associated with the
liquefication and regasification process. 276 The BP World Energy Outlook in 2012 predicted that LNG trade will grow twice as fast as global gas production, that is, at a rate
of 4.4 percent per annum.279
Liquid Petroleum Gas (LPG)
Liquid Petroleum Gas (LPG), also referred to as 'liquefied petroleum gas', is a mixture
of gaseous hydrocarbons, produced from natural gas and oil extraction (66 percent)
and from oil refining (34 percent). Hence LPG is an example of an associated gas. 280
Unlike liquefied natural gas (LNG), which must be be stored at at -162°C in order to re274 'What is LNG?', Shell, retrieved 13 February 2012.
275 'Overview-About LNG', Center for Liquified Natural Gas, retrieved 13 February 2012.
276 'Liquified Natural Gas (LNG)', NaturalGas.org, retrieved 13 February 2012.
277 'What is LNG?', ConocoPhillips, retrieved 13 February 2012.
278 'Analysis: East Africa risks missing LNG boom', Reuters, 19 September 2012.
279 'World Energy Outlook 2030', BP, retrieved 13 February 2012.
280 'What is LPG?', FloGas, 1 March 2012.
56
main liquefied under atmospheric pressure, 281 LPG becomes a liquid when compressed
at room temperature for storage and transport.282
When natural gas is extracted from the ground, around 90 percent of it is methane,
and the rest is made up of various liquid petroleum gases. The methane is separated
from this mixture and transported via pipelines. These gases can also be produced
during the crude oil refining process, usually producing around a 3 percent yield. 283
LPG is mostly made up of propane, butane or a mix of the two. Other elements present
are primarily used as chemical feedstocks rather than fuel.284
LPG was first produced in 1910 by Walter Snelling and the first car powered by pro pane ran in 1913.285
Usage
LPG is popular as a fuel for domestic use, as it is safe to store and portable. It is used
for portable camping grills, hot water tanks, refrigerators, caravans, or for use on
boats or isolated cabins or lodges. The fuel also has many industrial uses, including
uses in metal working, glass working and ceramics, and for industrial forklifts and
heavy lifting.286
According to industry commentator Ed Grabianowski, LPG was one of the most common alternative fuels in the world as of 2011 and is a particularly popular fuel for
heating and cooking in certain areas of India and in rural parts of the US. He reports
that the fuel is becoming an attractive source of energy for people struggling to meet
increasing heating bills.287
The World Liquefied Petroleum Gas Association (WLPGA) estimates that more than 9
million vehicles in 38 countries currently operate on LPG. Cited benefits of using the
fuel to power cars rather than conventional fuels include reduced greenhouse gas
emissions, government incentives and tax breaks in many countries, and affordability.
However cars must first undergo a conversion process to be able to run on LPG. 287
Though rare, LPG (particularly propane and butane) poses a risk of sudden depressurization and explosions during storage and transport, so is often subject to regulations
on its production, storage and transport.288
281 'Technology', Deen Shipping, retrieved 12 April 2012.
282 'Liquefied Natural Gas (LNG) - natural gas that is very, very cold', Energy Quest, retrieved 12
April 2012.
283 'How Liquefied Petroleum Gas Works', HowStuffWorks, retrieved 1 March 2012.
284 'Liquefied Petroleum Gas (LPG)', Window on State Government, retrieved 1 March 2012.
285 'LPG: A History', Extraordinary Road Trip, retrieved 1 March 2012.
286 'LPG: A History', Extraordinary Road Trip, retrieved 1 March 2012.
287 'How Liquefied Petroleum Gas Works', HowStuffWorks, retrieved 1 March 2012.
288 'Liquefied Petroleum Gas (LPG)', Window on State Government, retrieved 1 March 2012.
57
LPG markets
In countries like India, which do not have reliable oil or natural gas supplies, LPG
makes up a major share of the energy mix. In such cases, many everyday heating and
cooking needs are supplied by propane instead of oil or coal. 287
According to the LP Gas Association, rapid population growth in many of the world's
developing countries has outpaced the increase in modern energy provision, a gap
which creates an opportunity for LPG gas markets.289
LPG in Iraq
LPG is a key household fuel in Iraq for cooking at home and in restaurants. According
to transportation advisor Poten and Partners, the probable demand in 2004 stood at
around 1.4 million tons per year. However domestic supplies accounted for about 25
percent of market demand, creating a need for LPG imports by land and sea.
In the aftermath of the 2003 war shortages of LPG cylinders were seen, and rationing
introduced in the main cities. But a black market emerged where the cost of a cylinder
could be 2 - 4 times higher.290
Plants at Kirkuk and Basra are the main source of domestic supplies. 290 In 2011 a further plant was opened at Khor Mor in the northern Kurdistan region, which produces
LPG.291
Unconventional Energy Sources
According to oilfield services provider Schlumberger, unconventional resources is an
umbrella term referring to oil and natural gas produced by means that do not meet
the criteria for conventional production.
Unconventional oil consists of a wider variety of liquid sources than conventional oil
including oil sands, extra heavy oil, gas-to-liquids and other liquids. In general conventional oil is easier and cheaper to produce than unconventional oil. 292 However the
qualification criteria for unconventional resources are not fixed and inevitably shift
over time depending on the availability of exploration and production technologies,
the economic environment and other factors. As of 2011 for example resources such as
coal bed methane (CBM), shale gas, fractured reservoirs and tight gas sands are considered unconventional resources.293
Many industry analysts have pointed to a significant future role for 'unconventionals'
289 'Developing Rural Markets for LP Gas', World LP Gas Association, 2005.
290 'Iraq LPG: A Struggle', Poten & Partners, 29 January 2004.
291 'Fire at Dana Gas LPG plant in Iraq kills one', Reuters, 24 June 2012.
292 'FAQs about oil', International Energy Agency, retrieved 29 November 2012.
293 'Unconventional resources', Schlumberger, retrieved 9 February 2012.
58
in the energy mix in many parts of the world. BP estimates that unconventional gas
will account for 57 percent of US production by 2030, that CBM and shale will account
for almost half of Chinese output growth, and that shale and other new gas sources
could meet almost 60 percent of US supply needs by the same date. 294 Nevertheless the
IEA notes the key constraint on further development of global unconventional energy
resources that in most places, exploitation of such resources does not enjoy the degree
of social acceptance required in order to flourish, due to environmental and social
concerns that have arisen.292
Fuel Subsidies
Global snapshot
Government control of the domestic prices of petroleum products is a common feature in developing countries.295 However fuel subsidies cover a wide range of government actions that lower the cost of fossil fuels. 296 A report by the Organisation for Economic Co-operation and Development (OECD) in 2011 listed over 250 individual
budgetary and taxation mechanisms for altering the price of fossil fuels,297 and therefore estimating fuel subsidies can be difficult. The most commonly used methodology
for quantifying fuel subsidies, known as the price-gap approach, calculates subsidies
applied to fossil fuels that are consumed directly by end-users or consumed as inputs
to electricity generation.298 This approach compares an average price paid by the enduser with a reference price that corresponds to the full cost of supply.
According to the Washington-based Center for Global Development, most oil exporters
subsidise their fuel prices domestically, sometimes at very low prices and implying a
large cost for governments.299 The International Energy Agency (IEA) estimates that
the cost of fossil-fuel subsidies amounted to US$ 409 billion worldwide in 2010, and
they predict that subsidies could rise to US$ 660 billion by 2020, equating to 0.7 per cent of global Gross Domestic Product (GDP). 300 Deutsche Bank said that in 2010, 70
percent of fuel subsidies were made in the world’s major oil and gas exporting nations,
and that such subsidies have been instrumental in driving an increase in domestic demand within Organization of the Petroleum Exporting (OPEC) countries and other oilexporting countries in the 2000s.301
294 'The US' future in unconventional, says BP', Petroleum Economist, 27 March 2011.
295 'The Magnitude and Distribution of Fuel Subsidies: Evidence from Bolivia, Ghana, Jordan,
Mali, and Sri Lanka', IMF, 2006.
296 'Fossil Fuel Subsidies', Price of Oil, retrieved 19 April 2012.
297 'Inventory of estimated budgetary support and tax expenditures for fossil fuels', OECD, 2011.
298 'Fossil-fuel subsidies – methodology and assumptions', International Energy Agency, retrieved
19 April 2012.
299 'Nigerians Demand Cheap Gas, But Fuel Subsidies Are NOT Pro-Poor', Center for Global
Development, 6 January 2012.
300 'World Energy Outlook 2011', International Energy Agency, 2011.
301 'Crude Oil: Iceberg Glimpsed Off West Africa', Deutsche Bank, 2 February 2012.
59
The table below illustrates the 15 countries that spent the most on fossil-fuel subsidies
in absolute terms in 2010, along with the relative value of such subsidies as a share of
Gross Domestic Product (GDP).302303
Country
Total Fossil-Fuel Subsidies Fossil-Fuel Subsidies
(US $ billions)
as a share of GDP
Iran
80.8
22.6%
Saudi Arabia
43.5
9.8%
Russia
39.3
2.7%
India
22.3
1.4%
China
21.3
0.4%
Egypt
20.3
9.3%
Venezuela
19.9
6.9%
UAE
18.2
6%
Indonesia
16.0
2.5%
Uzbekistan
12.0
30.5%
Iraq
11.4
13.8%
Algeria
10.6
6.6%
Mexico
9.5
0.9%
Thailand
8.4
2.7%
Ukraine
7.9
5.6%
Criticism
The International Energy Agency (IEA) said in a 2011 report that the normal rationale
for fuel subsidies is that they promote economic development and alleviate poverty.
However they argued that subsidies can have unintended consequences such as encouraging wasteful consumption, discouraging energy efficiency and reducing the
competitiveness of renewable fuels. Crucially the IEA rejected the argument that fuel
subsidies promote development, arguing that instead they foster inequality through
disproportionately benefiting richer households who are more likely to own fuel-consuming cars and electrical appliances. Therefore the IEA concluded that fuel subsidies
are an extremely inefficient means of assisting the poor, with only eight percent of the
US$ 409 billion spent on fuel subsidies in 2010 reaching the poorest 20 percent of the
global population.304 G20 Leaders have also criticised fuel subsidies, agreeing in 2009 to
302 'Fossil fuel subsidies: a tour of the data', The Guardian, retrieved 19 April 2012.
303 'Fossil-Fuel consumption subsidy rate as a proportion of the full cost of supply, 2010',
International Energy Agency, 2012.
304 'World Energy Outlook 2011', International Energy Agency, 2011.
60
"rationalise and phase out over the medium term inefficient fossil-fuel subsidies",
with the leaders of the Asia-Pacific Economic Cooperation (APEC) making a similar
commitment the same year.305
In March 2012 a United Nations Development Programme (UNDP) report put forward
the case for eliminating fossil fuel subsidies, arguing that the savings made could be
used to help the poorest citizens cope with rising world energy prices. On top of this,
the report said that the move would address climate change, reduce energy waste, cut
government expenditure and minimise social inequality. 306 Balazs Horvath, the report's lead author, pointed out that in Europe and Central Asia the elimination of fuel
subsidies has been followed by both economic growth and a fall in greenhouse gas
production, which "gives quite a bit of weight to the argument that this can work".
Between 1990 and 2008 gross domestic product (GDP) expanded by 22 percent in the
region as a whole whilst carbon emissions fell by 28 percent - the largest regional decline in the world.307
Elimination of subsidies
The elimination of fuel subsidies presents a political dilemma, due to the social unrest
which can often result.308
For example the proposed removal of fuel and transport subsidies was one of the key
motivations behind the violent 'Caracazo' riots in the capital of Venezuela in 1989. 309
Furthermore, in the first quarter of 2012 alone, multiple protests and strikes were
launched in reaction to the prospect of fuel subsidy cuts.
In January 2012 Nigeria experienced a wave of protests in response to the govern ment's decision to remove subsidies on imported oil products, forcing the government
to partially re-instate the subsidies. 310 Ghanaian fuel prices increased by about 20 percent when their fuel subsidy was cut at the end of 2011, 311 causing civil society groups
to talk of nationwide strikes312313 and forcing a policy reversal in February 2012. 314 In
March 2012 the Indonesian government was forced to rule out a fuel subsidy cut after
weeks of protests across the country. Indonesian officials were wary of the political
consequences of fuel price hikes - in 1998 a fuel price rise in Indonesia helped trigger
305 'Inventory of estimated budgetary support and tax expenditures for fossil fuels', OECD, 2011.
306 'From Transition to Transformation', United Nations Development Programme, retrieved 18 April
2012.
307 'Cutting fuel subsidies key to sustainable development – report', Alert Net, 13 April 2012.
308 'Removal of Fuel Subsidies in Nigeria: An Economic Necessity and a Political Dilemma',
Brookings Institute, 10 January 2012.
309 'Caracazo Was 'Forerunner' to Anti-Neoliberalism Protests, States Venezuela's Chávez',
Venezuela Analysis, 6 October 2011.
310 'Crude Oil: Iceberg Glimpsed Off West Africa', Deutsche Bank, retrieved 19 April 2012.
311 'How Ghana, Tanzania, Uganda tackle fuel subsidy', BusinessDay, 18 January 2012.
312 'Ghana Reinstates Fuel Subsidy But Higher Transport Fares Remain', SaharaReporters.com, 8
February 2012.
313 'Protests, strikes may erupt in Ghana over removal of fuel subsidy', Punch, 19 January 2012.
314 'Ghana: mixing politics and fuel prices', Financial Times, 9 February 2012.
61
student riots that toppled the 32-year Suharto dictatorship. 315
Oilfield Services Industry
Oilfield services companies assist drilling companies in the oil industry in setting up
oil and gas wells. Such companies may manufacture, repair or maintain the equipment
used in oil extraction and transport. Services can include seismic testing (mapping the
geological structure beneath the ground), transport services (such as movement of
land and water rigs) and directional services (such as angled or horizontal holes). 316
State-owned oil companies and international oil companies (IOCs) often lack such
technical and geological skills and so turn to service companies. 317
According to a 2010 report by GBI Research, the global oilfield services industry has
witnessed considerable growth in recent years. It is expected to become a $200 billion
industry by 2015 (up from $140 billion in 2008). In part this is due to the growth in
activity in offshore fields around the world. 318
Major trends
Unconventionals and offshore drilling
Industry observers predict that the burgeoning unconventional energy industry will
create a boost in demand for the services industry. Production of shale oil and other
unconventionals brings logistical and technological challenges and demands a huge
increase in the number of rigs supplied. A surge in offshore drilling activity is also predicted to boost demand. The Economist reported, for example, that American service
provider Halliburton was planning to boost its workforce of 60,000 by 25 percent over
2011. Dahlman Rose, a bank, estimated that global exploration budgets would rise by
around 14 percent in 2011 to US $533 billion.
According to reports in the Economist newspaper, the US is the centre of the oilfield
service boom, where firms pioneered the technique of horizontal drilling in order to
access shale oil and shale gas.319
Demand for local content
According to Ayman Asfari, CEO of UK-based Petrofac, national oil companies (NOCs)
are increasingly demanding to see 'local content' (ie. local operators) playing a part in
new contracts for exploration, production and plant construction. This puts interna315 'Emerging Asia struggles to cut soaring fuel subsidies', Financial Tribune, 1 April 2012.
316 'Industry Handbook: The Oil Services Industry', Investopedia, retrieved 12 March 2012.
317 'The oil-services industry: Rigging the market', Economist, 23 June 2011.
318 'The Future of the Oil Fields Services Industry to 2015 - Rebound in Exploration and Drilling
Activity Drives Growth', GBI Research, May 2010.
62
tional oil companies at a disadvantage and creates an opportunity for oil services companies to build assets with local partners, maintain that asset for a period of time and
then 'hand it back' to the NOC to run in the long term. 320
Key industry players
According to Arabian Oil and Gas, as of 2008 the ten largest oilfield service companies
globally were:
1. Schlumberger Limited
6. Fluor
2. Halliburton
7. Weatherford International
3. Saipem
8. BJ Services Company
4. Transocean Ltd.
9. Petrofac
5. Baker Hughes
10. China Oilfield Services Ltd.
An Economist report suggests that by offering a full range of oilfield services, the 'big
four' of the industry (Schlumberger, Halliburton, Baker Hughes and Weatherford International) enjoy an advantage over smaller firms, as NOCs often prefer to deal with
only one firm rather than deal with several.321
In 2011 a group of business school professors carried out a study to identify the 100
most innovative companies globally. They found that the oilfield services industries
accounted for six of the top 100. Two of these were Schlumberger and Halliburton, and
a further two were leading drilling equipment companies FMC Technologies and
Cameron International. The remaining two were China Oilfield Services and Tenaris
SA.322
320 'Ayman Asfari on Petrofac's road to Damascus', Telegraph, 30 October 2010.
322 'Musings: The Innovators in The Oilfield Service Industry Identified', RigZone, 30 October
2010.
63
Regulatory Framework
Overview of Regulatory Framework in Iraq
Iraq's oil and gas industry operates under the framework laid out by the 2005 Consti tution. However while the constitutional document makes clear that the Iraqi people
are the ultimate owners of the country's natural resources, there is less explicit clarification over the question of jurisdiction over hydrocarbon exploration and development between the central government and the regions.
A new hydrocarbons law intended to create a more stable investment regime remained stalled in parliament as of 2012, and in the meantime the federal system of resource development (using technical service contracts) co-exists with the Kurdistan
Regional Government's approach (preferring production sharing agreements), which
are contested by central government.323
The northern Kurds have pursued an independent oil policy and took an important
step towards that end by drafting their own oil law in 2007. 324
Types of Oil Contracts
Several types of oil contracts are in use throughout the world:
•
concessions, in which the contractor owns the oil in the ground.
•
production sharing agreements (PSA), in which the contractor owns a share
of oil once it is out of the ground.
•
service contracts, in which the contractor receives a fee for extracting the
oil from the ground (service contracts are often depicted as a subset of
PSAs).
•
Joint ventures (JVs), in which the state enters into partnership with one or
more oil companies.
The publication by Berlin-based OpenOil, 'Oil Contracts: How to read and understand
them', notes that it is rare to find any contract that fits cleanly into any one of these
categories, however, and in reality most contracts combine some elements of each. 325
323 'Iraq Energy Outlook', IEA, 9 October 2012.
324 'Iraq and the Kurds, the high stakes hydrocarbons gambit', International Crisis Group, 19 April
2012.
325 'Understanding Oil Contracts', OpenOil, retrieved 14 January 2013.
64
All oil contracts must address two key issues, according to Revenue Watch Institute
(RWI): how profits, often called "rents", are divided between the government and participating companies and how costs are to be treated.326
Concessions
Concessions are the oldest form of a petroleum contract, having first been developed
during the oil boom in the United States in the 19 th century.327 When they were introduced around the world, concessions were one-sided contracts favoring companies,
according to Revenue Watch, when many of the resource-rich nations of today were
dependencies, colonies, or protectorates of other states or empires.326
Concessions are based on the American system of land ownership, in which a land
owner owns all resources in the ground under the land he owns and theoretically all
resources in the air above it. Concessions grant an area of land, sub-soil resources included, to a company so that if a company discovers oil on a piece of land, it owns that
oil. In concession contracts the contractor also has exclusive rights to explore and
prospect for oil in that pre-defined area. While the benefit to companies comes directly in the form of ownership over any oil and gas found, governments granting concessions benefit in the form of taxes and royalties on oil and gas produced. 327 Companies compete by offering bids, often coupled with signing bonuses, for the license to
these rights. This type of agreement is quite common throughout the world and is
used in Kuwait, Sudan, Angola, and Ecuador, among other countries. 326
Advantages and disadvantages
For governments, concession contracts have the advantage of being relatively
straightforward compared to other kinds of agreements, and the degree of professional support and expertise required is often less complex than that needed to negotiate
JVs or PSAs. Also, the host government keeps the fees paid by the contractor regardless of whether oil is found and commercial production takes place. All financial risks
of development, including the costs of exploration, are absorbed by the contractor.
The main disadvantage, for governments, of concession contracts is that companies
bidding for the contract tend to be more cautious in their bids. If there oil and gas reserves are not proven then there is no guarantee that a company's costs will be
covered, so the host government may not maximize its potential return.326
Production sharing agreements
Production sharing agreements (PSAs), sometimes called production sharing contracts
(PSCs), do not vest a contractor with ownership over the oil in the ground. Instead
ownership of the resource lies with the state. In this situation the PSA is drafted so
that a contractor can extract the government's oil on behalf of the government. The
PSA was first used in Indonesia in 1966, when the government decided to maintain
326 'A Reporter’s Guide to Energy and Development', Revenue Watch, retrieved 14 January 2013.
65
ownership of the oil in the ground, so that the international company had the right to
explore for oil but gained the right to own it and sell it (or a portion of it) once it had
been extracted. In Indonesia, according to Revenue Watch, the concession licensing
method had been discredited as a legacy of imperialistic and colonial periods and the
PSA system was developed in the context of a broader movement of 'resource nation alism' among oil-producing countries worldwide.328 Since that time PSAs have spread
globally and are now a common form of doing business, especially in Central Asia and
the Caucasus.329
Oil companies are entitled to cost recovery for operating expenses and capital invest ment, and receive a share of annual earnings - 'cost oil' - to this effect. Once the companies have used annual earnings to repay themselves, the rest - 'profit oil' - is shared
according to the agreed percentage division with the host government. 329
All financial and operational risk rests with the international oil companies in the PSA
arrangement, and a host government has the added advantage that it shares any potential profits without having to make an investment, unless it agreed to do so. For
companies, the advantage in some countries is that the PSA is superior to all other
present and future laws, with the result that the government effectively surrenders its
right to adopt new laws and regulations if they adversely impact any rights of the oil
company under the PSA.329
A disadvantage of the PSA for host governments is that it puts a premium on highly
professional negotiations, and the government must have access to technical, environmental, financial, commercial, and legal expertise. This is more feasible for some oilrich countries than others.329
Service contracts
Like a PSA, a service contract does not give an ownership right to oil in the ground.
Unlike a PSA, in a service contract the international company never actually gains
ownership, or 'title', to the oil produced either. In these cases the company is simply
paid a fee for its services in extracting the government's oil. 328
Joint ventures
Another arrangement, sometimes considered to be a fourth type of contractual arrangement, is the joint venture (JV), which involves the state, through a national oil
company, entering into a partnership with an oil company or a group of companies.
The JV itself is in this case awarded the rights to explore, develop, produce and sell
petroleum.328 Because there is no commonly-accepted form or structure for JVs, they
are less commonly used as the basic agreement between an oil company and a host
government. JVs require host governments and companies to do things jointly, so if
66
the parties fail to work together the negotiations can be painstaking and disagreement
common.330
For the government, the only advantage of a JV is that it is not alone in decision-making on oil and gas matters and can count on the expertise and shared stake of a major
international company. One of the main disadvantages of JVs is that they require more
extended negotiations and require much more legal advice because their format is so
ambiguous. Additionally, costs must also be shared between the parties, meaning that
the host government is a direct and responsible participant in the natural resource extraction, and responsibility also brings with it liability, including for environmental
damage.330
Treatment of Oil in Iraq's 2005
Constitution
The Iraqi Constitution of 2005 functions as the regulatory framework of Iraq's oil and
gas sector. The Constitution contains several provisions that address, in somewhat
vague terms, the control and distribution of natural resources. 331
Articles concerning natural resources
Only two articles of the Constitution contain provisions that deal with Iraq's natural
resources: articles 111 and 112.332
Article 111 of the Constitution states:
Oil and gas are owned by all the people of Iraq in all the regions and governorates. 332
Hence, the ownership of any particular resource is not attributed to any particular
group or geographical or political region. 331
Article 112 of the Constitution states:
First: The federal government, with the producing governorates and regional
governments, shall undertake the management of oil and gas extracted from present
fields, provided that it distributes its revenues in a fair manner in proportion to the
population distribution in all parts of the country, specifying an allotment for a specified
period for the damaged regions which were unjustly deprived of them by the former
regime, and the regions that were damaged afterwards in a way that ensures balanced
development in different areas of the country, and this shall be regulated by a law.
67
Second: The federal government, with the producing regional and governorate
governments, shall together formulate the necessary strategic policies to develop the oil
and gas wealth in a way that achieves the highest benefit to the Iraqi people using the
most advanced techniques of the market principles and encouraging investment. 332
Because the term 'present fields' is not defined, it remains unclear whether it includes
only fields that are currently producing or if it extends to other fields. Similarly,
whether the currently producing fields include partially developed fields also remains
unclear.Error: Reference source not found
The proper roles and authorities of federal and regional authorities for equitably sharing oil and gas and making strategic decisions is a further point of contention. 333 The
Iraqi federal government and the Kurdistan Regional Government (KRG) continue to
clash over this, which is why new sector legislation as of late 2012 remained stalled. 334
The federal government maintains that the Constitution does not allow the KRG to adopt unilateral and permanent measures over the management of oil and gas fields. Under this interpretation any contract signed after the draft oil and gas law was agreed
in February 2007 is deemed 'illegal' until reviewed and approved by the Iraqi Ministry
of Oil.335
Nonetheless, the Constitution does not expressly authorize either the Ministry of Oil
or the Ministry's Petroleum Contracts and Licensing Directorate (PCLD) to award contracts to international oil companies (IOCs) either. The Ministry of Oil interprets the
legality of contracts awarded to IOCs on the grounds that:
1) the constitutional requirement for the approval of the Council of Representatives 336
(the 325-seat main elected body of representatives in Iraq) 337 only applies to international treaties and agreements between the State of Iraq and other states, so commer cial contracts between Iraqi regional oil companies and IOCs do not need such approval, and
2) the technical service contracts (TSCs) were awarded under the proposed Hydrocarbon Law (despite the fact that this is not yet approved by the Council of Representat ives).336
Hydrocarbon Legislation in Iraq
The 2005 Constitution called for legislation governing the oil sector 338 and various
drafts of new federal hydrocarbons laws have been under discussion in Iraq since 2006.
Delays have arisen largely as a consequence of lack of consensus between central gov 333 'Iraq's Next Government: What do the Kurds Want?', Time, 6 October 2010.
334 'UPDATE 2 - Iraq's Shahristani retains hard line on Kurdish oil' Reuters, 10 October 2011.
335 'Oil power struggle as US leaves Iraq', CNN ,12 December 2011.
337 'Fact Sheet: Iraq's Council of Representative Election', United Nations Assistance Mission for Iraq,
11 February 2010.
338 'Oil experts debate a new state oil company', Iraq Oil Report, 16 January 2011.
68
ernment and the regions.339 Ben Lando of Iraq Oil Report goes so far as to assert that the
legislation has become the grounds for a 'proxy battle' over the balance of powers
between the central government, the semi-autonomous Kurdistan region, and the other provinces.338
The much-discussed draft oil and gas law (or draft hydrocarbon law), key to resolving
long-standing disputes over the exploitation of Iraq's reserves and boosting production, first received approval by the Iraqi Council of Ministers in February 2007. 336 However its approval by Parliament has been repeatedly delayed by the political stalemate
between Baghdad and the regions. Due to the ongoing political disputes, as of late 2012
no framework law had been passed into law, and two competing drafts of the document were on the table awaiting further discussion in Parliament. 340
The second key draft law is the Iraq National Oil Company Law, which would re-establish the Iraq National Oil Company (dissolved in 1997), thereby creating once again a
single entity to manage the country's oil business. 340 These two laws are interdependent. The hydrocarbons law would create a Federal Council for Oil and Gas (FCOG),
which would set the policy carried out by INOC. 341
In their analysis, Revenue Watch Institute state that despite the media's focus on the
role of the private sector, the most contentious issue in Iraq's legal framework is the
division of authority between the federal centre and the regions. 342
Hydrocarbons law
The Iraq Federal Oil and Gas Law has been referred to by Keith Myers or Revenue
Watch Institute as "one of the most eagerly awaited and contentious pieces of legislation in the oil industry worldwide."343 The stalled law should set out terms regulating
how foreign oil firms will be able to operate in Iraq, resolve bitter disputes between
the central government and Iraqi Kurdistan, and remove a key obstacle to the development of the country's hydrocarbon reserves.344
The differing drafts which have been discussed since 2007 are based on differing interpretations of the wording of the 2005 Constitution, much of which lacks clarity. 343 In
the summer of 2011 the Cabinet and Parliament each produced their own drafts of an
oil law. The draft drawn up by the Cabinet concentrated state oil powers in the central
government, while the Parliament version (supported by the KRG), distributes more
authority to the regions. The Parliament Oil Committee approved its own draft in August 2011 and sent it to the full Parliament, but a group of MPs loyal to Prime Minister
al-Maliki walked out of the session, broke quorum and effectively halted the law's progress. Later in October 2011, Maliki and then-KRG Prime Minister Barham Salih agreed
to restart negotiations taking an earlier draft law from February 2007 as a base, how339 'Iraq Energy Outlook', Internationa Energy Agency, 9 October 2012.
340 'Iraq oil law deal festers as crisis drags on', Reuters, 26 January 2012.
341 'Progress on two key oil laws', Iraq Oil Report, 1 July 2011.
342 'Iraq Hydrocarbons Legal Framework', Revenue Watch Institute, retrieved 29 November 2012.
343 'Breaking Iraq's oil-law stalemate', Petroleum Economist, 1 December 2011.
344 'Iraq oil law deal festers as crisis drags on', Reuters, 26 January 2012.
69
ever these talks never took place.345
All of the draft versions being considered would create a body called the Federal Oil
and Gas Council (FOGC), on which regions, governorates and federal government are
represented.343 However each version dictates a different structure of powers and responsibilities. The Cabinet draft envisages an FOGC that reports to the executive, while
many oil committee MPs believe it should be an independent body responsible to the
Parliament.345
The prospect of a negotiated resolution to the impasse dimmed during 2011 following
a political crisis sparked by the sacking and arrest of vice-president Tariq alHashemi,346 and deepened following disputes over contracts awarded by the KRG to ExxonMobil and other oil majors, and further disputes over crude exports.
In April 2012, Kurdish Oil Minister Ashti Hawrami told Iraq Oil Report that the Constitution already grants Kurdistan the right to develop its resources with full autonomy,
and suggested that a federal oil law may not even be needed in the KRG, which passed
its own regional law in 2007.345
Iraq National Oil Company Law
The draft Iraq National Oil Company Law would re-establish the Iraq National Oil Company (INOC) as a state-owned company managing all of the state interests in current
and new fields and operating with a degree of financial and administrative
autonomy.347
As a result of the law, the Ministry of Oil would be stripped of its operational respons ibility to become more of a policy-making body. 348 It would also be likely to acquire
some powers currently held by the Kurdistan Regional Government (KRG). Supporters
of the law assert that if the company is set up properly it would increase both the efficiency of the Oil Ministry and be a more effective steward of the industry. However Oil
Minister Karim al-Luaibi stated in 2012 that "this law adds nothing to what the Ministry of Oil is doing already."349
Since being proposed in 2007 this law has also undergone substantial changes and was
stalled as of 2012.350
Local content provisions
As of 2012 there were no measures in place in Iraq that mandate a certain level of local
content in energy sector projects, that is legislation which obliges contractors to make
use of local goods and services.347 Such concerns are instead addressed under Article 26
345 'Parliament rebuffs Cabinet oil law', Iraq Oil Report, 24 April 2012.
346 'Iraq vice-president sentenced to death amid deadly wave of insurgent attacks', Guardian, 10
September 2012.
348 'Iraq oil law deal festers as crisis drags on', Iraq Oil Report, 24 August 2011.
349 'Oil experts debate a new state oil company', Iraq Oil Report, 16 January 2011.
350 'Parliament releases official draft oil and INOC laws', Iraq Oil Report, 24 August 2011.
70
of Iraq's model technical service contracts, which stipulates that contractors should
allocate a minimum of US $5 million annually to the country's Training, Technology
and Scholarship Fund (TTSF),351 although this demand was reduced to $1 million for
contracts awarded in Iraq's third licensing round.352
Oil and Gas Licensing Rounds
Iraq's First Licensing Round (2009)
Oil Minister Hussein Shahristani launched Iraq's first licensing round in 2008. Bids on
more barrels of oil in a single bid round than at any other time or place in history were
made open to international oil companies 353, who had not had any significant activity
in oil operations in Iraq since nationalisation in 1974. Some 22 companies took part in
the licensing round.354
In the end only one field, Rumaila, was awarded in the auction process itself, though
two other fields, Maysan and West Qurna Phase 1, were subsequently awarded in bilateral negotiations.355
Process
By early 2008 companies were invited to pre-qualify for an auction process. Many experts in resource transparency regard auctions as the best way to manage both the
danger of corruption and asymmetry of information between governments and companies at the production award stage356.
On the 18 February 2008 the government announced some 35 international companies, including many of the so-called 'majors', had passed the pre-qualification stage,
out of a total of 140 companies who applied. They were evaluated on five criteria:
technical, financial, legal, training, and HSE (Health, Safety and Environment).357
Between February 2008 and April 2009, the Ministry of Oil undertook a number of other preparatory measures common for auctions, such as publishing packages of geological and other data for companies to review, running a roadshow to present the auc tion opportunities in London and a workshop to explain the auction process 358. The
351 'Model Producing Oil Field Technical Service Contract ('PFTSC')', 23 April 2009.
352 'Gas Fields Bid Round In Iraq: Success With Risk', Middle East Economic Survey, 27 December
2010.
353 'First Oil Bid Round: The Greatest Show On Earth', Wikileaks, 22 June 2009.
354 'The Results', Iraq Oil Forum, 5 February 2009.
355 'Oil Companies Making Moves In Iraq', Investopedia, 18 January 2010.
356 'Managing the Curse of Natural Resources - a charter for politicians', Guardian, 5 February
2009
357 'Iraq's First Licensing Round - qualification', Iraq Oil Forum, October 2008.
358 'Iraq's First Petroleum Licensing Round', Petroleum Contracts and Licensing Division, retrieved 2
71
government also published model contracts for oil 359 and gas360 and invited company
comments, which were then absorbed into a revision process in May 2009. 361.
Evaluation criteria
The government announced there would be two main criteria on which all bids would
be judged:
Firstly, the production plateau offered by a consortium for any given field, where the
higher the production they were guaranteeing the better. The government itself set a
minimum production level it was prepared to accept for each field based on its reserves and historic production, which varied between 2.75 million barrels per day
(bpd) for Rumaila and 450,000 bpd at Maysan.
The second set of criteria related to the remuneration fee the consortium would accept per barrel it produced once it reached the plateau - the lower the fee, the higher
the companies would score. It was on this question that there were wide discrepancies
between maximum remuneration fees set by the government, and offers made by the
companies themselves. In the case of Rumaila, BP offered the lowest bid with an offer
of $3.99 a barrel, but that was still double the maximum the government specified of
$2 per barrel.362 At other fields the gaps were even wider. At Maysan, for example, the
consortium led by CNOOC accepted a fee of $2.30 in later bilateral negotiations, having
originally proposed a fee of $21.40.363
Results
The only award made as a direct results of the the auction round was to BP, in associ ation with Chinese CNPC, for the Rumaila field, although the award was not immediate
and bilateral negotiations continued until a deal was announced in November 2009. 364
The other oil fields offered were Kirkuk, Zubair, Maysan, West Qurna Phase 1 and Bai
Hassan. The gas fields of Akkas and Mansuriyah, which were included in the first li censing round, were due to be offered again in the third round, due in September
2010.
The fact that only one award was announced in July 2009 out of so many bids and contract areas led some analysts to classify the process as failure 365. In a leaked US diplomatic cable during the period it was reported that the results were not a complete victory and that Iraqi leaders said they would accelerate the second bid round and look at
August 2010.
359 'The Model Producing Oil Field Technical Service Contract (PFTSC): An Overview', MEES, 6
July 2009.
360 'Key legal issues in the third licensing round in Iraq's gas fields', Lexology, 2 August 2010.
361 'Iraq Contract Revisions Clear Obstacles To Oil Expansion', MEES, 4 May 2009.
362 'Iraq’s First Petroleum Licensing Round Rumaila Contract Area – Bidding Results', Petroleum
Contracts and Licensing Directorate, 30 June 2009.
363 'Iraq to Develop Maysan Oil Fields with Chinese Firms', Investors in Iraq, 3 October 2010.
364 'BP in Ira'q, BP, retrieved 9 January 2012.
365 'Iraq Oil Bidding in Shambles', Wall Street Journal, 1 July 2009.
72
ways to make it "more effective" than the first round.366
Iraq's Second Licensing Round (2009)
The second round of auctions offered by the Ministry of Oil took place over the 11-12
December 2009.367 The terms and process of the second round were similar to the
first.368 The lead time to complete the auction process was faster for the second round
than the first because the preliminary work had been done. 369
Ten major oilfields were up for bid in the second round, which produced deals for seven of those fields. The fields receiving successful bids were Halfaya, Majnoon, Qayara,
Badra, Garraf, Najmah and West Qurna 2. The three fields receiving no bids were East
Baghdad, the Eastern Fields and Middle Furat.367
Process
In all, a total of 40 companies pre-qualified for the bidding round 370 after submitting
data proving they met the Iraqi Oil Ministry's criteria. 371 The second round followed
the same procedures as the first round with few deviations.
Results
There were 17 bidding consortia in total, and the seven winning consortia gained access to fields with proven reserves of 32 billion barrels of oil, or over a quarter of Iraq's
proven reserves. The production projections from the companies winning bids in the
second round had the potential to add about 4.8 million barrels of oil to its daily production total.372
The table below shows the make-up of the consortia, along with agreed per-barrel re muneration fees and the agreed level of plateau production they should reach: 373
366 'Iraq,s First Oil Bid Round: Too Hard A Bargain'?, Wikileaks, 1 July 2009.
367 '2nd Round of Bidding On Iraq’s Oil Fields Ends As A Success', Musings on Iraq, 14 December
2009.
368 'Take Two: Iraq's All-Important Licensing Round', Offshore Technology 7 December 2009.
369 'Iraq's Second Petroleum Licensing Round', Iraq Oil Ministry, retrieved 2 August 2010
370 'Iraq’s Second Oil Bidding Round Bolstered by Exxon, Eni Deals', Bloomberg, 10 December 2009.
371 'Announcement', Petroleum Contracts and Licensing Directorate, retrieved 8 December 2011.
372 '2nd Round of Bidding On Iraq’s Oil Fields Ends As A Success', Musings on Iraq, 14 December
2009.
373 'Second Licensing Round Bidding Results', Petroleum and Contracts Licensing Directorate, 12
December 2009.
73
Field
Halfaya
Company Home country Company
type
Share in
field
Service fee Production
per barrel increase
($)
(bpd)
CNPC
China
State
50%
1.40
535,000
Petronas
Malaysia
State
25%
1.40
535,000
Total
France
Public
25%
1.40
535,000
Shell
UK/The Netherlands
Public
60%
1.39
1.8 million
Petronas
Malaysia
State
40%
1.39
1.8 million
Qayara
Sonangol
Angola
State
100%
5
120,000
Najmah
Sonangol
Angola
State
100%
6
110,000
Badra
Gazprom
Russia
State
40%
5.50
170,000
Kogas
South Korea
State
30%
5.50
170,000
Petronas
Malaysia
State
20%
5.50
170,000
TPAO
Turkey
State
20%
5.50
170,000
Petronas
Malaysia
State
60%
1.49
230,000
Japex
Japan
Public
40%
1.49
230,000
Lukoil
Russia
Public
85%
1.15
1.8 million
Statoil
Norway
State
15%
1.15
1.8 million
Majnoon
Garraf
W. Qurna 2
Iraq's Third Licensing Round (2010)
Iraq held its third bid round on 20 October 2010 374 for three gas fields: Akkas, containing an estimated 158 billion cubic meters (bcm) of natural gas; Mansuriyah, containing
approximately 130 bcm; and Siba, containing about 31 bcm. 375
The Akkas and Mansuriyah fields had been included in the first round of licensing, but
Mansuriyah received no bids and Akkas received only one bid that failed. Siba had originally been included in the second bid round, but was removed from the list before
bidding began. Subsequently, the government had indicated that all three fields would
be developed by national efforts, but then decided to offer the fields for auction in the
third round after all.374
2010.
375 'Iraq inks final deal SKorea's KOGAS', Yahoo! News, 13 October 2011.
74
Process
The contracts awarded in the third licensing round eliminated signature bonuses, a
significant departure from the first two rounds. Additionally, the required annual
commitment to the Training, Technology and Scholarship Fund, 374 by which contractors facilitate on-the-job training in petroleum operations for Iraqi nationals and promote research in oil and gas technology, 376 was reduced from $5 million to $1 million.374
The conversion factor for converting natural gas volume deliveries into barrels of oil
equivalent (boe) was also reduced from about 225 cubic meters to about 170, allowing
companies to register larger volumes of gas production. 377
Results
As a result of the third round, contracts were awarded to Korea's Kogas, Turkey's
TPAO and Kuwait Energy Company (KEC). The table below shows the make-up of the
consortia, along with agreed per-barrel remuneration fees and the agreed level of
plateau production they should reach:
Field
Company
Home
country
Company Share in Service fee Production intype
field
per barrel ($) crease (m.
feet3/day)
Akkas
Kogas
S. Korea
State
100%
5.50
400
Mansuriyah
TPAO
Turkey
State
50%
7
320
KEC
Kuwait
Public
50%
7
320
Majnoon
Kogas
S. Korea
State
20%
7
320
Siba
KEC
Kuwait
Public
60%
7.50
100
Siba
TPAO
Turkey
State
40%
7.50
100
Unlike the first two rounds, the third round was dominated by regional companies,
with major international oil companies absent. Of the IOCs favoured by the Oil Ministry, only Total submitted bids. They may have been repelled by tough payment
terms and an uncertain security situation in Iraq, according to the Cyprus-based
Middle East Economic Survey (MEES). Another suggested reason for the absence of
some majors was their relative lack of exposure in Iraq and their reluctance to overstretch their involvement under current circumstances. 377
MEES also suggested that the regional and geographical proximity of the above firms,
specifically TPAO and Kuwait Energy, played a role in their winning of the contracts.
With its stake in the Siba and Mansuriyah fields, TPAO strengthened its foothold in the
Iraqi upstream sector since it already had minority stakes in Badra and in the Maysan
376 'Model Service Development and Production Contract', North Oil Company, 23 April 2009.
377 'Gas Fields Bid Round In Iraq: Success With Risk', Middle East Economic Survey 27 December
2010.
75
group of oilfields. Kuwait Energy's involvement in Iraq, meanwhile, could help revive
the export of Iraqi gas to Kuwait. According to MEES, there had been talk of reactivat ing a pipeline from Rumaila to Kuwait that was operational in the mid 1980s. 378
Iraq's Fourth Licensing Round (2012)
Iraq's fourth licensing round took place on 30-31 May 2012, with twelve areas on offer,
covering a total of 80,700 square kilometers.379 The bidding round included both unexplored areas380 and newly discovered fields that had not yet been exploited. 381
Seven of the twelve blocks included in the round were gas prone, while the rest have
oil potential,382 containing a combined 29 billion cubic meters (bcm) of gas and 10 billion barrels of crude oil.383
Iraq did not necessarily plan to begin development or production from any oil fields
discovered, using them instead to maintain and boost reserves, according to Abdul-Mahdy al-Ameedi, head of the Petroleum Contracts and Licensing Directorate
(PCLD). Reserve increases could offset expected depletion in other fields and
strengthen Iraq's case in convincing OPEC to set an export quota for the Iraqi industry.
Companies discovering gas, on the other hand, would be allowed to produce it. 384
The twelve sites offered lie in the provinces of Nineveh, Diyala, Wasit, Basra,
Muthanna, Qadisiya and Babil,383 as well Najaf, Karbala, Samawa, Diwaniya and Anbar,
which were not included in the previous rounds. 385 Eight of the twelve blocks are situated in the west of the country along the Iraq-Syria and Iraq-Saudi borders. 386
Process
The fourth round of licensing was the first to offer exploration contracts compared to
the technical contracts offered in the first three rounds. 386
The auction had originally been scheduled for November 2011, but was delayed repeatedly, first to January 2012 382 and then to 7-8 March before finally taking place in
May.387 As for the cause of the delay, an Iraqi parliamentary committee had requested
that the Oil Ministry defer the bid round and not sign any more contracts until a new
2010.
379 'Fourth Licensing Round in Iraq, results announced June 2012', Deloitte, June 2012.
380 'Iraq 4th bidding round offers new opportunities for IOCs', Evaluate Energy 12 May 2011.
381 'Iraq sets date for oil and gas licensing round', Al-Shorfa, 3 December 2011.
382 'The Forthcoming Exploration Blocks Bid Round In Iraq: Issues For Consideration', Middle East
Economic Survey, 6 June 2011.
383 'Iraq Offers 12 New Oil Blocks in 4th Round', Iraq Business News, 25 April 2011.
384 'Iraq reworks fees to bolster 4th energy auction', Reuters, 13 September 2011.
385 'Iraqi Oil Ministry Prepares 4th Licensing Round', Iraq Business News, 21 March 2011.
386 'Launch of the 4th Licensing Round in Iraq 2011', Deloitte Petroleum Services, 21 March 2011.
387 'Iraq delays 4th energy auction to March next year', Reuters, 10 October 2011.
76
hydrocarbon law had been approved.388 But Oil Minister Abdul Kareem al-Luaibi rejected this request during a meeting in May 2011, 389 and the cause of the eventual delays
to the auction round were technical, according to the PCLD. 390
The fourth bid round included 47 international oil companies (IOCs). 391 All companies
that qualified for the previous three rounds of licensing automatically qualified for the
fourth, whether or not a contract was signed in previous rounds. 392 The US oil firms
Hess and ExxonMobil were excluded from participating in the fourth licensing round
because of contracts they signed with the Kurdistan Regional Government (KRG), 393
which the central government in Baghdad considers illegal.394
Changes to model contract and criteria
The contract models used for the fourth auction round featured several changes compared to earlier rounds.395 The remuneration fee, or the amount the government pays
to the companies for each barrel of oil produced,396 was calculated differently under
the new contracts. Under the new formula companies were not paid for oil they pay
subcontractors to produce. Instead the Iraqi government deducts the cost of subcontracts from total production and then pays remuneration on the remaining production. In other words, if total production is 1 million barrels and the contractor has
spent the value of 300,000 barrels on a subcontractor, the contractor will receive payment only for the remaining production, or 700,000 barrels. This new formula was
aimed at cutting the cost of subcontracts 395 and effectively ties companies' compensation to their cost-efficiency.397
Another change from previous rounds was the criteria on which bids were judged.
Previous rounds took into account not only the remuneration fee each bidder would
charge, but also the amount of oil they agreed to produce. In the fourth round, with
many of the bidding areas yet to be explored and with actual production therefore less
certain, the remuneration fee was the only criterion. Under the new deals, contractors
also faced restrictions on their ability to pump oil and gas in order to avoid over-supplying the market and overwhelming Iraq's underdeveloped infrastructure. 397
Results
The fourth bidding round was seen by many in the industry as a failure, having failed
388 'The Forthcoming Exploration Blocks Bid Round In Iraq: Issues For Consideration', Middle East
Economic Survey 6 June 2011.
389 'Iraq MPs to Ask Parliament to Delay New Energy Round, Saad Says', Bloomberg 17 May 2011.
390 'Iraq delays 4th energy auction to March next year', Reuters, 10 October 2011.
392 'Iraq 4th bidding round offers new opportunities for IOCs', Evaluate Energy 12 May 2011.
393 'Iraq’s Fourth Oil and Gas Licensing Round', Mayer Brown, 19 September 2012.
394 'Exxon Mobile Threatens Its Oil Interests In Southern Iraq With Kurdish Deal', AK News, 24
November 2011.
395 'Iraq reworks fees to bolster 4th energy auction', Reuters, 13 September 2011.
396 'China initials Halfaya contract', T.D Asset and Trust, 7 January 2010.
397 'Ministry unveils tough terms for 4th bid round', Iraq Oil Report, 14 September 2011.
77
to attract the expected interest. Following the bidding round the Iraqi government
began to speak of making changes to its contracts. Deputy Prime Minister for Energy
Shahristani said in late 2012 that the plateau production target would be "slightly ad justed" and the period for reaching the plateau was likely to be extended, giving investors longer to recoup their investment and make a profit. 398
The table below shows the make-up of the consortia which submitted bids, along with
agreed per-barrel remuneration fees: 399400
Block
Acreage Company
(sq km)
Home country
Company
type
Share in
block
Service fee
per barrel
($)
Block 1
7300
no bids
n/a
n/a
n/a
n/a
Block 2
8000
no bids
n/a
n/a
n/a
n/a
Block 3
7000
no bids
n/a
n/a
n/a
n/a
Block 4
7000
no bids
n/a
n/a
n/a
n/a
Block 5
8000
no bids
n/a
n/a
n/a
n/a
Block 6
9000
no bids
n/a
n/a
n/a
n/a
Block 7
6000
no bids
n/a
n/a
n/a
n/a
Block 8
6000
Pakistan
Petroleum
Pakistan
State
100%
5.38
Block 9
900
KEC
Kuwait
Private
40%
6.24
TPAO
Turkey
Public
30%
6.24
Dragon Oil
UAE
Public
30%
6.24
Lukoil
Russia
Public
60%
5.99
Inpex
Japan
Public
40%
5.99
Block 10
5500
Block 11
8000
no bids
n/a
n/a
n/a
n/a
Block 12
8000
Petro
Vietnam
Vietnam
State
30%
9.85
Premier Oil
UK
Public
40%
9.85
Bashneft
Russia
Public
30%
9.85
398 'Will Iraq be the next oil superpower?'. Petroleum Economist, 12 December 2012.
399 'Results of Fourth Licensing Round', Iraqi Petroleum Contracts and Licensing Directorate, retrieved
5 December 2012.
78
Regional Dynamics
Iran-Iraq
Snapshot
Iran and Iraq have a long and complicated history in which factors of economic, religious and military nature are often intertwined. 401 The two countries fought the
longest conventional war of the 20th century between 1980 and 1988 when Saddam
Hussein invaded Iran after the Iranian Islamic Revolution.402
Iraq and Iran developed extensive economic ties following the fall of Saddam Hussein
in 2003, with trade between the two states increasing tenfold between 2003 and 2010,
according to Iranian officials. 403 According to the United States Institute of Peace,
Tehran has wielded substantial political influence in Iraq since 2003 and enhanced its
'soft' power in the economic, religious and informational domains. They also claim
that Iran provided support to Shia insurgent groups and militias within Iraqi borders.404
After visiting Iran in October 2010 and meeting with president Mahmoud Ahmedinejad and Ayatollah Ali Khamenei, Iraqi Prime Minister Nouri al-Maliki described the
two countries’ relationship as "strategic", saying "we ask Iran and our neighbors to
support our reconstruction and to boost economic and commercial co-operation,
which will help improve stability in our region."405
Iranian political influence in Iraq
UPI reports speak of Iran's "ceaseless efforts" to dominate its western neighbour politically and economically since 2003. According to the reports, prior to US withdrawal
from Iraq, Iran had been waging a clandestine war against US interests in Iraq and
poured billions of dollars into building up a vast patronage and intelligence network
in the country, giving them significant political influence. This trend was said to have
accelerated since the withdrawal of American troops from Iraq in December 2011. 406 By
uniting Iraq's three major Shi'ite political factions, the Islamic Supreme Council of
Iraq (ISCI), the Dawa (Islamic Call) party and the Sadrists, Iran hoped to translate a
Shi'ite demographic majority into political influence.404
401 'Iran-Iraq relations revisited: energy cooperation', The Gulf Research Unit, 21 February 2011.
402 'Iran and Iraq: a history of tension and conflict', Guardian, 28 July 2011.
403 'Iraq-Iran Foreign Relations', AEI Iran Tracker, 5 August 2011.
404 'Iran and Iraq', United States Institute of Peace, retrieved 17 December 2011.
405 'Iraqi PM courts Iran during visit', Al Jazeera, 19 October 2010.
406 'OPEC: Iran-Iraq alliance weakens Saudis', UPI, 4 January 2013.
79
This influence has been achieved with mixed success. Between 2003-2005, Iran helped
assemble a Shia Islamist bloc, the United Iraqi Alliance, encompassing all three major
Shia factions. The alliance won 128 of the 275 seats in the December 2005 Iraqi parliamentary elections, with senior Dawa leader Nouri al-Maliki selected as Prime Minister.
The provincial elections in January 2009, however, were seen by US state organs to
demonstrate the Iraqi public's rejection of Iran's political influence. Maliki's national ist State of Law party made some gains, but the other two Shia political factions, the
ISCI and the Sadrists, suffered setbacks. 407
George Friedmann of US global security consultancy Stratfor said that "the possibility
of Iraq becoming a puppet of Iran cannot be ruled out, and this has especially wide regional consequences."408
Cross-border fields and energy cooperation
Oil fields in border regions have long been a point of vital interest for both Iraq and
Iran.409 After decades of contentious relations while Saddam Hussein was in power,
culminating in the Iran-Iraq war from 1980-1988, Saddam's fall in 2003 provided a new
opportunity for Iran and Iraq to re-embark on discussion of their shared frontier. 410
Iraq and Iran have 23 joint oil fields in border regions, 411 including the Badra field and
the Majnoon field, which geologists consider to belong to the same structure as Iran's
Azadegan.412
The unitisation of these frontier fields, or agreement between entities on how to divide geological structures divided by a border, has the potential to create bilateral ten sion, according to US diplomatic cables. Meetings between Iraqi and Iranian officials in
2009 helped negotiations on this issue gain some momentum, and as of March of that
year the Iraqi Ministry of Oil was attempting to develop a model unitisation agree ment to exploit the cross-border fields. 412 In May 2010, Iraq and Iran agreed on a Master Development Plan (MDP) for the development of five shared, unnamed oilfields in
the border region. Iran and Iraq have different legal and contractual systems to develop their oil and gas fields, but the MDP could be a step toward bringing shared field
development onto the agenda, according to Iranian press sources. 413
Iraq and Iran have also increased cooperation in the natural gas sector. In May 2011
the two sides signed a provisional agreement that would allow Iraq to import 25 million cubic meters (mcm) of Iranian natural gas per day and use it to power electric
plants north-east of Baghdad. 414 Then in July 2011 Iraq, Iran and Syria signed a $10 billion deal in which the three states agreed to construct a natural gas pipeline from
southern Iran through Iraq and extending to Syria; Iranian officials have indicated
407 'Iran-Iraq Relations', US Congressional Research Service, 13 August 2011.
409 'Iran-Iraq relations revisited: energy cooperatio'n, The Gulf Research Unit, 21 February 2011.
410 'Iraq-Iran Foreign Relation's, AEI Iran Tracker, 5 August 2011.
411 'Iran, Iraq Reach Deal on Joint Oilfields', Iraq Business News, 10 January 2011.
412 'Iraqi Oil Ministry Negotiating Unitization Of Cross-border Fields', Wikileaks, 1 March 2009.
413 'Iran, Iraq to Develop 5 Oilfield's, Iran Daily, 5 May 2010.
414 'Iraq seeks Iranian gas for power generation', Bloomberg Businessweek, 23 May 2011.
80
that the pipeline would eventually extend to the Mediterranean Sea through Lebanon.
Under the deal, Iraq would initially receive about 20 mcm of natural gas per day. 415
'Reserve wars' and the OPEC quota issue
Both countries are members of the Organization of Petroleum Exporting Countries
(OPEC) which supplies about 40 percent of the world’s oil. 416 Estimates of proven reserves are a sensitive issue among OPEC member states, as reserves are a main consideration behind the production quota each member is entitled to. 417
Iraq and Iran have a history of conflict over the OPEC quota. During the Iran-Iraq war
of the 1980s, for example, Iraq demanded an output quota equal to Iran's. As of late
2012 Iraq was still exempt from a quota as it recovered from years of war. 418 After
Baghdad signed landmark agreements with international oil firms in 2009 to dramatically raise its oil output, Iraq and Iran began a series of 'reserve wars' in which each
side successively revised up its proven oil reserve estimates. In late 2010, Iraq raised
its proven crude oil reserve estimates to 143.1 billion barrels, a rise of 25 percent.
Weeks later Iran said its own oil reserves now stood at 150.31 billion barrels, a 9 percent rise over the previous estimate.417
If Iraq succeeds in its planned oil production increase from 2.7 million barrels per day
(bpd) in December 2011419 to to 12 million bpd by 2017. 420 the increased oil supply could
cause global oil prices to drop. OPEC could then be forced to slash other member
states' quotas, thereby reducing their global market share, in order to accommodate
Iraq's new capacity and temper the drop in oil prices. In this case, Iran could be the
hardest hit, according to industry analyst Samuel Ciszuk. He notes that Iran barely
managed to break even fiscally on oil prices at 2010 levels, and permanent loss of its
global market share could be a heavy blow.421 According to the International Business
Times, Iran and Iraq's successive claims of higher reserves are a politically motivated
attempt to build up a long-term defense of their respective OPEC quotas. Issam alChalabi, a former Iraqi Oil Minister, told Reuters news agency that both Iraqi and Iranian claims of higher reserves were "unreliable" and unsubstantiated by proper evidence.421
Despite this warring period, UPI reported in early 2013 an emerging alliance between
the two countries within OPEC, highlighting that an Iran-Iraq agreement, creating a
strategic zone that produces at least one third of the world's oil supplies, could have
immense geopolitical implications.422
415 'Iran inks gas pipeline deal with Iraq and Syri'a, AFP, 25 July 2011.
416 'Iran, Iraq Reach Deal on Joint Oilfields', Iraq Business News, 10 January 2011.
417 'WRAP: Iran's oil reserves revised up to 150.31 billion barrels', Platts, 11 October 2010.
418 'Iran increases oil reserves estimate, passes Ira'q, Daily Star, 12 October 2010.
419 'Bloomberg View: Why Iraq's Oil Flows Slowly; Speaking More Clearly at the Fed', Bloomberg,
15 December 2011.
420 'Iraqi Oil Ministry Prepares 4th Licensing Round', Iraq-Business News 21 March 2011.
421 'Middle East’s new oil war: Iran, Iraq gloat over reserve siz'e, International Business Times, 14
October 2010.
81
Saudi Arabia-Iraq
Snapshot
A New York Times article in 2007 stated that a deep rift had emerged between Sunni-majority Saudi and its predominantly Shi'ite neighbour Iraq since the fall of the
Ba'athist regime in 2003.423 In fact, relations between the two countries have oscillated
between shared strategic interest - Saudi Arabia supported Iraq during its 1980-88 war
with Iran - to military confrontation - Saudi Arabia hosted the US-led response to Saddam Hussein's invasion of Kuwait in 1990 and contributed its own troops to the war effort.
In early 2012 Saudi Arabia named its first Ambassador to Iraq in more than two decades, restoring normal diplomatic relations between the two for the first time since
the invasion of Kuwait. According to New York Times this could signal Saudi Arabia's
desire for a stronger presence in Iraq in order to buttress agains the influence of Iran
in the country. Relations had become particularly strained since the 2003 US-led invasion of Iraq, leading to a Shi'ite-led government which cultivated closer relations with
Iran and Iranian-supported political movements inside Iraq. 424
In response to increasing Saudi interference in internal Iraqi politics, a leaked US dip lomatic cable from 2009 revealed that Iraqi Prime Minister Nuri Kamal al-Maliki was
so concerned about the meddling that he asked US President Barack Obama to stop the
Saudis from intervening. He complained that Saudi's effort to rally the Sunnis were
heightening sectarian tensions in the country.425
Fears that Iraq could regain its oil production quota within the Organisation of Petroleum Exporting Countries (OPEC) had also led to complicated regional dynamics, since
further growth of the Iraqi (and Iranian) economies could weaken Saudi influence on
regional geopolitics.426
OPEC rivalry
Over 2012 press reported rising tensions within OPEC between the Saudis and the Iraqis, a result of disagreements over how much oil to pump and what level to target for
global oil prices. Competing ambitions arise because while the Saudis would prefer
high oil prices to fund US $600 billion in planned social programs, the Iraqis are more
focused on boosting production. Energy markets strategist Julius Walker notes that
"ultimately there will need to be an agreement between the two as to how to balance
these ambitions."427
423 'Saudis’ Role in Iraq Frustrates U.S. Officials', New York Times, 27 June 2007.
424 'Saudis Pick First Envoy to Baghdad in 20 Years', New York Times, 21 February 2012.
425 'Meddling Neighbors Undercut Iraq Stability', New York Times, 5 December 2010.
426 'US withdrawal from Iraq: The kingdom betrayed', The Sunday Times, 31 July 2011.
427 'Iraq's Oil Surge Could Threaten the Saudis', Bloomberg, 20 December 2012.
82
The rising profile of Iraq is testing Saudi Arabia's usual role as "swing producer", the
country within the group with enough spare capacity to tap in times of shortage and
rich enough to withhold when the market is flooded. 427 An emerging alliance between
former foes Iran and Iraq in OPEC could also undermine Saudi Arabia, historically the
oil cartel's dominant force.428
Baghdad-based oil expert Ruba Husari had stated that Iraq's rise as an oil producer
would take "an important balancing act within OPEC to preserve the cohesion within
the organisation while at the same time satisfy Iraq's huge needs which are bigger
than any other member's", adding that "Iraq's potential return as a major oil producer
undoubtedly creates a challenge for Saudi Arabia more than any other member in
OPEC."429
Export infrastructure
The Iraq Pipeline through Saudi Arabia (IPSA) was constructed in the 1980s to transport Iraqi oil to the Saudi Red Sea port of Mu'ajiz. 430 It ceased to be used during the Iraqi invasion of Kuwait in 1990 and was expropriated by Saudis in June 2001 as com pensation for debts owed by Baghdad. 431 They claimed that Iraq had not paid transit
fees for many years.432
However in June 2012 the IPSA pipeline was reopened by Saudi Arabia in a move to offset Iranian threats to close the Straits of Hormuz. This route would allow the Saudis to
bypass Gulf shipping lanes and transport its crude from Red Sea terminals in case of
such a move.431 The following month Iraqi officials called on Saudi Arabia to reverse a
decision banning Iraq from exporting crude through the pipeline. Government
spokesman Ali al-Dabbagh said that Riyadh does not have the right to ban Iraqi oil exports through the line according to international law.432
Kuwait-Iraq
Snapshot
As of mid-2011, Iraqi-Kuwaiti relations remained politically charged and contentious,
with disputes lingering over several contentious issues, including: the development oil
and gas fields near or crossing the border; agreement on a land and sea boundary,
which has been unclear since Iraq's 1990 invasion of Kuwait; and agreement to a price
428 'OPEC: Iran-Iraq alliance weakens Saudis',UPI, 4 January 2013.
429 'Iraq to rival Saudi Arabia in OPEC oil stakes: Analysts', The Daily Star Lebanon, 24 December
2009.
430 'Pipelines bypassing Hormuz open', Financial Times, 15 July 2012.
431 'Saudi Arabia reopens oil pipeline with Iraq to counter Iran Hormuz threa',t Al Arabiya News,
29 June 2012.
432 'Iraq says Saudi Arabia should allow oil exports through east-west pipeline', Platts, 19 July
2012.
83
tag for reparations for Saddam Hussein-era grievances.433
Relations between Baghdad and Kuwait have made substantial progress in some areas.
Kuwait re-opened its embassy in Iraq in 2008 after nearly 19 years of broken diplomatic relations between the two countries, while the Consulate of Iraq was opened in
Kuwait in 2010. Nevertheless, the outstanding problems continue to lead to periodic
tensions in the bilateral relationship.434
Cross-border fields and territorial disputes
Cross-border fields
One of the immediate stated reasons for Iraq's invasion of Kuwait in August 1990 was
Saddam Hussein's allegation that Kuwait was drilling horizontally across the agreed
international borders of the Rumaila oil field, effectively stealing Iraq’s oil. 435
As of late 2012 there remained potential for disagreement over access to fields in border zones. The Iraqi government announced in December 2011 that there were 10 oil
fields in frontier regions that still needed an international boundary drawn between
them, and that oil would be extracted from these fields only after finding joint mechanisms between the countries.434 There has never been unitisation of these fields,
meaning that the Iraq and Kuwait have never agreed to an equitable division of the
fields' oil based on a technical assessment of how much of the reservoirs lie under
each country.436 A high rate of production on one side of the border essentially sucks
the oil from the other side and damages the reservoir, 437 and unitisation of these fields
would preserve the life of the reservoirs and allow both sides to recover more of the
resources, according to US officials in a leaked diplomatic cable from 2009. 436 The Iraqi
Oil Ministry formed a Border Committee in 2007 to examine all fields and structures
adjacent to and crossing Iraq's borders, including those with Kuwait, 438 but the lack of
agreement on this issue remains a sore point, according to the cables. 436
Territorial disputes
Among the fundamental border issues between Iraq and Kuwait is the latter's desire
for the Iraqi government to formally recognise the international border as demarcated
by the United Nations in 1993.439
Maritime issues are a major point of friction between the two sides. Access to Iraq's
only significant commercial port, at Basra’s Umm Qasr, is via the narrow northern
Persian Gulf and through the Khor Abdullah waterway, which Iraq shares with Kuwait.
Over three quarters of Iraq's oil exports flowed through pipelines in this area as of
433 'Unresolved disputes mar Iraq-Kuwait relations', Iraq Oil Report, 14 July 2011.
434 'Oil fields on Iraqi-Kuwaiti border await demarcation', AK News, 4 December 2011.
435 'The Invasion of Kuwait', The Finer Times, retrieved 18 December 2011.
436 'Iraq-kuwait: Cross-border Issues Affecting Iraq's Economy', Wikileaks, 2 July 2009.
437 'Kuwait signs oil pact with Iraq', The National, 22 December 2010.
438 'Iraqi Oil Ministry Negotiating Unitization Of Cross-border Fields', Wikileaks, 1 March 2009.
439 'Port rivalry tests Iraq-Kuwait relation's, Financial Times, 14 September 2011.
84
mid-2009, and Iraq's efforts to strengthen its economic lifeline have been hampered by
the lack of agreement with Kuwait on a maritime boundary.440
Tensions were raised when Kuwait began building its $1.1 billion Mubarak al-Kabir
port on Bubiyan Island, just a few kilometres from Iraq’s planned $4.6 billion Grand alFaw terminal. The Mubarak port will directly compete and limit the traffic flow to alFaw, and congestion could affect oil tankers sailing to Iraq's nearby Basra and Khor alAmaya oil terminals.441 As of late-2011 there were concerns in Iraq that the Mubarak
project could cause the country to lose up to 60 percent of its maritime traffic – mostly
the larger cargo ships that already struggle to dock in Umm Qasr, the country’s only
deep-water port.442
Though the Mubarak port officially lies within Kuwaiti borders, its location has
angered Iraqi politicians, workers and tribal leaders, with Transportation Minister
Hadi al-Ameri saying in mid-2011 that the Mubarak Port "demonstrates the clear intention of Kuwait to block shipping lanes from Iraqi ports." 441 The construction of the
port has prompted militant groups in southern Iraq to threaten to attack targets inside Kuwait. In August 2011 the Iraqi Shia militia Kata'ib Hezbollah fired rockets into
Kuwait, and warned further attacks would follow if work on the port continued. The
leader of Iraq's Ghatarna tribe, meanwhile, warned that if the Kuwaiti project went
ahead, “the clans will take the law into their own hands”. 442
Reparations for 1990 invasion
Kuwait claims over $20 billion in reparations owed from Iraq's 1990 invasion. Iraq has
agreed to continue setting aside 5 percent of its oil sales for this purpose, but has argued that the $20 billion figure is excessive. 441 The United Nations' Chapter VII sanctions on Iraq, which had supervised and enforced the compensation fund, expired on
30 June 2011443 and the two sides failed to subsequently establish a new mechanism for
the payments. According to Iraq Oil Report, without an agreement Kuwait could take
advantage of the absence of legal protection for Iraq's funds, which were removed
when sanctions ended, and try to seize the funds in court. 441
Remaining issues to be resolved before Iraq can be considered for full relief from
Chapter VII sanctions, as of December 2011, include: the restitution of stolen property
from Kuwait's national archives,444 the identification and repatriation of citizens who
died as a result of the occupation, 445 and an official statement by Iraq that it would not
attack Kuwait in the future.444
Kuwaiti Airlines was also owed US $1.2 billion by Iraqi Airlines for planes and parts a
440 'Iraq-kuwait: Cross-border Issues Affecting Iraq's Economy', Wikileaks, 2 July 2009.
441 'Unresolved disputes mar Iraq-Kuwait relations', Iraq Oil Report, 14 July 2011.
442 'Iraqis Fear Impact of New Kuwait Port', Institute for War & Peace Reporting, 9 November 2011.
443 'Full Details of UN Statement on Ira'q, Iraq Business News, 15 December 2010.
444 'France attentive to pending Kuwaiti demands, urges Iraqi progress', Dinar Guru, 16 December
2011.
445 'Kuwait signs oil pact with Iraq', The National, 22 December 2010.
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court ruled Iraq had stolen in the 1990s, 446 a row which was part of the broader dispute. However in October 2012 the two countries reached an agreement under which
Iraq would pay Kuwait $300 million in cash and invest $200 million in a joint airline
venture in return for Kuwait lifting legal actions against Iraqi Airways. 447
Turkey-Iraq
Snapshot
America's NPR reported in 2010 that Turkey is vying with Iran to be the most influential regional power in Iraq and that Northern Iraq has become the 'staging ground' for
Turkey's bid for economic dominance. Regional specialist Greg Gause went so far as to
say that "the Turks have predominant influence of any foreign power, even rivaling
the US, and they have done it through a clever and low-key strategy,". This is said to
be in line with Turkey's aspirations to become an energy bridge between Europe and
Asia.448
Turkey's Trade Ministry estimates that the trade volume between Turkey and Iraq ex ceeded US $6 billion in 2010, up from only $940 million in 2003, boosting Iraq from
Turkey's tenth largest trade partner to the fifth largest. As of 2011 there were over 117
Turkish companies working on energy, agriculture and industrial projects in Iraq. Energy is a key feature of bilateral relations between the two countries. In the third
round of licensing in 2010, Turkey's state-owned TPAO was among the companies to
sign deals for gas fields in the south, and Turkish companies are also active in the Kur dish oil sector.449
However relations soured over the course of 2012, partly as a result of the expulsion
and sentencing to death of Vice President Tariq al-Hashemi and Turkey's subsequent
refusal to hand him over to Iraqi authorities when he took refuge in the country. 450 An
analyst at the Carnegie Endowment commented that "Turkey increasingly is seen as
nurturing the Sunnis", and the souring relations led to the mayor of Basra encouraging companies from other countries to compete against Turkish companies for contracts.451
Historical relations
Following World War II Turkey was a key ally of the West in the Middle East in order
to contain those countries seen as 'Soviet clients', including Iraq. But during the 1990s
Iraq was Turkey's lead trading partner, with the Turkish port of Ceyhan receiving oil
446 'Unresolved disputes mar Iraq-Kuwait relation's, Iraq Oil Report, 14 July 2011.
447 'Kuwait clears Gulf War Iraqi airline settlement', Reuters, 23 October 2012.
448 'Turkey Flexes Economic, Political Muscle In Iraq', NPR, 31 December 2010.
449 Turunc, Hasan, 'Turkey and Iraq', 2011.
450 'Tariq al-Hashemi: Turkey 'will not hand over' Iraq VP', BBC, 11 September 2012.
451 'A Newly Assertive Turkey Dominates Trade With Ira:q, Wall Street Journal, 2 August 2012.
86
by pipelines from Iraq's northern fields. However UN sanctions on Iraq took their toll
on Iraqi-Turkish trade relations.
Since the 2003 invasion and the deep structural changes it triggered in the Middle
East, contemporary Iraq has been the subject of competing power plays between Saudi
Arabia, Iran and, to a lesser extent, Turkey. Turkey meanwhile gained international
acclaim for pursuing a 'zero problems with the neighbours policy', a policy nurturing
positive ties with neighbouring countries. 452 However the crisis in neighbouring Syria
from 2011 onwards, along with its closer relations between Ankara and Iraq's Sunnis
and Kurds, raised doubts about the 'zero problems' policy. Prime Minister al-Maliki
went so far as to claim that Turkey was stirring up ethnic divisions in the country. 453
Turkish position on Kurdish Issue
Turkey's attitude towards the Kurdistan Regional Government (KRG) has shifted since
2005. Despite increasingly strong economic ties, bilateral engagement between Iraq
and Turkey has been constrained in the past by Turkey's rejection of rising Kurdish
autonomy and the presence of PKK (Kurdistan Workers' Party) bases in northern Iraq,
according to Oxford University's Hasan Turunc.452
However Turkey dominates the economy of the KRG region. The KRG estimates that in
2011 trade between Kurdistan and Turkey totalled US $8 billion 454 and Turkish imports
account for an estimated 80 percent of food and clothes sold. Private Turkish compan ies have made significant investments in the region and Turkish energy companies
such as Pet-Oil and Genel Energy have won bids to develop oil and gas fields in northern Iraq.455 Iraq Oil Report reported in November 2012 that a new Turkish state oil and
gas company was negotiating with the Kurdish authorities to take stakes in several exploration blocks.456
Turunc comments that Turkey attaches a great deal of importance to Iraq's stability
and territorial integrity and sees those matters as crucial to its own security and stability. In particular the future status of ethnically mixed Kirkuk, home to some of
Iraq's largest oil reserves, is of great concern to the Turks. According to his analysis
Turkey's principal anxiety is that the oil riches of Kirkuk will only encourage the KRG
to seek greater autonomy, which could spill over and spark unrest amid Turkey's own
Kurdish population. In his words, 'energy, economy and infrastructure form the crux
of Turkish involvement in Iraq.'452
According to the Economist in 2009, the US encouraged the two sides to rebuild relations and US officials telephoned Turkish president Abdullah Gul to praise "the grow ing Turkish-Iraqi relationship", in the hope that friendship with Turkey would enable
452 'Turkey and Iraq', Academia, 2011.
453 'Problems with the neighbours', Economist, 28 January 2012.
454 'Kurdistan eyes major role in Turkish gas market', Petroleum Economist, 13 December 2012.
455 'Erasing the Frontier:Turkey’s Trade and Investment in Iraqi Kurdistan', Tufts Global
Leadership, 2011.
456 'Turkey preparing major Kurdistan oil entry', Iraq Oil Report, 21 May 2012.
87
Iraq's Kurds to export their oil and gas and check Iran's influence in the region. 457
Genel Energy's Tony Hayward believes that by 2020 Kurdish gas exports could meet a
fifth of Turkey's fuel import needs.458 In April 2012 the KRG halted exports to Turkey
following a dispute with Baghdad, however in the same year Kurdistan and Turkey
held discussions over the construction of an export pipeline which would bypass the
central government's control. In a politically controversial move, the Kurds also began
to export crude by truck over the border to Turkey in July 2012, in defiance of Bagh dad.459
Export infrastructure
Turkey's dependence on energy imports, particularly oil and gas, has grown fast as a
consequence of high economic growth. In 2011 it consumed about 700,000 barrels of
oil a day (bpd) but produced only 50,000 bpd460.
Turkey is also located geographically in close proximity to around 72 percent of the
world's proven gas reserves and 73 percent of oil reserves. 461 According to Khaled AlSharikh of Tufts University, Turkey's ruling Justice and Development Party (AKP)
seeks to become a regional energy transit point and to diversify the source of its oil
and gas imports. According to his analysis, Turkey is a geographically pivotal though
energy-poor nation surrounded by energy-rich neighbors, and hopes to increase its
weight in the international community through pipeline projects. In light of this, Turkey is said to be eagerly searching for opportunities in Iraqi oil and gas. 462
The vehicle for Iraqi oil exports to Turkey is the Kirkuk-Ceyhan oil pipeline, one of the
country's most significant operational export links. 463 But outside of this network, the
likeliest route for gas to be transported directly from Kurdistan would take Kurdish
gas to Fish Khabur, close to the Turkish border, from where Turkey could build the in frastructure to take supplies to the domestic market. 458
Iraqi gas is also of some importance to Turkey as a possible source of gas for the
'Southern Corridor' pipeline project to supply gas to Europe. 464 The Petroleum Economist
reported in September 2011 that Iraq was looking to export gas found in the blocks on
offer in its fourth licensing round to Europe by pipeline through Turkey. Deputy Oil
Minister Al-Shamma said that gas exports would only begin if sufficient gas supplies
were found and that associated gas would not be exported by pipeline, as supplies are
not as stable as 'free gas'. He also commented that Iraq did not need the Nabucco
pipeline to deliver gas to Europe.465
457 'An unusual new friendship', Economist, 19 February 2009.
458 'Kurdistan eyes major role in Turkish gas marke't, Petroleum Economist, 13 December 2012.
459 'Turkey’s oil diplomacy with Iraqi Kurd's, Financial Times, 30 July 2012.
460 'Turkey - U.S. Energy Information Administration', retrieved January 9, 2013.
461 'Turkey's Energy Strategy', Turkish Ministry of Foreign Affairs, January 2009.
462 'Erasing the Frontier:Turkey’s Trade and Investment in Iraqi Kurdista'n, Tufts Global
Leadership, 2011.
463 'Oil Export Routes - Iraq Looks for a Way Out', Petroleum Economist, 14 December 2010.
464 'Northern Iraq looks to export gas via Turkey and Nabucco', Hurriyet Daily News, 5 July 2010.
465 'Iraq Eyes EU Gas Exports Through Turke'y, Petroleum Economist, 8 September 2011.
88
Common environmental concerns
Iraq faces the threat of desertification at an average rate of 0.5 percent a year. This
desertification is also expected to impact Turkey. For example, in Turkey's Konya
basin around 80 percent of water depletion has occurred over the last decade and the
basin faces the prospect of complete desertification by 2030. 466 The regional water
crisis is thought to be influenced significantly by exploration activities in the oil sector.467
According to Muhammad Amin Fars, General-Director of Kurdistan’s Irrigation and
Water department 696,000 hectares of Iraqi agricultural land are now facing drought
because of Turkish dams.468 There is also some disagreement over national allocation
of water from the Euphrates and Tigris rivers, with Iraq asking for 65 percent of the
water potential of the Euphrates and 92 percent of the Tigris, and Turkey planning to
use around 52 percent of the Euphrates and 14.1 percent of the Tigris. According to
Turunc, 'few commentators believe that water alone can become the cause of war
between Turkey and Iraq; nevertheless its destabilizing impact is apparent'. 466 Greg
Muttit of campaign group Platform also highlights that greater regional diplomacy
with neighbouring Turkey is needed regarding their construction of upstream dams,
in order to make progress on the water crisis.469
The 'Southern Corridor' Gas Transit Route
to Europe
Overview
Europe has for many years relied on Russian natural gas imports to supply its energy
needs, but particularly following the dispute over prices between Russian Gazprom
and transit country Ukraine in 2009,470there have been moves to diversify the supply
routes to Western Europe.471
Owing to its environmental benefits and the growing unpopularity of nuclear power,
natural gas is becoming a preferred fuel in the European energy market. Germany in
particular, a major consumer of Russian gas, is bound to rely more on natural gas as it
plans to phase out nuclear power by 2022. EU officials noted in 2011 that Europe’s annual gas consumption was around 500 billion cubic metres (bcm) per year, of which
125 bcm per year was from Russia. 472 The EU's efforts to establish a 'southern gas cor466 'Turkey and Ira'q, Academia, 2011.
467 'Iraq may suffer clean water crisis in 15-20 years', Reuters, 21 September 2011.
468 'Water conflict threatens regional relations', Niqash, 5 May 2009.
469 'Mission Accomplished for Big Oil?',Huffington Post, 23 August 2012.
470 'Russia shuts off gas to Ukraine', BBC, 1 January 2009.
471 'Azerbaijan-Turkey gas-deal key to Caspian Supply', Petroleum Economist, 1 January 2009.
472 'Taking a Second Look at the Southern Gas Corridor', Oil Price, 10 May 2012.
89
ridor' are part of a energy supply diversification project aimed at freeing Europe from
its dependence on Russian gas. 473
Commenting on the geopolitical implications of the pipeline politics in Europe, industry commentator Pepe Escobar asserts that the new 'Great Game' of the twenty
first century is over energy and that it is being played out on the 'immense chessboard
called Eurasia'. In its most simplified form it has been Nabucco (a pipeline project supported by the US) versus South Stream (supported by Russia), and revolves around
European countries trying to circumvent Russia in securing energy supplies. According to Escobar, Nabucco and the Baku-Tbilisi-Ceyhan pipeline have never been seen
simply as infrastructure projects but as a 'creature of Washington'. 474
Source of supplies
Gas volumes for Nabucco and other pipelines could come from a variety of producing
countries, including Azerbaijan, Turkmenistan and Kazakhstan as well as Iran, Iraq
and potentially other Persian Gulf producers. A report by the Oxford Institute for Energy Studies suggested that political instability in the Middle East has reduced the options to Central Asian suppliers.475 However Turkish Energy and Natural Resources
Minister Taner Yildiz said in late 2012 that Turkey is ready to act as a gas supply cor ridor from northern Iraq to Europe along the 'corridor'. 476
Supplies from Turkmenistan and Kazakhstan would rely on the construction of the
proposed Trans-Caspian Pipeline (TCP).475
European pipeline selection process
Below are brief outlines of the two pipeline projects still on the table for transporting
gas from Azerbaijan and Central Asia to Europe as of July 2012. The South-East Europe
Pipeline (SEEP) project was the final option to be eliminated from the selection process, when in June 2012 the consortium operating the Shah Deniz field preferred the
Nabucco West option.477 SEEP, a lower cost and lower capacity export option extending
from Bulgaria to Central Europe, was dropped by its initial backers BP. 478
Nabucco (Nabucco West)
The Nabucco project was initiated in 2002 and was actively promoted by the EU under
its Trans-European Energy Networks initiative. It was initially projected to carry 8-13
bcm of gas per year, the volumes rising to 31 bcm per annum by 2020. In May 2008 the
473 'Trans-Caspian pipeline talks progressing', UPI, 16 March 2012.
474 'Jumpin' Jack Verdi, It's a Gas, Gas, Gas: Iran and the Pipelineistan Opera', Truthout, 1 October
2009.
475 'Kazakhstan’s Gas: Export Markets and Export Routes', Oxford Institute for Energy Studies,
November 2008.
476 'TANAP project to accelerate Nabucco project implementation', Natural Gas Europe, 26
December 2012.
477 'Nabucco West and TAP go head to head', Petroleum Economist, 2 July 2012.
478 'BP-led consortium rules out SEEP pipeline', Financial Times', 28 June 2012.
90
construction cost of the Nabucco pipeline was estimated at €7.9 billion ($12.3
billion).479
The initial project was conceived to run 3,893 kilometres (km) from the Georgian-Turkish border to Baumgarten in Austria. 480 Whereas 'Nabucco West' is a revised
version of the original Nabucco pipeline, and was chosen by the BP-led consortium operating the Shah Deniz Gas Field as the 'northern route' candidate for the pipeline, to
compete head-to-head with the 'western route' option, the Trans-Adriatic Pipeline. 481
According to the Petroleum Economist, the consortium's decision to opt for Nabucco
West gave a boost to the project, which in its original form was unable to attract sufficient gas supplies and deemed too expensive. 477 Over its lifetime the project faced such
repeated delays that Gerhard Roiss, CEO of OMV commented that the pipeline “will be
pronounced dead 100 times, but it will be alive again 101 times.”480
The revised route would instead begin at the Bulgarian-Turkish border and run 1,312
kilometres to Baumgarten, carrying 10 bcm per year. The segment of the original
Nabucco route crossing Turkey was made unnecessary when Azerbaijan and Turkey
agreed in late 2011 to build the Trans-Anatolian Pipeline (TAGP/TANAP). Partners in
the project include Turkish BOTAS, Bulgarian Energy Holding, Hungarian FGSZ, Austrian OMV, Germany RWE and Romanian Transgaz. 482
Trans Adriatic Pipeline (TAP)
The TAP proposed to take 10 billion cubic metres (bcm) per year of natural gas across
Greece and Albania, continuing underneath the Adriatic sea to the heel of Italy's boot,
its backers claiming that these volumes of gas could later be doubled. The TAP consortium comprises of German E.ON (15 percent stake), Swiss EGL (42.5 percent) and Nor wegian Statoil (42.5 percent). In February 2012 the Shah Deniz consortium indicated a
preference for the TAP over the rival Interconnector Greece-Turkey-Italy (ITGI) option
as the 'western-route' candidate ahead of making a final decision. 482
According to the Financial Times Statoil and other bakers of the TAP route have urged
that commercial decisions should govern the final decision, based on a neutral stance
by the EU, despite historical EU support for Nabucco. 483
North and South Stream
Russia's answer to the Nabucco and the other EU-backed options is the South Stream
pipeline, a US $15 billion project stretching for 1,200 kilometres under the Black Sea
from Russia to Bulgaria. The pipeline is scheduled to be completed in 2015, and from
Bulgaria one branch would run south through Greece to Southern Italy, while the oth479 'Kazakhstan’s Gas: Export Markets and Export Routes', Oxford Institute for Energy Studies,
November 2008.
480 'Nabucco West Selected As Potentaial Route For Azeri Gas', Bloomberg, 28 June 2012.
481 'Nabucco West in pipeline 'final'', Asia Times Online, 7 July 2012.
482 'Nabucco West in pipeline 'final'', Asia Times Online, 7 July 2012.
483 'BP-led consortium rules out SEEP pipeline', Financial Times', 28 June 2012.
91
er would run north through Siberia and Hungary towards northern Italy. 484 Nord
Stream will be capable of carrying 63 billion cubic metres (bcm) per year. 485
The $9.1 billion Nord Stream pipeline would take natural gas from Western Russia under the Baltic Sea to Germany. Russian energy firm Gazprom holds a controlling 51
percent interest in the project, with German and Dutch companies holding the re mainder. The chairman of the board is former German Chancellor Gerhard
Schroeder.483 Nord Stream would have a capacity of 55 bcm per year. 485
484 'Jumpin' Jack Verdi, It's a Gas, Gas, Gas: Iran and the Pipelineistan Opera', Truthout, 1 October
2009.
485 'Taking a Second Look at the Southern Gas Corridor', Oil Price, 10 May 2012.
92
International Entities
Operating Environment in Iraq
Southern Iraq
Between 2008 and early 2010 Iraq awarded a dozen contracts to international oil com panies (IOCs), including Royal Dutch Shell, BP, ExxonMobil, Lukoil and CNPC of China
to develop the reserves in the south of the country.
According to Maria van der Hoeven of the International Energy Agency (IEA), the principal obstacle for companies operating Iraq are the legal questions raised by the gov ernment's failure to pass a hydrocarbons law to regulate the industry. Other obstacles
are an immature oil field services industry, complex geology, 486 infrastructure bottlenecks and ongoing security concerns. 487 Corruption is also an obstacle to operations (in
2012, Transparency International ranked Iraq as only the 175th most transparent
country in the world).
From the perspective of IOCs, the technical service contracts offered in the south are
increasingly seen as less attractive than the production sharing contracts (PSCs)
offered by the KRG to the north. Eni's CEO, for one, commented in 2012 that "our adrenaline rush now is not what it was when we entered Iraq. Iraq is more complex than
we thought." The Petroleum Economist's Derek Brower suggested that the Technical Service Agreements (TSAs) may prove more attractive to national oil companies (NOCs),
particularly those from Asia, which seek the stability of a per-barrel arrangement
rather than the lucrative but higher risk production sharing agreements (PSAs)
offered elsewhere.488
While security conditions have improved since the days of the civil war, occasional attacks remind companies that they could become targets. Bombings of pipelines and
other facilities have subsided but are still a feature of the security environment. In
early 2010 a note was found in a discovered weapons cache in Basra which threatened
foreign oil companies, and in 2012 four employees of Athens-based Consolidated Contractors Company (CCC) were kidnapped in Basra.489 Even once security issues are resolved, local issues presented by communities around the oilfields living in poverty
have presented problems, according to security firm Control Risks. 488
489 'Oil workers kidnapped in Basra', Iraq Oil Report, 17 May 2012.
93
Iraqi Kurdistan
The first companies to invest in the semi-autonomous Kurdistan region in the north of
Iraq were smaller, less well-known outfits such as Norwegian DNO and Turkish PetOil.
They were followed by mid-tier majors such as Marathon and Hess, and over the
course of 2012 by super-majors ExxonMobil, Total, Chevron and Gazprom. 490 However
Baghdad considers the deals signed directly with the Kurdistan Regional Government
(KRG) as illegal and the moves have led to ongoing disputes between the centre and
the periphery.491
A senior KRG official estimated that in 2012 there were around 45 to 50 contractors op erating in the region, but according to Iraq Oil Report the Kurdistan region witnessed a
flurry of mergers and acquisitions in 2012, a process actively encouraged by Natural
Resources Minister Ashti Hawrami. This may result in a smaller number of players being involved in the coming years as the remaining blocks are snapped up and smaller
companies struggle to raise the financing required and get squeezed out. 490
While reserves are smaller in Kurdistan than in the south, many investors are attracted by other favourable conditions. Aside from the more attractive contract regime
used by the KRG, fewer delays are experienced at customs for imports of parts and materials than going through Basra. This has resulted in many companies operating in
the south importing their materials via Kurdistan, according to the Petroleum Economist. Power supplies and other infrastructure in Kurdistan is also superior, according to
the Iraq Energy Institute, and security conditions are more favourable. 492
BP
Type
Public Limited Company
Traded as
LSE:BP
Founded
1909 (as Anglo-Persian Oil), 1954
(as British Petroleum)
Headquarters
London, UK
Key people
Carl-Henric Svanberg (Chairman),
Bob Dudley (CEO)
Revenue
US $386.5 billion (2011)493
Profit
US $26.1 billion (2011)493
Total assets
US $293.1 billion (end 2011)493
492 'Oil workers kidnapped in Basra', Iraq Oil Report, 17 May 2012.
493 'Annual Reporting 2011', BP, 2012.
94
Total equity
US $112.5 billion (end 2011)493
Employees
83,400 (end 2011)494
Website
www.bp.com
Global snapshot
BP is a British global energy company headquartered in London, ranked in 2010 by
Platts as the second largest energy company in the world based on financial performance, trailing ExxonMobil. It improved its position from fourth in the rankings in
2008.495
BP began business as Anglo-Persian Oil in 1909, 496 which exported its first cargo of oil
in March 1912 from Abadan in Iran. From 1914 until the 1980s, the British government
were the company's principal stockholder and since then BP have acquired the Standard Oil Company in 1987, merged with US company Amoco in 1998 and acquired Atlantic Richfield and Burmah Castroland in 2000.497
At the end of 2011 BP had total proven global reserves of 17.75 billion barrels of oil
equivalent (boe) and produced 2.35 million barrels of oil per day (bpd) through the
year.494
However, BP has since 2010 been dealing with the aftermath of the Macondo oil spill in
the Gulf of Mexico, the US's largest ever oil disaster. The Deepwater Horizon oil well
explosion killed 11 workers and is estimated to have affected around 1,000 miles of
shoreline, 200 miles of which were thought to be 'heavily oiled'. However, the exact
extent of the spill has been disputed by different parties. 498 The company made the decision to sell none-core assets in order to pay for the clean-up operation and to compensate victims. In October 2011, BP finally received authorisation to resume drilling
at the site499 and in November 2012 the company settled all claims with the US Department of Justice and the Securities and Exchange Commission for $4.5 billion. 500
BP operations in Iraq
History
BP's relationship with Iraq dates back as far as 1927, when along with Exxon, Total and
Shell, it had a 23.75 percent share in the Iraq Petroleum Company (IPC). 501 Following
494 'BP at a glance', BP, retrieved 17 December 2012.
495 'Platts Top 250 Global Energy Company Rankings', Platts Energy, retrieved 25 October 2011.
496 'Business: The Company File From Anglo-Persian Oil to BP Amoco', BBC News, 11 August 1998.
497 'BP PLC', History.com, retrieved 25 October 2011.
498 'Deepwater Horizon and the Gulf oil spill - the key questions answered', The Guardian, 20 April
2011.
499 'Oil giant BP reaches 'turning point'', BBC News, 25 October 2011.
500 'Record $4B Settlement For BP On Criminal Charges Regarding Macondo Accident', Forbes, 15
November 2012.
501 'Oil Giants Return to Iraq', The Independent, Friday, 20 June 2008.
95
contracts signed in the 1930s, the IPC gained full control over Iraq's oil 502 and thus kept
Iraq's oil reserves under foreign control for more than 40 years. 501
BP continued working in Iraq for many years and helped to discover the super giant
field Rumaila, located 32 kilometers from the Kuwaiti border, in 1953 503 before closing
its representative office there due to the war with Kuwait in 1990 504. BP restarted work
in Iraq, more specifically on Rumaila, in April 2005 after signing a service agreement
with Iraq's Oil Ministry.505.
Activities and contracts
Rumaila
BP was the first oil major to secure a long-term contract in post-2003 Iraq. 506507 In a
venture with China National Petroleum Company (CNPC), BP made a successful bid for
a service contract in the Rumaila oil field, Iraq’s largest, in the first postwar contract
licensing round in June 2009.508 BP and CNPC won the bid after agreeing to cut their requested remuneration fee from US $3.99 per barrel to $2 per barrel. 506 BP holds a 38
percent stake in the venture, while CNPC holds 37 percent and Iraq takes the remain ing 25 percent.509
BP wrote in its 2009 Annual Review that it intended to increase production in Rumaila
from approximately 1 million barrels per day (bpd) to 2.85 million bpd 510 and together
with CNPC plans to spend around $15 billion at Rumaila 511 by 2017, according to the
Defence Report website.512 At the end of March 2010 the company announced that it had
awarded $500 million in contracts to drill wells at Rumaila 513 and over the course of
2010, BP and CNPC drilled 41 out of the 70 wells originally planned. 514 BP’s former head
of production Andy Inglis suggested in April 2010 that the field may become the
world’s second-largest by 2015.511 The Wall Street Journal wrote in March 2010 that if
successful, the effort to expand production at Rumaila, along with other fields in Iraq's
south, could mark one of the largest expansions of oil production ever achieved. 513
The Guardian newspaper in July 2011 reported that BP had secretly renegotiated its ser502 'BP – Stealing Iraq’s Futur ', Shareholder Briefing by PLATFORM, April 2008.
503 'Rebirth of Rumail ', O&G Next Generation Magazine, February 2010 edition.
504 'BP-Led Consortium Wins Iraq Oil Deal', CBS News, 17 October, 2009
505 'BP in Rumaila', from speech by Michael C Daly, BP Head of Exploration, on 16 February 2010.
506 'BP's Iraq oil deal faces court battle', 23 January 2010.
507 'BP and CNPC sign first major oil deal with Iraq in almost 40 years', The National, 8 October
2009.
508 'Iraq, Oil and Gas Legislation, Revenue Sharing, and U.S. Policy', Middle Eastern Affairs, 3
November 2009.
509'BP-China National Group Signs Pact for Iraq Oil Field ', Wall Street Journal, 4 November 2009.
510 'BP's Annual Review', BP, 2009.
511 'BP to Be Paid in Crude for Iraq Investment Costs ', Bloomberg, 28 April 2010.
512 'Growing British investment in Iraq threatened by Russian competition', Defence Report, 2
November 2012.
513 'BP Begins Big Push to Revive Iraq's Oil ', Wall Street Journal, 31 March 2010.
514 'Petrofac JV snags Rumaila job', Oil Online, 29 June 2011.
96
vice contract for the Rumaila field, in which the Baghdad government agreed to pay
the firm even when Rumaila oil is not being produced. Under the new terms BP would
be immediately compensated for civil disruption or government decisions to cut production. The story quoted critics who see this as a major step away from the original
terms of the deal signed in the summer of 2009, including author Greg Muttitt, who
called the renegotiation "a backroom deal that gave BP a stranglehold on the Iraqi
economy, and even influence over the decisions of OPEC."515
Kirkuk
Reuters reported in April 2012 that Iraq's central government in Baghdad wanted BP to
revive the ageing Kirkuk oil field in northern Iraq, which is suffering from massive
production declines. Reuters cited industry sources saying that the government was
seeking to strengthen its position in a dispute with semi-autonomous Kurdistan over
ownership of northern Iraqi fields, and that bringing BP into Kirkuk could allow the Ir aqi government to counter ExxonMobil's move into Kurdistan. The story indicated
that BP was actively considering Kirkuk, but that this was in the early stages and nego tiations had not yet begun.516
Chevron Corporation
Type
Traded as
NYSE:CVX
Founded
1984517
Headquarters
San Ramon, California.518
Key People
John Watson (Chairman and
CEO)519
Revenue
US $244.4 billion (2011)520
Net income
US $ 26.9 billion520
% change on previous year
+41.4%520
Total Assets
US $209.5 billion (end 2011)520
Employees
57,376 (end 2011)520
Website
www.chevron.com
515 'BP 'has gained stranglehold over Iraq' after oilfield deal is rewritten', The Guardian, 31 July
2011.
516 'Iraq wants BP to revive northern Kirkuk oilfield', Reuters, 17 April 2012.
517 'Company Profile', Chevron, retrieved 22 January 2012.
518 'A Brief History Of Major Oil Companies In The Gulf Region' University of Virginia, retrieved 22
January 2012.
519 'Corporate Officers', Chevron, retrieved 22 January 2012.
520 '2011 Annual Report', Chevron, 2011.
97
Global snapshot
As of 2011 Chevron was the second largest integrated oil firm headquartered in the
USA, following ExxonMobil.521 The company can trace its history back to an oil discovery at Pico Canyon, north of Los Angeles, in 1879, which led to creation of the Pacific
Coast Oil Company. The company was subsequently renamed the Standard Oil Company of California, which emerged from the breakup of Rockefeller's Standard Oil. and
later became Chevron when it acquired the Gulf Oil Corporation in 1984, at the time
the largest merger in US history. 522
At the end of 2011 Chevron had net proven oil reserves of 4.3 billion barrels and net
proven gas reserves of 25,229 billion cubic feet (7.14 billion cubic metres). Daily li quids production was 1.85 million barrels per day (bpd) and gas production was 4.94
billion cubic feet (1.4 billion cubic metres) per day. 523
In late 2011 Chevron was banned by Brazilian regulators for drilling on their territory
after they suffered an oil spill off the Atlantic coast. 524 Chevron was reported to be
nearing a settlement in late 2012 for around US $144 million, in order to move towards
restarting output.525
Chevron operations in Iraq
History
During the period of international sanctions on Saddam Hussein's regime, Chevron
was one of the companies that purchased crude from the regime as part of the UN Oilfor-food program designed to bring humanitarian aid to the Iraqi people. In November
2007 Chevron agreed to pay $30 million to settle charges brought against it under the
Foreign Corrupt Practices Act (FCPA), but did not admit or deny the allegations made
by the Securities and Exchange Commission (SEC). The charges related to approximately $20 million in illegal kickback payments made to Iraq in 2001 and 2002. 526
In a leaked US diplomatic cable from 2010, Chevron's country manager for Iraq expressed the company's eagerness to invest in post-Saddam Iraq, but "not at any price".
According to the cable, Chevron expressed strong interest in a bid round for exploration blocks, which it considered to be politically and economically attractive, however
the cable described Chevron's approach towards Iraq as more cautious than other in ternational oil companies (IOCs). Chevron was included on the list of pre-qualified
521 'Chevron Corporation', Hoovers, retrieved 22 January 2012.
522 'Company Profile', Chevron, retrieved 22 January 2012.
523 '2011 Annual Report', Chevron, 2011.
524 'Chevron Banned From Drilling In Brazil After Oil Spill', Forbes, 23 November 2011.
525 'Chevron nears settlement in Brazil spill case', Reuters, 14 December 2012..
526 'Chevron to Pay $30 Million to Settle Charges For Improper Payments to Iraq Under U.N. Oil
For Food Program', Securities and Exchange Commission, 14 November 2007.
98
companies to participate in the first licensing round527 and the company was French
Total's original partner for both bidding rounds in 2009, but ultimately refused to join
the bidding, regarding the remunerations fees offered as unreasonably low. 528
Rovi and Sarta (Kurdistan)
On the 19 July 2012 Chevron announced that its subsidiaries in Iraq had completed a
deal to acquire an 80 percent interest in two blocks in the northern Kurdistan Region,
the Rovi and Sarta blocks. The remaining 20 percent interest was taken by OMV subsidiaries. under the framework of a production sharing contract (PSC). The blocks lie
north of Erbil, covering a combined area of approximately 1,124 square kilometres. 529
In retaliation for the contracts signed with the KRG, later that month Iraq's federal
government 'blacklisted' Chevron, banning them from bidding for exploration licenses in future licensing rounds. The central government considers contracts signed
directly with the KRG as illegal.530
China National Offshore Oil Corporation
(CNOOC)
Type
State-owned
Traded as
SEHK: 0883 ; NYSE: CEO
Founded
1982
Headquarters
Beijing, China
Key People
Fu Chengyu (Chairman), Yang Hua
(CEO)531
Revenue
RMB 240.9 billion (approx. US
$38.6 billion ), 2011.532
Net Income
RMB 70.3 billion (approx. US$11.3
billion), 2011.532
+29.1%532
Total Assets
RMB 384.3 billion (approx.
US$61.6 billion), end 2011.533
527 'Oil Ministry Announces Qualification Results', Wikileaks, 15 April 2008.
528 'Chevron On Ioc Investing In Iraq', Wikileaks, 20 February 2010.
529 'Chevron Acquires Interest in Kurdistan Concession's, Chevron, 19 July 2012.
530 'Iraq bans Chevron over Kurdistan deal', Financial Times, 24 July 2012.
531 'Annual Report 2010', CNOOC, 2011.
99
Total Equity
RMB 262.9 billion (approx.
US$42.2 billion), end 2011.533
Employees
5,377 (end 2011)534
Website
www.cnoocltd.com
Global snapshot
CNOOC Ltd is the listed unit of the China National Offshore Oil Corporation 535 and is listed on the New York and Hong Kong stock exchanges.
The CNOOC Group is China's largest producer of offshore crude oil and natural gas and
mainly engages in exploration, development, production and sales of oil and natural
gas. The Group has four major producing areas in offshore China and has overseas assets in Indonesia, Australia, Nigeria, Argentina and the US, among others. As of
December 2010, the company's overseas proved reserves and production accounted
for approximately 25.4 percent and 20.1 percent of operations respectively. 536 At the
end of 2011 the CNOOC Group owned net proven reserves of approximately 3.19 billion
barrels of oil equivalent (joe) and average daily net production was 909,000 barrels per
day (bpd).
In 2005 CNOOC withdrew an $18.5 billion takeover bid it had made for US oil and gas
producer Unocal in the face of strong political opposition in the US. However, the
company said that its bid had been based on purely commercial objectives. 537
CNOOC operations in Iraq
History
The technical service contract signed in 2010 for the Maysan oil fields, located about
350 kilometers southeast of Baghdad, marked the start of CNOOC's operations in
Iraq.538
Maysan
In May 2010 CNOOC signed a technical service contract with the Iraqi government 539 to
533 'Annual Report 201'1, CNOOC.
534 'About us', CNOOC, retrieved 18 December 2011.
535 'Cnooc bags oil field deal in Iraq', China Daily, 18 May 2010.
537 'Chinese oil firm drops Unocal bid', Guardian, 2 August 2005.
538 'CNOOC Ltd. Announces the Signing of Technical Service Contract for Missan Oil Fields in
Iraq', CNOOC Limited, 17 May 2010.
539 'CNOOC Ltd. Announces the Signing of Technical Service Contract for Missan Oil Fields in
Iraq', CNOOC Limited, 17 May 2010.
100
develop the Maysan oilfield complex along with Turkish state-run TPAO. CNOOC's original partner for developing the fields, Sinochem, pulled out of the deal when CNOOC
decided to reconsider its original offer and accept the Iraqi government's proposed remuneration fee of US $2.30 per barrel of oil produced. TPAO then joined the venture to
fill the gap. CNOOC and TPAO set a production plateau target for the fields at 450,000
barrels per day (bpd). CNOOC holds a 63.75 percent stake in the venture, while TPAO
holds 11.25 percent 540 and the Iraq Drilling Company (IDC) holds a 25 percent stake.541
Chairman Chengyu commented that "it is a pleasure for CNOOC to participate in rebuilding of the oil industry in Iraq" and analysts told the China Daily that the move underlines domestic oil companies' focus on developing oil resources in Iraq, saying that
"the country remains one of the few regions in the world where Chinese companies
can still find big opportunities".542
China National Petroleum Corporation
(CNPC)
Type
Government-owned Corporation
Founded
1988
Headquarters
Beijing, PR China
Key people
Jiang Jiemin (President)
Revenue
US $352.3 billion (2011)543
Net Income
US $16.3 billion (2011)543
+13.6%
Total assets
US $481.1 billion543
Total equity
US $240.5 billion543
Employees
1,668,072 (2012)543
Website
www.cnpc.com.cn
Global snapshot
Government-owned CNPC is China's largest integrated oil and gas company, with exploration and production projects in China and 30 other countries. It is an oilfield services provider in 50 countries and operates some older refineries and a gas pipeline
540 'Iraq in deal with CNOOC, TPAO for Maysan oilfields', Best Growth Stock quoting Reuters, 12 May
2010.
541 'International Activities', TPAO, retrieved 13 December 2011.
542 'Cnooc bags oil field deal in Iraq', China Daily, 18 May 2010.
543 'Global 500: China National Petroleum', CNN Money, retrieved 18 December 2012.
101
network in China (including 70 percent of the country's crude oil pipelines). The CNPC
has a network of 18,000 gas stations across China.544
The organisation was established in 1998 and reorganised in 1998 to become an integ rated company.545 CNPC is the controlling shareholder of Petrochina Company Limited.546 In 2009 the company completed more than 1,900 exploration wells and reported proved reserves of more than 1 billion metric tons of oil equivalent. 544
In 2012 CNPC was ranked 6th on CNN's Global 500 list of the world's largest corporations.547 CNPC's 2010 Annual Report notes that CNPC has been seeking a greater international role over the past five years. 548 According to the Fortune Global 500, part of
CNPC's strength comes from its partnerships with governments of oil-rich countries
and the multinational companies that operate there. In 2011 CNPC was working with
Russia, Venezuela, Iraq and Qatar, and had partnered with oil majors BP, Total and
Shell.549
CNPC operations in Iraq
History
CNPC's involvement in Iraq dates back to 1997, when CNPC signed a deal with Saddam
Hussein's government to develop the Ahdab oilfield. 550 The deal was between al-Waha
Petroleum Company, (a joint venture between the CNPC and China North Industries
Corporation) and the Iraqi government at the time. However, this agreement was
postponed due to the UN sanctions on Iraq and the subsequent US-led invasion of the
country in 2003.551 CNPC renegotiated the deal for the Ahdab oil field with Iraq's Ministry of Oil in 2008. 552 Since then CNPC has also won contracts as part of two separate
consortia to develop the Halfaya and Rumaila oil fields.
Ahdab
Under the terms of the service contract renegotiated in 2008, 553 oil output from Ahdab
is expected to rise to 110,000 barrels per day (bpd), up from the 90,000 bpd forecast in
the original deal; and total investment in the project would be about US $3 billion. 554
544 'China National Petroleum Corporation: Company Description', Hoovers, retrieved 8 December
2011.
545 'History', CNPC, retrieved 18 December 2012.
546 'Investor Relations', Petrochina, retrieved 18 December 2012.
547 'Global 500: China National Petroleum', CNN Money, retrieved 18 December 2012.
548 '2010 Annual Report', CNPC, 2010.
549 'Fortune 500: China National Petroleum Corporation', CNN Money, retrieved 9 December 2011.
550 'The Chinese National Petroleum Company ', The International Resource Journal, March 10 2010.
551 'CNPC in Iraq ', CNPC Worldwide, retrieved January 2011.
552 'China's CNPC seals $3bn Iraq deal ', BBC News, 28 August 2008.
553 'CNPC in Iraq', CNPC, retrieved 14 November 2012.
554 'China's CNPC seals $3bn Iraq deal ', BBC News, 28 August 2008.
102
CNPC began work on the field in March 2009, despite protests from local farmers, 555
and in June 2011 announced that it had completed construction of the first phase of
the project.554
Halfaya
In 2009 CNPC led a consortium which won the contract to develop Halfaya, with CNPC
holding a 37.5 percent stake in the project. Total and Petronas held 18.75 percent each
and Iraqi state-run South Oil Company (SOC) held the remaining 25 percent stake. 556.
Rumaila
In June 2009 CNPC was part of a BP-led consortium which won a service contract to develop the Rumaila oil field, Iraq’s largest.557 The long term contract secured by the BPled consortium was the first in post-2003 Iraq; 558 CNPC holds a 37 percent stake in the
venture, with BP holding 38 percent and the Iraqi state the remaining 25 percent. 559BP
has said that together with CNPC they will spend around US $15 billion at Rumaila. 560
CNPC received a 2 million barrel cargo of crude as its first payment for developing Rumaila in May 2011.561
West Qurna 2
Bloomberg reported in August 2012 that CNPC was in talks with Russia's Lukoil about
joining the company’s West Qurna 2 project, according to energy intelligence group
Nefte Compass. The energy group reported that Lukoil was seeking a partner for a 30
percent stake in the project following Statoil’s exit, citing Andrei Kuzyaev, head of
Lukoil Overseas.562
Discount oil sales
Reuters reported in November 2012 that Iraq was struggling to find buyers for all its
2013 oil output on term contracts because of the variable quality of Iraqi oil, official
prices that buyers believed were too high and the availability of cheaper spot supplies.
CNPC was offering barrels at up to an US $0.80 discount to Iraq's official prices; Reuters
quoted an Iraqi official as saying "we are not happy about this." The official said that
CNPC and other companies such as BP are paid in crude for their development contracts, and are entitled to re-sell the oil provided they "officially inform" SOMO. 563
555 'CNPC completes Al-Ahdab Iraq oilfield construction', Arabian Oil and Gas, 27 June 2011.
556 'Iraq : CNPC's Halfaya project in Iraq to start operation in H2' , The Free Library, 9 March 2010.
557 Blanchard, Christoper M, 'Iraq, Oil and Gas Legislation, Revenue Sharing, and U.S. Policy', 3
November 2009.
558 'BP's Iraq oil deal faces court battle ', Telegraph, 23 January 2010.
559 'BP-China National Group Signs Pact for Iraq Oil Field', Wall Street Journal, 4 November 2009.
560 'BP to Be Paid in Crude for Iraq Investment Costs', Bloomberg, 28 April 2010.
561 'CNPC Gets First Oil Payment for Rumaila', Iraq Business News, 30 May 2011.
562 'CNPC in Talks With Lukoil on West Qurna-2, Nefte Compass Says', Bloomberg, 9 August 2012.
563 'Iraq struggles to sign up oil buyers for 2013 term deals', Reuters, 7 November 2012.
103
DNO International
Type
Traded as
OSE:DNO
Founded
1971
Headquarters
Oslo, Norway
Key People
Helge Eide (President and MD),
Berge Larsen (Chairman)
Revenue
NOK 2.1 billion, (approx. $369.3
million), 2011.564
Net Income
NOK 653.2 million (approx. US
$116.7 million)564
330.9%564
Total Assets
NOK 5 billion (approx. US $899.4
million), end 2011.564
Total Equity
NOK 2.2 billion (approx. US $385.3
million), end 2011.564
Website
www.dno.no
Global snapshot
DNO International ASA is a Norway-based oil and gas exploration and production company. It was founded in 1971 and was the first Norwegian oil company to be listed on
the Norwegian stock exchange. Initial exploration and production activities were in
the British and Dutch territories of the North Sea. 565 However more recently Its operating activities have been primarily undertaken in the Middle East, Africa and in the UK.
The company holds oil and gas assets in Yemen, the Kurdistan region of Iraq, the
North Sea, Mozambique and Equatorial Guinea. The company is also active on the Nor wegian Continental Shelf.566
At the end of 2011 DNO held total remaining proven and probable reserves (2P) of
371.9 million barrels of oil equivalent (boe). This represented a 91.5 percent year-onyear increase since 2010, largely due to the upward revision of recoverable reserve es timates at the Tawke field in Iraqi Kurdistan. 567 Gross production in 2011 was 64,185
million barrels of oil equivalent (boe) per day. 568
564 'Annual Report and Accounts 2011', DNO, 2011.
565 'History', DNO, retrieved 18 December 2012.
566 'DNO International ASA', Reuters, retrieved 22 December 2011.
567 'DNO International Releases Annual Statement of Reserves', DNO International, 30 April 2012.
568 'Annual Report and Accounts 2011', DNO International, 2011.
104
DNO operations in Iraq
History
DNO's activities in Iraq began in 2004, when DNO signed a production sharing contract
(PSC) for the Tawke field with the Kurdistan Regional Government (KRG). 569 DNO has
PSCs for three contract areas in the Kurdistan region: Tawke, Dohuk, and Erbil. 570 DNO
has a local office in Erbil, while its activities in Kurdistan are managed from another
office in Dubai.570
The KRG temporarily suspended DNO's oil contracts in September 2009 after a document issued by the Oslo Stock Exchange implied that KRG Natural Resources Minister
Ashti Hawrami was involved as a benefactor in the sale of DNO shares to Genel Energy
in October, allegations that the KRG denied and responded two by suspending DNO's
contracts for six weeks.571
DNO has been involved in two controversies regarding the hiring of senior US officials
to promote its activities in Kurdistan. 572 In 2005, Peter Galbraith was paid by DNO in an
advising role even as Galbraith in his official capacity as a US diplomat was advising on
constitutional arrangements, which resulted in the KRG authorities claiming support
for regional management of the oil industry.573 Then in mid-2010, former US ambassador to Iraq Zalmay Khalilzad was nominated for the board of DNO, though he later
declined to fill the post.574
Tawke (Kurdistan)
The Tawke contract area, in which DNO has a 55 percent working interest, 575 is located
in northern Iraq near the Turkish and Syrian borders. After signing the initial PSC in
2004, DNO first discovered oil at the Tawke field in 2006, with test production of oil
commencing by 2007. By 2009 the field had been connected to the existing northern
pipeline system through Iraq, and international export from the field began in 2011. 576
As of November 2011 the field had a production capacity of 70,000 barrels per day
(bpd) but actually produced about 50,000 bpd. 575 A dispute between the KRG and Baghdad over oil exports caused production to slow to 17,000 bpd in the second quarter of
2012, but DNO managing director Helge Eide said in August 2012 that the company was
569 'Kurdistan region of Iraq', DNO International, retrieved 14 November 2012.
570 '2010 Annual Report', DNO International, retrieved 30 November 2011.
571 'KRG suspends DNO oil contracts', United Press International, 22 September 2009.
572 'The Khalilzad DNO affair and the Galbraith parallels', Gulf Analysis, 24 June 2010.
573 'DNO Pays Galbraith and Keeps Business in Kurdistan', Rudaw, 11 October 2010.
574 'Khalilzad won't join DNO', Iraq Oil Report, 12 August 2010.
575 'DNO to Boost Capacity at Iraq’s Tawke Oil Field', Iraq Daily Times, 15 November 2011.
576 'Kurdistan region of Iraq', DNO International, retrieved 14 November 2012.
105
on track to increase production at Tawke to 100,000 bpd by the end of the year. 577
Erbil (Kurdistan)
Drilling at the Erbil contract area just north of the KRG capital city of the same name,
in which DNO has a 40 percent working interest, 578 began in 2011.579 In November 2012
DNO announced that new quantities of oil were discovered at the Benenan-3 well,
which the company said is expected to more than double the Benenan field's gross oilin-place volumes from 300 million barrels to an estimated 600-700 million barrels. 580
Dohuk (Kurdistan)
The Dohuk contract area, in which DNO has a 40 percent working interest, 581 is about
80 kilometers north of the city of Mosul; drilling at Dohuk began in 2010 582 and as of
November 2012 it remained an exploration area.583
Dragon Oil
Type
Traded as
ISE:RDSA LSE:DGO
Founded
1971584
Headquarters
Dubai (UAE)
Key People
Mohammed Abdullah Ahmed Al
Ghurair (Chairman), Abdul-Jaleel
Al-Khalifa (CEO)
Website
www.dragonoil.com
Global snapshot
Dragon Oil was established in 1971 as Oliver Prospecting & Mining Co. Limited, incorporated and registered in Ireland, and in 1993 changed its name to Dragon Oil plc. It
has a primary listing on the Irish Stock Exchange and since the 6 April 2010 is also listed on the London Stock Exchange. Its corporate headquarters are in Dubai. 584 In 1999
the Emirates National Oil Company (ENOC) became the major shareholder when it ac577 'Charges in Iraq's Kurdistan cause DNO to slide into the red', Ekurd.net, 23 August 2012.
580 'DNO International Taps Additional Oil in Kurdistan', DNO International, 6 November 2012.
583 'Assets in Kurdistan', DNO International, retrieved 14 November 2012.
584 'Dragon Oil At A Glance', Dragon Oil, retrieved 5 December 2012.
106
quired 69.4 percent of shares, and in the same year the head office was moved to
Dubai.585
Dragon's principal producing asset is in the Cheleken contract area in offshore Turkmenistan. It also has operations in offshore Tunisia, Iraq584 and in December 2012 was
part of a winning consortium for a bid to develop two blocks in Afghanistan. 586 As of
the 31 December 2011 the company had proved and probable reserves of 65.8 million
barrels of oil and condensate, 1.5 trillion cubic feet (tcf) of gas reserves and 1.4 tcf of
gas resources.584
Dragon Oil operations in Iraq
History
Dragon Oil invested in Iraq for the first time in 2012.
Block 9
In 2012 Dragon Oil participated with a 30 percent stake in a consortium that won
rights to explore in one of the few blocks awarded in Iraq's fourth licensing round.
Other partners in the consortium were Kuwait Energy Company (40 percent) and
Turkish TPAO (30 percent).
According to the UK's Financial Times, this move was part of Dragon's strategy to increase its exploration base, which is concentrated in the Caspian region, with CEO Ab dul Jaleel al Khalifa commenting that "entry into Iraq has been under consideration
for some time and so represents a strategic move for Dragon”. 587 Geologists believe
that Block 9, awarded to the consortium, could include part of the large Azadegan oil field in neighbouring Iran.588
Eni
Type
Traded
BIT:ENI NYSE:ENI
Founded
1953
Headquarters
Rome, Italy
585 'Company Overview: Dragon Oil' Rigzone, retrieved 5 December 2012.
586 'Dragon Oil consortium wins two blocks in Afghan tender', Proactive Investors, 5 December
2012.
587 'Dragon consortium wins Iraq oil fields bid', Financial Times, 4 June 2012.
588 'Dragon Oil wins exploration rights in Iraq', The National, 31 May 2012.
107
Key people
Roberto Poli (Chairman), Paolo
Scaroni (CEO)
Revenue
€109.6 billion (approx. US $144.7
billion), 2011.589
Net Income
€7.8 billion (approx. US $10.3 billion), 2011.589
+5.7%
Total assets
billion), end 2011.589
Total equity
€60.4 billion (approx. US $79.8 billion), end 2011.589
Employees
79,000 (2011)589
Website
www.eni.it
Global snapshot
Eni is one of Italy’s largest companies and the worlds nineteenth largest oil company
by production in 2012.590 It operates in the oil and natural gas, petrochemicals, and oil
field services industries, and has expanded into power generation. The Italian government holds a share of more than 30 percent in the company 591, which operated in
more than 70 countries worldwide as of 2011.592
At the end of 2011 Eni had estimated net proven reserves of 7.09 billion barrels of oil
equivalent (boe),593 and in 2012 the company was producing 2.2 million barrels per day
(bpd) globally.594
Eni operations in Iraq
History
Eni began carrying out engineering studies in various oilfields on behalf of the Iraqi
Ministry of Oil in the 1980s. In 1992 the Oil Ministry signed production sharing agreements (PSAs) with several international oil companies (IOCs) to develop oilfields in the
country. Eni negotiated a PSA for the Nasiriyah oilfield and in 1997 signed a memorandum of understanding (MoU) regarding the field; but this agreement was never followed through due to UN sanctions imposed on the country. 595 Eni began operating in
589 'Annual Report 2011', Eni, 2011.
590 'The World's Biggest Oil Companies', Forbes, 16 July 2012.
591 'Eni SpA Company Profile'. Yahoo Finance, retrieved 4 October 2011.
592 'ENI SPA'. Bloomberg Business Week, retrieved 4 October 2011.
593 'Oil and Natural Gas Reserves', Eni, retrieved 18 December 2012.
594 'The World's Biggest Oil Companies', Forbes, 16 July 2012.
595 'Iraq: Exploration and Production', Eni, retrieved 9 December 2011
108
Iraq once again when awarded a service contract for the Zubair deposit during the
2009 bidding rounds, following Saddam Hussein's fall from power in 2003. 596
In August 2012, Eni CEO Paolo Scaroni said the company did not plan to compromise
its business in Iraq by making energy deals with the country's semi-autonomous Kurdistan region.597 Nevertheless, in October 2012 the Wall Street Journal reported that
Scaroni said Eni was less enthusiastic about Iraq than when it first began operations in
the country, and that the government in Baghdad should consider why some global
companies are going to Kurdistan. "Our adrenaline rush now is not what it was when
we entered Iraq," Scaroni was quoted as saying by the Wall Street Journal. "Iraq is more
complex than we first thought." Scaroni added that Eni's issues with Iraq are its high
levels of bureaucracy, limited energy infrastructure and the political situation with
the Kurdistan region, which follows its own policy when it comes to hydrocarbon
activities.598
As of October 2012 Eni had invested between US $4 billion and $5 billion in its Iraqi
activities out of the planned $18 billion.598
Zubair
The Zubair contract area is located in Maysan province about 20 kilometres southwest of the city of Basra in southern Iraq.599 In 2009 Eni was part of a consortium including Occidental Petroleum and Kogas which won the contract to develop Zubair.
Eni holds a 32.81 percent stake, while Occidental holds 23.44 percent, Kogas 18.75 percent and Iraq's state-run Maysan Oil Company the remaining 25 percent. 600
Production at the Zubair field increased from 183,000 barrels per day (bpd) to more
than 201,000 bpd in 2010.601 In November 2011 Eni signed a preliminary agreement for
a US $240 million project to drill 22 oil wells and more than double production at
Zubair, pending approval from the Iraqi Oil Ministry. 602 Zubair was pumping oil at an
average rate of 270,000 bpd in August 2012. 603
The service contract has a duration of 20 years, and as part of the contract the consortium was due to pay the Iraqi Oil Ministry US $300 million as a refundable five-year
loan, instead of paying a signature bonus as was the case in other deals made in the
second licensing round in December 2009.600 Development of Zubair pushed up Eni's
estimates for global investment to approximately US $72 billion in the 2010−2013 time
frame, an increase of 8 percent from the 2009−2012 plan, 604 with target production ex596 'Eni awarded the license for the Zubair giant field in Iraq', Eni , retrieved 15 November 2012.
597 'Eni has no plans for Kurdistan oil deals: CEO', Reuters, 20 August 2012.
598 'Eni's CEO: Enthusiasm Waning for 'Bureaucratic' Iraq', Wall Street Journal, 31 October 2012.
599 'Zubair' Iraq Energy, retrieved 14 November 2012.
600 'Eni Consortium Finalizes Deal to Develop Iraq Oil Field', Wall Street Journal, 25 January 2010.
601 'ENI chief meets Iraq's prime minister', UPI, 27 September 2011.
602 'Eni Signs $240 Million Iraq Oil-Wells Agreement, Official Says', Bloomberg, 3 November 2011.
603 'Eni awards $359m pipeline contract at Zubair', ArabianOilandGas.com, 18 September 2012.
604 'Eni Gains Momentum in Ira',q Zacks Investment Research, 26 May 2010.
109
pected to be progressively reached by 2016 and maintained for seven years thereafter.605
The deal has the potential to be extended to 25 years and the consortium plans to in crease the field's production to 1.2 million bpd. 600 Eni had originally proposed a remuneration fee of over $4 a barrel, but agreed to accept $2 a barrel after BP accepted the
same for the Rumaila field in November 2009. A November 2009 article in Business
Week reported that an Eni representative said that clarifications from Iraq on tax-related issues were critical in the decision to accept a lower price. 606
Nasiriyah
During a 2011 meeting with Iraqi PM Nouri al-Maliki, Eni CEO Paolo Scaroni commented that his company was interested in participating in the upcoming bidding round
for development of the Nasiriyah field, according to UPI.601
ExxonMobil
Type
Traded as
NYSE:XOM
Founded
1999
Headquarters
Texas, USA
Key people
Rex Tillerson (Chairman and CEO)
Revenue
US $486.4 billion (2011)607
Net income
US $41.1 billion (2011)607
+34.8%607
Total assets
US$ 349 billion (end 2011)607
Total equity
US$ 154.4 billion (end 2011)607
Employees
82,100 (end 2011)607
Website
www.ExxonMobil.com
Global snapshot
In 2012 ExxonMobil topped the Fortune 500 list of the largest American corporations
ranked by revenue.608 It began life as the Standard Oil Company in 1882 and became
ExxonMobil in 1999 as an alliance between two of the direct descendants of John D.
605 'Eni Consortium to Redevelop Zubair Field in Iraq', Rigzone News, 22 January 2010.
606 'Why Oil Majors Are Coming Back to Iraq', Business Week, 4 November 2009.
607 '2011 Summary Annual Report', ExxonMobil, 2011.
608 'Fortune 500: ExxonMobil', CNN Money, retrieved 18 December 2012.
110
Rockefeller's Standard Oil Company, Exxon and Mobil. 609 The company has several divisions and hundreds of affiliates with names including ExxonMobil, Exxon, Esso or
Mobil.610
At the end of 2011 the company held global proven reserves of 24.9 billion barrels of
oil equivalent (boe)611 and average global net production over 2011 was 4.51 million
boe per day.607
In 2008, on the back of soaring global oil prices, ExxonMobil became the world's most
valuable firm when shares soared by over 40 percent in a year. 612 In 2010 they acquired
XTO Energy, a leading developer of unconventional resources including shale oil and
shale gas, which requires advanced drilling techniques. 613 In August of 2011, Exxon secured a $3.2 billion joint venture with Rosneft on high risk deep-sea exploration in the
Arctic and Russian Black Sea.611
ExxonMobil operations in Iraq
History
In the first half of the 1900s, ExxonMobil held a 23.75 percent share (held in two equal
parts by the then-separate companies of Exxon and Mobil) in the Iraq Petroleum Com pany (IPC) along with Total, Shell and BP. 614 Exxon and the other foreign oil majors' assets in Iraq were taken over by the Iraq National Oil Company (INOC) after they were
nationalised by Iraq's Ba’athist government in June 1972.615
ExxonMobil restarted operations in Iraq in 2009 after winning a contract, as part of a
consortium, to rehabilitate and redevelop the West Qurna Phase 1 field in southern
Iraq.616 However later in November 2011 the company signed contracts for six exploration blocks with the Kurdistan Regional Government (KRG). The Iraqi central government in Baghdad claims all contracts with the KRG are illegitimate, 617 and as of October
2012 ExxonMobil was attempting to sell its stake in West Qurna Phase 1 as it prepared
to start drilling in Kurdistan.618
Exxon's move into the Kurdistan region has broad geopolitical implications, according
to the Petroleum Economist, and Kurdish President Massoud Barzani compared Exxon's
investment in the region to "the equivalent of ten military divisions". 619 On the back of
escalating tensions in late 2012 over disputed territories between the KRG and the
609 'Our History', ExxonMobil, retrieved 7 October 2011.
610 'ExxonMobil Corporate Profile', Reuters, retrieved 7 October 2011.
611 'Exxon Mobil clinches Arctic oil deal with Rosneft', Wall Street Journal, 23 February 2012.
612 'The age of oil', The Economist, 24 February 2005.
613 'Exxon Mobil to buy XTO Energy in big U.S. gas bet', Reuters, 14 December 2009.
614 'Oil Companies Hold Down Production in Iraq', Global Policy, retrieved 30 January 2013.
615 'Iraq Opening to BP, Exxon Mobil, Shell for First Time Since 1972', Bloomberg, 3 March 2010.
616 'Our operations in Iraq', ExxonMobil Iraq, retrieved 15 November 2012.
617 'Exxon signs Kurd exploration contracts', Financial Times, 10 November 2011.
618 'Exxon Nears Sale of South Iraq Stake', Wall Street Journal, 18 October 2012.
111
central government, a high-ranking military officer told the Washington Post that if an
oil company were to begin working in the disputed areas it would be considered "a declaration of war". According to the report Exxon's contracts are the most controversial of those signed with the Kurds because of the company’s iconic stature and the
location of its exploration blocks, on the southernmost edges of Iraqi Kurdistan’s interpretation of its territory.620
West Qurna Phase 1
In 2009 the company formed part of a consortium alongside Shell which won the con tract to develop West Qurna Phase 1, a field which holds holds 8.7 billion barrels (bbl)
in proven oil reserves,621 thus ensuring their position as one of the largest players in
postwar Iraq.622 This agreement was formalised in January 2010 when ExxonMobil Iraq
Limited, an affiliate of ExxonMobil, signed an agreement with the Iraqi Ministry of Oil.
The agreement designated ExxonMobil as the lead contractor with a 60 percent interest in the consortium, with the Iraqi state-owned Oil Exploration Company (OEC)
holding a 25 percent interest, and Shell holding a 15 percent interest. 623
ExxonMobil's signing in November 2011 of exploration contracts with the KRG, which
the government in Baghdad considers illegal, 624 put its field development contract at
West Qurna Phase 1 at risk, said Abdul Mahdy al-Ameedi, head of Iraq's Petroleum
Contracts and Licensing Directorate (PCLD). Al-Ameedi told Dow Jones Newswires that
Exxon could be replaced at West Qurna 1 by Shell, which holds a minority (15 percent)
interest in the development contract, or potentially any other company. In the aftermath of the KRG contract signing the Iraqi government also considered imposing
sanctions on ExxonMobil, according to Deputy Prime Minister for Energy Hussein
Shahristani, though it was not clear under what legal authority it might do so. 625
Reuters reported in November 2012 that the company was in advanced stages of talks
to sell its stake in West Qurna Phase 1, to enable it to focus on its deal for exploration
blocks in Kurdistan, 626. Shahristani told Iraq Oil Report that a deadline of the end of
2012 had been set to conclude the deal, however transfer of operations was likely to
take longer.627 The Wall Street Journal quoted a source saying that the project was never
expected to be lucrative under the best of circumstances, and that the $1.90 license fee
would barely be enough to cover the company's costs. 628
620 'In Iraq, Exxon oil deal foments talk of civil war', Washington Post, 18 December 2012.
621 'Exxon Consortium OKs Iraq Contract Changes', Rigzone, January 19, 2010.
622 'ExxonMobil wins $50bn contract', The Guardian, 5 November 2009.
623 'ExxonMobil Signs Agreement with Iraq', Business Wire, 25 January 2010.
624 'Exxon may face sanctions from Kurdistan deal', The Globe and Mail 22 November 2011.
625 'Exxon may face Iraq sanctions, lose West Qurna', ArabianOilandGas.com 22 November 2011.
626 'UPDATE 3-Exxon to pick W.Qurna buyer soon -Iraq's Shahristani', Reuters, 14 November 2012.
627 'Q&A: Hussain al-Shahristani', Iraq Oil Report, 18 December 2012.
628 'Exxon Nears Sale of South Iraq Stake', Wall Street Journal, 18 October 2012.
112
Bashiqa, al-Qush, Arbat East, Betwata, Pirmam and Qara Hanjeer (Kurdistan)
In November 2011 ExxonMobil became the first oil major to sign an oil and gas explor ation contract with the Kurdistan Regional Government (KRG), 629 in a deal that includes six exploration agreements.625 The six blocks in the contract include Bashiqa
and al-Qush, located on the south-western border of KRG-controlled territory; Arbat
East, located in the Zagros Mountain area near the Iranian border; Betwata and
Pirmam, north-east of Erbil; and Qara Hanjeer, which spans the border between the
KRG and disputed areas in Kirkuk.630
Before ExxonMobil made this move, large international oil companies (IOCs) had refrained from signing deals with the KRG631 because, as of October 2012, the KRG remained locked in a feud with the Iraqi central government in Baghdad over land and
oil rights. Three of the blocks included in the ExxonMobil-KRG contracts are in areas
disputed by the KRG and Baghdad. 628 The Financial Times wrote at the time of the signing that the deal could prove a catalyst for oil development in Kurdistan, 632 and indeed,
as of November 2012 several firms - Total., Chevron and Gazprom - had flouted Baghdad's wishes and signed contracts with the KRG.633
Iraq Oil Report quoted an Iraqi official in October 2012 as saying that the company had
spent somewhere between $200 million and $250 million in Kurdistan so far. Over the
course of the contracts, Exxon committed to a cumulative $500 million work plan,
which includes drilling five exploration wells in at least five of the six blocks, and twodimensional (2D) seismic testing in the four blocks that have yet to undergo the process. The Bashiqa and al-Qush had undergone 2-D seismic testing before Exxon took
control, according to Iraq Oil Report, and drilling is to start there first. An Iraqi official
told the website that ExxonMobil would "start moving dirt in December [2012]". 634
As a result of its contracts with the KRG, the Iraqi Ministry of Oil excluded ExxonMobil
from its fourth licensing round for oil contracts, held in May 2012. 635
Other activities
Water Injection Project
Abdul Mahdy al-Ameedi of the Petroleum Contracts and Licensing Directorate (PCLD)
announced in April 2010 that ExxonMobil had been picked to lead a multibillion-dollar
water injection project along with other international oil companies (IOCs) with contracts in southern Iraqi oilfields. 636 The water injection project aims to provide water
to maintain reservoir pressure, and thereby improve oil recovery, in fields such as Ru629 'Exxon's Kurdistan move set to trigger raft of oil mergers', Telegraph 13 November 2011.
630 'Exxon to start drilling in disputed Kurdish blocks', Iraq Oil Report, 18 October 2012.
631 'Iraq Criticizes Exxon Mobil on Kurdistan Oil Pursuits', New York Times 12 November 2011.
632 'Exxon signs Kurd exploration contracts', Financial Times, 10 November 2011.
633 'Iraqi Government and Kurdistan at Odds Over Oil Production', New York Times, 14 November
2012.
634 'Exxon to start drilling in disputed Kurdish blocks', Iraq Oil Report, 18 October 2012.
635 'Iraq Confirms 4th Oil Bid Round For May; Exxon Excluded', 4-Traders 19 April 2012.
636 'ExxonMobil to lead Iraq water injection project', Bloomberg Business Week, 4 March 2010.
113
maila, West Qurna Phases 1 and 2, Zubair and Majnoon. After disputes over costs
delayed the project for months, the Iraqi government and the oil companies came to
an agreement in October 2011 to build the plant.637 Al-Ameedi said the project would
process some 10 to 12 million barrels of water a day from the Persian Gulf for injection
into the oil fields, with the project taking two to three years, ramping up as the south ern oil fields increase production.638
But ExxonMobil was was removed from the project in February 2012. Dhiya Jafaar,
head of the state-run South Oil Company (SOC) said the removal of Exxon from leadership of the project was not connected with the company's Kurdish deals, and instead
blamed poor coordination and project economics submitted by Exxon, according to
Reuters.639 In October 2012 Bloomberg reported that the SOC had awarded CH2M Hill a
$170 million consultancy contract to take part in the project, effectively replacing ExxonMobil.640 Jaafar said the South Oil Company would be the leader of the project. 641
Gazprom
Type
Traded as
RTS:GAZP LSE:OGZD
Founded
1989642
Headquarters
Moscow, Russia
Key people
Victor Zubkov (Chairman), Alexei
Miller (Vice-Chairman and CEO)
Revenue
US $117.6 billion (2011)642
Net Income
US $31.7 billion (2011)642
Total assets
US $302.6 (end 2011)642
Employees
393,000 (2012)642
Website
www.gazprom.com
Global snapshot
Moscow-based Gazprom is primarily engaged in the operation of gas pipeline systems
and gas supply to European countries but is also involved in oil production and refining activities. In 2012 Gazprom was the second largest oil company in the world by
637 'Iraq, Oil Majors Agree To Build Oil Field Water Injection Plant', Wall Street Journal, 19 October
2011.
638 'Exxon Spearheads Iraqi Water-Injection Project', Rigzone quoting Dow Jones, 10 April 2010.
639 'Iraq seeks firms to manage oilfield water injection', Reuters, 14 May 2012.
640 'Iraq Awards CH2M Water-Injection Oil Project, Replacing Exxon', Bloomberg, 10 October 2012.
641 'Iraq chooses water contractor', Al Bawaba, 11 October 2012.
642 'Gazprom', Forbes, retrieved 19 December 2012.
114
production643 and the world's fifteenth largest publicly listed company. 642 It was also
the world's largest gas producer, with average daily production standing at 9.7 million
barrels of oil equivalent (boe) per day. 643 Via its subsidiaries and affiliates, the company has operations established in the UK, Serbia, Uzbekistan, Kyrgyzstan, Tajikistan,
Vietnam, India, Iraq, Algeria, Libya, Equatorial Guinea, Bolivia and Venezuela, among
others.644
Russia's significant share of the world's gas makes it the an important asset for the
country and the Economist magazine suggests that this makes Gazprom arguably its
most important company.645 Founded in 1989, Gazprom grew out of the USSR's Gas Industry Ministry and was part-privatised from 1993 with the large-scale sale of state as sets in post-Soviet Russia. The Russian Government holds a controlling stake of just
over 50 percent and former Russian president Dmitri Medvedev previously occupied
the post of Gazprom Board Chairman. 646 In total the company operates around 70 fullyowned subsidiaries, including one whose shareholder committee Chairman is former
German Chancellor Gerhard Schroder. In addition Gazprom also owns a bank, newspapers, radio stations, television stations, film studios, cinemas and real estate. 647
Gazprom accounts for 18 percent of the world's gas reserves, 70 percent of Russian gas
reserves and 15 percent of global gas production. In 2011 Gazprom also presided over
161,700 kilometres (km) of gas pipelines, the largest gas transportation system in the
world.648
Gazprom operations in Iraq
History
The beginning of Gazprom's work in Iraq was marked by the contracts signed in 2009.
Badra
In 2009, during Iraq's second post-war licensing round, Gazprom participated in a consortium also involving Kogas, Petronas, and TPAO which won a contract to develop the
Badra oilfield in south-east Iraq. Gazprom holds a 40 percent stake in the consortium,
with Kogas holding another 30 percent, Petronas 20 percent and TPAO a further 10
percent.649 In December 2009 Boris Zilbermints, the Deputy Chief Executive for Exploration and Production of Gazprom Neft, the oil arm of Gazprom, said that the company
would invest $2 billion in developing Badra and that they expected to pump the first
643 'The World's 25 Biggest Oil Companies', Forbes, 16 July 2012.
644 'Gazprom OAO', Reuters, retrieved 10 October 2011.
645 'Russia's energetic enigma', The Economist, 6 October 2005.
646 'Gazprom reports quarterly profits of $16bn', The Guardian, 30 August 2011.
647 'In Thrall to Gas: The City Where Gazprom Is King', Spiegel Online, 2 March 2011.
648 'Annual Report 2010', Gazprom, retrieved 10 October 2011.
649 'Iraq signs deal with Gazprom group for Badrah', Reuters, 28 January 2010.
115
crude from the field within three years. 649
In May 2011 Gazprom Neft announced that a 3D seismic survey had been completed at
the Badra deposit, carried out by the Iraqi Oil Exploration Company (OEC). The survey
was intended to give a better understanding of the structure of the deposit and to aid
with the assessment of reserves. 650 In November 2011 the company announced they
had commenced drilling at the first appraisal well at Badra and that they expected to
start commercial production of 15,000 barrels per day (bpd) at the field in August
2013.651
Garmian and Shakal (Kurdistan)
In August 2012 Gazprom Neft became the third oil major (following moves by ExxonMobil and Total) to conclude deals with the semi-autonomous Kurdistan Regional Government (KRG) when it signed two contracts for two of the southernmost exploration
blocks in the region, the Garmian and Shakal blocks. Iraq Oil Report considers that majors such as Gazprom were emboldened by Exxon's move, when it signed contracts
directly with the KRG, considered illegal by the central government, putting at risk
substantial producing assets in the South. Furthermore the Shakal block extends into
areas that are internationally recognised as disputed territories between the central
and regional authorities.
At the Garmian block, Gazprom took a 40 percent stake, while Canadian company
WesternZagros and the KRG retained stakes of 40 percent and 20 percent respectively.
Once the exploration phase is completed Gazprom will become the operator. At Shakal
Gazprom became the operator with an 80 percent stake and the KRG retained its 20
percent stake.652
In November 2012 the BBC reported that the Iraqi government was pressuring
Gazprom to give up their oil deals in Kurdistan or face losing their contract for the
southern Basra field.653 In an interview with Iraq Oil Report, Deputy Prime Minister for
Energy Hussein Shahristani commented that the company will be forced to decide
between their contracts in the north and the south, just as ExxonMobil had. 654
Genel Energy
Type
Traded as
LSE:GENL
Founded
2011
Headquarters
Ankara, Turkey
650 'Gazprom Neft completes seismic survey in Iraq', Gazprom Neft, 17 May 2011.
651 'Gazprom Neft to begin oil output in Iraq in 2013', Reuters, 25 November 2011.
652 'Gazprom makes Kurdistan entrance, risking Badra', Iraq Oil Report, 25 November 2011
653 'Iraq pressures Russia's Gazprom to quit Kurdistan', BBC, 9 November 2012.
654 'Q&A: Hussain al-Shahristani', Iraq Oil Report, 18 December 2012.
116
Key People
Tony Hayward (CEO), Mehmet
Sepil (President)655
Revenue
US $24 million (2011)656
Net Income
US $2.6 million (2011)656
Total Assets
US $4 billion (end 2011)656
Total Equity
US $3.84 billion (end 2011)656
Employees
Over 500 (2011)657
Website
www.genelenergy.com
Global snapshot
Genel Energy plc is incorporated in Jersey and has offices in the UK, Turkey and Kurdistan. It was formed following the merger of Vallares PLC and Genel Energy International Limited in November 2011. The company's primary assets are oil and gas licenses located in the Kurdistan region of Iraq.658
The company engages in exploration, appraisal, development and production of oil
fields and has over 500 direct and seconded employees located in the Kurdistan region
and Ankara.658 Genel's CEO is Tony Hayward, former head of British BP. The company's
president Mehmet Sepil commented to the New York Times in 2012 that “Tony is running the whole company. I am helping him with the politics — to understand the region.”659
At the end of 2011 Genel held 412 million barrels of 2P reserves and had an average
daily production over the year of 42,000 barrels per day (bpd). 660
Genel operations in Iraq
History
Before the merger with Vallares in 2011, Genel Energy was a private Turkish company
under the control of Mehmed Sepil. In 2002, while working as a contractor in Kurdistan Sepil was approached by Jalal Talabani, Kurdish politician and later president of
Iraq, about developing the Taq Taq oil field. Sepil began drilling at Taq Taq and also
took stakes in other Kurdish fields. 659 The Production Sharing Contract (PSC) for exploitation of the PSC was reinstated and signed by the KRG and Genel Energy Interna655 'Message' Genel Energy, retrieved 19 December 2011
656 'Annual Report and Accounts 2011', Genel Energy, 2011.
657 'About Us' Genel Energy, 22 November 2011.
658 'About Us' Genel Energy, retrieved 19 December 2011
659 'Tony Hayward Gets His Life Back' New York Times, 1 September 2012.
660 'Annual Report and Accounts 2011', Genel Energy, 2011.
117
tional Limited in 2004.661
The merger and expansion followed and by 2012 Genel came to be the leading oil producer in Kurdistan, producing 40,000 barrels per day (bpd) in 2012. 662
The company was also expected to bring on stream 4 billion cubic metres (bcm) per
year of gas from its Kurdistan fields by 2015. 663 However exporting the oil produced
has caused problems because of sporadic disputes between the Kurds and Baghdad
over pipelines.
According to Tony Buckingham, founder of Heritage Oil, because Genel are so heavily
identified with the KRG's energy policy as it is, when it makes deals with the KRG it
does not constitute such a "slap in the face" to Baghdad as those signed by Chevron
and ExxonMobil, for example.662
Taq Taq and Tawke (Kurdistan)
Genel has stakes in two producing oil fields in Kurdistan. It holds a 44 percent working
interest in the Taq Taq field664 (producing 90,000 barrels per day as of November
2011)665 and a 25 percent working interest in the Tawke licence areas, having acquired
the latter in March 2009.664 As of 2012 these fields had estimated proven and probable
(2P) reserves of 1.4 billion barrels (bbl) of oil and probable and possible reserves of 1.9
billion barrels of oil equivalent. The company is targeting to achieve total oil output of
140,000 barrels per day (bpd) from both fields by 2014. 666
Ber Bahr, Dohuk, Miran and Chi Surkh (Kurdistan)
Genel's exploration interests lie in the Ber Bahr, Dohuk, Miran and Chia Surkh license
areas, all acquired over the course of 2009.664 In August 2012 Genel announced a series
of acquisition deals amounting to around US $860 million with the aim of strengthen ing its position in Kurdistan. 667 The company made a deal with British Heritage Oil to
increase its stake in the Miran block to 51 percent. 668 and analysts at Deutsche Bank
suggested that the deal would eventually lead to it buying the remainder of Heritage's
interests in Miran.669 In the same month Genel also acquired an additional 21 percent
stake in the Bina Bawi block in the centre of the region from Hawier Energy. 670
661 'KRG Ministry of Natural Resources Production Sharing Contracts', Kurdistan Regional
Government , retrieved 5 December 2012.
662 'Turkey's Genel Energy Takes Gamble in Iraq', Oil Price, 23 August 2012.
663 'Kurdistan eyes major role in Turkish gas market', Petroleum Economist, 13 December 2012.
664 'Company Profile', Genel Energy, retrieved 30 November 2011.
665 'Tony Hayward moves into Kurdistan with Genel Energy as tensions rise', Telegraph, 17
November 2011.
666 'Operations - Kurdistan Region', Genel Energy, retrieved 5 December 2012.
667 'Tony Hayward Gets His Life Back' New York Times, 1 September 2012.
668 'Turkey's Genel Energy Takes Gamble in Iraq', Oil Price, 23 August 2012.
669 'Heritage receives $450m Genel boost' Financial Times, 21 August 2012.
670 'Genel Energy Increases Stake in Bina Bawi', Iraq Business News, 6 August 2012.
118
The oil produced by Genel that cannot be exported goes to Kurdish refineries for a
price of about $60 per barrel, well below that achieved on world markets. However according to the New York Times as of 2012 Genel was still generating most of the cash
needed to pay for its $200-$250-million-a-year exploration and development program
in Kurdistan. It was also reported to be sitting on about $1 billion for acquisitions. 667
Heritage Oil
Type
Traded as
LSE:HOIL
Founded
1992671
Headquarters
Jersey
Key People
Michael Hibberd (Chairman),
Tony Buckingham (CEO)
Revenue
US $9 million (2011)672
Net Income
(US $66.9 million), 2011673
Employees
139 (end 2011)674
Website
www.heritageoilplc.com
Global snapshot
Heritage Oil is an oil and gas exploration and production company listed on the
Toronto and London stock exchanges. The company owns producing assets in Russia,
exploration projects in the Kurdistan region of Iraq, the Democratic Republic of
Congo, Malta, Pakistan, Tanzania and Mali, as well as an investment in Libya.675
The company was founded in 1992 and was initially formed to hold interests in offshore Angola. In 1997 it was awarded interests in onshore Congo and went on to discover the M'Boundi Field in 2001, which brought substantial gains. 673 According to the
UK's Independent newspaper, Heritage has a history of moving early into unstable, oilrich regions that pose significant personal and operational risks, such as Uganda and
Kurdistan. The company was thought to be the first foreign oil company to enter Libya
after the 2011 uprising when it announced it had acquired small Benghazi-based services company Sahara for $19.5 million in October 2011.676
671 'Annual Report 2012', Heritage Oil, 2012.
672 'Annual Report 2012', Heritage Oil, 2012.
673 '2010 Annual Report', Heritage Oil, 2011.
674 'Heritage Oil', Yahoo! Finance, 2011.
675 'About Heritage', Heritage Oil, retrieved 22 December 2011.
676 'Heritage plants UK flag in Libya with takeover of Sahara Oil', Independent, 5 October 2011.
Libyan authorities later denied that the sale had taken place.
119
Heritage Oil operations in Iraq
History
Heritage's activity in Iraq began in 2007, when it became one of the first companies to
sign a Production Sharing Contract (PSC) with the semi-autonomous Kurdistan Regional Government (KRG).677
Miran (Kurdistan)
Heritage entered into a PSC with the KRG on 2 October 2007 for the Miran Block 678 in
the south of Kurdistan. Heritage announced in April 2009 that Anglo-Turkish Genel
Energy had entered the Miran Block as a third party participant, 679 holding a 25 percent participating interest in the license while Heritage, the operator, held the remaining 75 percent.680
Heritage announced in early 2011 the discovery of a large gas field with the Miran
West-2 well which,681 containing up to 12.3 trillion cubic feet of gas, 682 it believes to be
the largest gas field to be discovered in Iraq in the last 30 years. The company has a 75
percent working interest in the Miran Block, though the KRG have a back-in right
(whereby the KRG can choose to participate in a project once the contractor has recovered their costs). If exercised, this could reduce Heritage’s interest to 56.25 percent. The first export production from the Miran Block is targeted for 2015 using
planned regional infrastructure, according to the company's 2010 Annual Report. 681
However in August 2012 Heritage moved to sell some of its assets in the Kurdistan region in order to free up finances for a project in Nigeria. Heritage is due to receive US
$156 million for transferring its 26 percent interest in the Miran gas field to Genel Energy, as well as a further $294 million loan which it can redeem through the transfer of
its remaining 49 percent interest.683
Hunt Oil
Type
Private
Founded
1934684
677 'Operations - Iraq', Heritage Oil, retrieved 5 December 2012.
678 'Heritage Notes KRG's Third Party Nominee in Miran License', Rigzone 9 April 2009.
679 'Operations - Iraq', Heritage Oil, retrieved 1 December 2011.
680 'Heritage Notes KRG's Third Party Nominee in Miran License', Rigzone, 9 April 2009.
681 '2010 Annual Report', Heritage Oil, retrieved 1 December 2011.
682 'Major Gas Field Found in Kurdistan', KRG Representation in Spain, 28 January 2011.
683 'Heritage received $450 million Genel boost', Financial Times, 21 August 2012.
684 'The Hunt Family of Companies', Hunt Oil, retrieved 29 March 2012.
120
Headquarters
Dallas, Texas (US)684
Key People
Ray Hunt (CEO)685
Revenue
US $4 billion (2011)686
Employees
4,700 (end 2011)686
Website
www.huntoil.com
Global snapshot
Hunt Oil was founded in 1934, reportedly with H.L. Hunt's poker winnings. 687 Together
with its subsidiaries the company engages in oil and gas exploration and production in
North America, South America, Europe, Australia, and the Middle East. It also engages
in the construction and operation of liquefied natural gas (LNG) projects in Yemen and
Peru.688
The company is headquartered in Dallas, Texas and operates as a subsidiary of Hunt
Consolidated Inc. In 2011 Forbes magazine ranked Hunt Consolidated in 90th place on
their annual list of America's largest private companies. Hunt Oil is the umbrella company for several subsidiaries, but has no affiliation or ownership interest in Hunt Petroleum and its affiliated companies, which XTO Energy acquired in 2008. 689
Hunt Petroleum operations in Iraq
History
The contracts signed by Hunt in 2007 mark the beginning of Hunt's operations in Iraq.
Ain Sifni (Kurdistan)
The production sharing contract (PSC) signed by Hunt in September 2007 was the first
to be signed with the Kurdistan Regional Government (KRG) since the enactment of
the Oil and Gas Law of the Kurdistan Region in August 2007. Hunt entered into the
contract, which covered petroleum exploration activities in Kurdistan's Dohuk area,
with Impulse Energy Corporation as its junior partner. 690 Hunt and Impulse each held
50 percent working interests in the Ain Sifni block as of mid-2011. 691 In July 2011, Lon685 'Selected Representatives', Hunt Oil, retrieved 29 March 2012.
686 '#90 Hunt Consolidated/Hunt Oil', Forbes, retrieved 29 March 2012.
687 'Hunt Consolidated Inc. Company Profile', Yahoo Finance, retrieved 29 March 2012.
688 'Company Overview of Hunt Oil Company', Bloomberg, retrieved 29 March 2012.
689 '#90 Hunt Consolidated/Hunt Oil', Forbes, retrieved 29 March 2012.
690 'KRG signs oil and gas contract with US-based Hunt Oil', KRG, Retrieved 08 September 2007.
691 'Oil & Gas – International E&P', Scotia Capital April 2010.
121
don-based oil company Afren bought a 20 percent stake in the field. Hunt, as the field's
operator, retained 60 percent and the KRG a 20 percent stake in the field. 692
Leaked US diplomatic cables note that the US government discouraged companies
from signing oil deals with the KRG until Iraq had enacted its regional hydrocarbons
law. However a senior Hunt manager told a US official in Erbil that the area's high potential for oil production "trumped" the risks and legal ambiguities associated with its
involvement in a disputed territory such as northern Nineveh. 693
Inpex
Type
Traded as
TYO:1605
Founded
1941694
Headquarters
Tokyo (Japan)
Key People
Naoki Kuroda (Chairman), Toshiaki
Kitamura (President)695
Website
www.inpex.co.jp
Global snapshot
Tokyo-based Inpex (International Petroleum Exploration Corporation) is a holding
company established through the reorganisation of INPEX Corp and Teikoku Oil. The
company manages subsidiaries that explore, produce and sell oil and natural gas. 696
In 2012 Inpex had over 70 projects in 26 countries. This includes projects in Indonesia,
Australia, Azerbaijan and Iraq and has a growing focus on Liquefied Natural Gas
(LNG).696
Operations in Iraq
History
In 2008 Inpex was included on the list of 35 countries which pre-qualified for the country's first licensing round the following year. 697 In 2010 Inpex was part of a consortium
of Japanese firms which were negotiating a deal with the state-owned South Oil Company for the development of the Nasiriyah field. However the talks failed to reach a
692 'Afren raises £113 million for Kurdistan acquisitions', Proactive Investors 28 July 2011.
693 'Hunt Oil Signs Agreement With Krg Under Krg Oil Law', Wikileaks, 12 September 2007.
694' History' Inpex, retrieved 5 December 2012.
695' Inpex Corp' Bloomberg, retrieved 5 December 2012.
696' Company Profile' Inpex, retrieved 5 December 2012.
697' Oil Ministry Announces Qualification Results', Wikileaks, 15 April 2008.
122
conclusion.696
Block 10
In Iraq's fourth licensing round in 2012, Inpex signed a deal to explore an area cover ing the regions of Muthanna and Dhi Qar in Southern Iraq. Their partner in the deal
was Russian Lukoil and together the two firms must invest at least $100 million to explore a 5,500 square-kilometre block, under the terms of the contract. The agreed remuneration fee was $5.99 per barrel.698
Japan Petroleum Exploration Company
(Japex)
Type
Traded as
TYO:1662
Founded
1955
Headquarters
Tokyo (Japan)
Key People
Osamu Watanabe (President/CEO)
Revenue
US $2.4 billion (2011)699
Net income
US $120.6 million (2011)699
-44.2%699
Total Assets
US$ 6.2 billion (end 2011)699
Employees
1,728 (end 2011)699
Website
www.japex.co.jp
Global snapshot
Japex is a Tokyo-based oil company established as a private company in 1970 and
traded on the Tokyo stock exchange since 2003. 700 The company's principal operating
areas are, domestically, Hokkaido, Akita, Yamagata and Niigata in Japan, and overseas,
Canada, the United States, Iran, Iraq, Indonesia, China, the Philippines, Russia and
Libya.701
698' Iraq seals oil exploration deal with Lukoil, Inpex', Middle East Online, 7 November 2012.
699 'Annual Report 2011', Japex, retrieved 19 December 2012.
700 'About Japex', Japex, retrieved 18 December 2012.
701 'Japex Financial Analysis Review', Companies and Markets, 4 February 2010.
123
The Japanese government owns a 34 percent share in Japex, which in 2011 had proved
reserves of 272 million barrels of oil equivalent (boe).702
In September 2011 the Japanese government stated it was considering selling its
stakes in Japex in order to use the funds for reconstructions of the north-eastern areas
of the country that were devastated by the March 2011 earthquakes and tsunami. The
stakes, which were held in a special account, were worth at the time approximately ¥
700 billion in investments oil and gas-related developments.703
Japex operations in Iraq
History
Japex’s relationship with the Iraqi Ministry of Oil dates back to March 2005 when they
began to conduct evaluation studies of undeveloped oil fields jointly with the Min istry’s engineers. Since 2007 Japex has worked with more than 450 trainee engineers
dispatched from the Ministry of Oil. In 2008 Japex supplied 3D seismic survey equipment and software for the Ministry’s surveys of the Garraf oil field. 704
Garraf
Together with Malaysian Petronas, Japex signed a contract in 2009 to explore and produce oil from the Garraf oil field. The consortium is expected to invest up to $8 billion
in the field705 and will be paid a remuneration fee of $1.49 a barrel under the 20-year
long service contract.706 Japex will hold a 30 percent stake, Petronas a 45 percent stake
and Iraq’s South Oil Company (SOC) will hold the remaining 25 percent stake in the
field.707
In February 2011, Reuters reported that state-owned Japan Oil, Gas and Metals National
Corporation (JOGMEC) would provide about $198 million of capital to the development
of the Garraf oil field project. In return, JOGMEC would take a stake of less than 50 per cent in Japex' wholly owned subsidiary, 708 Japex Garraf Limited.709 -
702 'Japex Company Profile' ,Yahoo Finance, retrieved 25 December 2011.
703 'Japan Government Mulls Selling Stakes In Inpex, Japex For Quake Reconstruction - Report',
Fox Business , 6 September 2011.
704 'Annual Report 2008' Japex, retrieved 25 December 2011.
705 'Iraq: Petronas and Japex sign deal for Gharraf oil field', Energypedia News, Jan 18, 2010
706 'Iraq, Petronas, Japex in Gharaf oilfield accord', The Saudi Gazette, retrieved 25 December 2011.
707 'JAPEX, Petronas to develop Iraq oil field', AME Info, 20 January 2010.
708 'Japan's JOGMEC to invest in Gharraf Oilfield', Iraq Business News, 11 February 2011.
709 'International Exploration and Production: Iraq', Japex, retrieved 9 January 2011.
124
KazMunaiGas (KMG)
Type
State-owned
Traded as
KASE:RDGZ LSE:KMG (KMG EP)
Founded
2002
Headquarters
Astana, Kazakhstan
Key people
Kiinov Lyazzat Ketebaevich
(Chairman)710
Employees
70,121 (2011)711
Website
www.kmg.kz
Global snapshot
KazMunaiGas (KMG) is 100 percent owned by the government of Kazakhstan through
the national welfare fund Samruk-Kazyna, an entity seen by Reuters as an extension of
the government.712 It is the owner of 44 onshore oil and gas fields in the Mangistau and
Atyrau regions of Kazakhstan and in 2011 accounted for 65 percent of all oil transportation, 100 percent of gas transportation and 50 percent of tanker transportation in
Kazakhstan.713 The stated strategic goal of KMG EP up to 2029 is to become one of the
world's top 20 oil and gas companies.714
One of the principal subsidiaries of KMG is KazMunaiGas Exploration and Production
(KMG EP), established in 2004 following the merger of Uzenmunaigas JSC (UMG) and
Embamunaigas JSC (EMG). The company's shares are listed on the Kazakhstan Stock
Exchange (KASE) and its global depositary receipts (GDRs) on the London Stock Exchange (LSE). KMG EP is the Kazakhstan's second largest oil producer, however in 2010
the Board of Directors approved the Company's participation in several projects outside Kazakhstan. These included the White Bear project in the North Sea and a tender
to develop the Akkas field in Iraq.714
According to an analysis by Reuters, KMG had a "highly leveraged" financial profile in
2012, with large debt due to large capital expenditures to upgrade refineries and the
Kashagan field, in which it has a 16.8 percent stake. 712 At the end of 2011 KMG EP's
proven oil reserves (1P) stood at 561 million barrels, with proven plus probable plus
possible reserves at 1.96 billion barrels (bbl). Production over the year was 58 million
barrels, giving an average daily production of 158,904 barrels per day (bpd). 715
710 'Management Board', KazMunaiGas, retrieved 19 December 2012.
711 'KazMunaiGas: Participant Information', UN Global Compact, retrieved 9 December 2011.
712 'TEXT-S&P summary: JSC NC KazMunayGas', Reuters, 30 November 2012.
713 'KazMunaiGas O&G Company ex head Kairgeldy Kabyldin appointed head of KazTransOil',
Tengri News, 11 October 2011.
714 'Annual Report 2010', KazMunaiGas, 25 March 2011.
715 'Resources Assesment', Bloomberg, 16 April 2012.
125
KazMunaiGas operations in Iraq
History
In December 2010 the Board of Directors of KMG's Exploration and Production subsidiary KMG EP approved the Company's participation in a tender to develop the Akkas
field in Iraq.714 However after later pulling out of the the contract for the Akkas field,
KMG was not participating in any projects in Iraq as of December 2011.
Akkas
Along with Korean Kogas, KazMunaiGas won the rights to develop the Akkas field dur ing Iraq’s third energy bidding round in October 2010. Under the terms of the bid, Kogas was the operator of the project and the proposed remuneration fee was $7.50 per
barrel of oil equivalent (boe) produced.716
According to KMG EP's CEO, the new project would be of benefit to the company's em ployees, who would gain important experience in the area of gas field development,
given that their specialists had not been fully engaged in gas production in the past,
other than with 'associated gas'. 717 In May 2011 however KazMunaiGas pulled out of
the venture, leaving Kogas as the sole investor and operator and forcing the company
to double its share in the project.718
Kogas (Korea Gas Corporation)
Type
Partially state-owned
Traded as
KRX:036460
Founded
1983
Headquarters
Seongnam, Gyeonggi, South Korea
Key People
Gang Soo Joo (President, CEO)719
Revenue
KRW 28,493.7 billion (approx US
$26.6 billion), 2011.720
Net income
KRW 174.7 billion (approx US
$162.9 million ), 2011.720
716 'Bidding Results Overview for Licensing Round 3', Iraq Energy, retrieved 13 December 2011.
717 'Annual Report 2010', KazMunaiGas, 25 March 2011.
718 'Anbar, central governments poised for fight over Akkas', Iraq Oil Report, 1 June 2010.
719 'Korea Gas Corporation', Reuters, retrieved January 2013.
720 'Consolidated Financial Statements', Kogas, retrieved 19 December 2012.
126
-36.5%720
Total Assets
$33.6 billion), end 2011.720
Total Equity
$7.5 billion), end 2011.720
Employees
3,026 (Jan 2012)721
Website
www.kogas.or.kr
Global snapshot
Korea Gas Corporation (KOGAS) was established in 1983 by the Korean Government,
who in 1999 began to privatise the company722. Consequently, Kogas is currently
shared between the South Korean government, with a 27 percent stake, and the state
controlled Korea Electric Power Corporation (KEPCO) with 25 percent, with the the remaining equity split among local government and institutional investors. 723
Kogas engages in the production and distribution of natural gas and in 2011 was the
world's largest importer of liquefied natural gas (LNG). The company is the sole provider of LNG to Korea, operating three terminals and a nationwide pipeline network.
The company's business scope also includes natural gas exploration and production,
with gas field development projects in Myanmar, Canada, Russia, Africa, Australia, Indonesia, Uzbekistan and others in 2011. 724 In May 2010 Kogas revised its Articles of Association and reported plans to enter into the new business of exploration, production
and sales of crude oil, mainly targeting Iraq.725
Kogas operations in Iraq
History
Contracts signed in 2009 marked the start of Kogas's work in Iraq.
Zubair
In 2009, Kogas formed part of a consortium along with fellow companies Eni and Occidental to develop the Zubair oil field in southern Iraq. Kogas holds an 18.75 percent
share, Eni has 32.81 percent, Occidental holds 23.44 percent and Iraq's state-run
Maysan Oil Company holds the remaining 25 percent. While the consortium planned
721 'Our Profile' Kogas, retrieved 19 December 2012.
722 'Energy profile of South Korea', Encyclopedia of Earth, 20 September 2007.
723 'South Korea Profile ', Energy Information Administration, June 2007
724' Korea Gas Corporation', Reuters, retrieved 15 December 2011.
725 'KOGAS to Embark on Iraq Oil Business', Korea Times, 3 May 2010.
127
to invest approximately $20 billion over the life of the project, Kogas itself has said it
plans to invest around $6.5 billion in the field726
Badra
For Iraq's second licensing round, Kogas also formed part of a consortium to develop
the Badra oil field, together with Gazprom, Petronas and TPAO. The relatives stakes
held in the field are as follows: Gazprom (40 percent), Kogas (30 percent), Petronas (20
percent), TPAO (10 percent). Kogas has said that it will invest $1.05 billion in the pro ject, with the consortium as a whole investing a total of $3.52 billion to pump 170,000
barrels of oil per day (bpd).727
Mansuriyah
When Iraq launched its third licensing round in 2010, Kogas was favored among 15
companies invited to bid for the Akkas, Mansuriyah, and Siba gas fields because of
their experience in the industry, and was among 13 companies that registered for the
auction round.728
Turkey's TPAO, Kuwait Energy Company and Kogas finalised deals in June 2011 to
jointly develop the Mansuriyah field in eastern Iraq, 729 which pays $7 per barrel of oil
equivalent (boe) extracted.730
Akkas
In June 2011 Sabah Abdel Kadhim, an Iraqi Ministry of Oil official, stated that the min istry had signed an agreement with Kogas to begin developing the Akkas natural gas
field.731 But it was not until October of the same year that various delays were solved
and a definitive deal was signed. 729 By June, Kogas had agreed to double its stake in the
project from 37.5 percent up to 75 percent, after its consortium partner KazMunaiGas
withdrew unexpectedly from the project. The Iraqi state-owned North Oil Company
(NOC) took the remaining 25 percent. 731 The deal Kogas signed for the Akkas field in
October 2011 pays the company a remuneration of $5.50 per boe extracted. 729
Kirkuk-Baiji pipeline project
In October 2010 Kogas won a $127 million contract to build a 110-kilometre natural gas
pipeline linking the Iraqi cities of Kirkuk and Baiji. The contract foresees that the
pipeline will be built by 2014.732
726 'Eni Consortium Finalizes Deal to Develop Iraq Oil Field', Wall Street Journal, 25 January 2010.
727 'Iraq signs deal with Gazprom group for Badrah oil field', Energy-pedia news, 28 January 2010
2010.
729 'Iraq inks final deal SKorea's KOGAS', Yahoo! News, 13 October 2011.
730 'Mansuriyah Contract Area - Bidding Results', Petroleum Contracts and Licensing Directorate, 20
October 2011.
731 'KOGAS Deal for Akkas Gas-Field Is Signed' Iraq Business News 1 June 2011.
732 'KOGAS wins $127 million pipeline project from Iraq', Korea Times, 5 October 2012.
128
Kuwait Energy Company
Type
Private
Founded
2005
Headquarters
Salmiya, Kuwait733
Key People
Sara Akbar (CEO, Director), Manssour Aboukhamseen (Chairman)733
Revenue
US $178.9 million (2011)734
Net Income
US $34.8 million (2011)734
+58.9%734
Total Assets
US $884.1 million734
Total Equity
US $734.3 million734
Employees
464 (September 2011)735
Website
www.kec.com.kw
Global snapshot
Kuwait Energy Company (KEC) operates as an independent oil and gas exploration and
production company. It engages in the exploration, production and development of oil
and gas reserves in the Middle East, North Africa and Eurasia regions. Countries where
KEC has operations include Kuwait, Egypt, Yemen, Iraq, Oman, Russia and Pakistan.
The company, formerly know as Zahra Oil and Gas, was founded in 2005 and is
headquartered in Salmiya, Kuwait. The company operates as a subsidiary of the Zahra
Group. CEO Sara Akbar said in November 2011 that the planned initial public offering
(IPO) of the company was intended to help it in pursuing potential acquisitions in the
Middle East and North Africa region. 733
According to their annual report, the company's vision is to become the pre-eminent
oil and gas company in the Middle East, and aims to be producing 75,000 barrels of oil
equivalent (boe) per day by the end of 2015, with 400 million barrels of oil equiavalent
(boe) of proved and probable reserves.735 As of September 2012 average daily production stood at 17,266 boe per day.734
733 'Kuwait Energy Company', Bloomberg Businessweek, retrieved 15 December 2011.
734 'Corporate Profile', Kuwait Energy Company, September 2012.
735 'Company Profile September 2011', Kuwait Energy Company, retrieved 15 December 2011.
129
Kuwait Energy Company operations in Iraq
History
The contracts signed in 2011 with the Iraqi government marked the beginning of KEC's
operations in Iraq.
Siba and Mansuriyah gas fields
In June 2011 the KEC announced that it had been awarded 20-year gas development
contracts for Siba and Mansuriyah gas fields in Iraq's third post-war bidding round.
The KEC jointly bid with the Turkish Petroleum Corporation (TPAO) for both gas fields.
KEC became the operator of Siba, with a 45 percent share (TPAO 30 percent; stateowned South Oil Company 25 percent). At Mansuriyah, TPAO became the operator
with a 37.5 percent majority share, (KEC 22.5 percent; Midland Oil Company 25 per cent).736
Kuwait Energy Chairman Dr Manssour Aboukhamseen commented on the deals: “We
are excited to start today a long-term partnership with Iraq for the development of
their natural gas resources and look forward to applying our experience and technology towards building gas production in Iraq that meets domestic needs and export
opportunities. Kuwait Energy has been working towards obtaining such contracts for
over three years, and today marks a significant milestone for Kuwait Energy.” 737
Block 9
In May 2012 KEC announced that the consortium it led in Iraq's fourth licensing round
had been successful in acquiring exploration rights for Block 9 in Basra. The other participants in the consortium were Turkish TPAO (30 percent) and Dubai-based Dragon
Oil (30 percent), while KEC held an operating 40 percent stake. The accepted bid proposed a remuneration fee of $6.24 per barrel.738
After the Iraqi government expelled TPAO from the Block 9 consortium in November
2012, KEC was asked to take over the shareholding, which increase its holding to 70
percent.739
736 'Company Profile September 2011', Kuwait Energy Company, retrieved 15 December 2011.
737 'Future Gas Exports From Iraq Fields Possible', Arab Times Online, 20 October 2011.
738 'A Consortium led by Kuwait Energy awarded exploration and development contract for
'block 9', Basra, Iraq', Kuwait Energy Company, retrieved 5 December 2012.
739 'Iraq Expels Turkey’s TPAO, asks Kuwait Energy to Replace', Iraq Business News, 7 November
2012.
130
Lukoil
Type
Traded as
LSE:LKOD; MCX:LKOH; FWB:LUK
Founded
1991
Headquarters
Moscow, Russia
Key people
Vagit Alekperov (CEO), Valery
Grayfer (Chairman)740
Revenue
US $133.7 billion (2011)740
Net Income
US $10.4 billion (2011)740
+15%740
Total assets
Total equity
Employees
120,300 (end 2011)740
Website
www.lukoil.com
Global snapshot
Lukoil is a major Moscow-based international oil and gas company, accounting for 2.2
percent of global output of crude oil. 741 In 2011 it ranked 69th in the Fortune Global 500
List of the most valuable companies in the world. 742 and in 2012 was the 18th largest oil
company in the world by production.743
The company was formed following the dissolution of the Soviet Union when three
state-run western Siberian companies (Langepasneftegaz, Uraineftegaz and
Kogalymneftegaz) merged and the initials of the original three companies were maintained to form the new company name. 744 The founder, and subsequent CEO and holder of 20 percent of shares, is former Soviet Deputy Oil Minister Vagit Alekperov 743 who,
according to the New York Times, has kept an unusually low profile in Russian politics.745
In 2011, Lukoil claimed proved reserves of more than 19.3 billion barrels of oil equivalent (boe), the majority of which is located in Russia. It had operations in 60 regions in
Russia and 25 other countries, and owned seven refineries and 6,750 gas stations. A
significant 89.8 percent of the company’s proved reserves and 90.6 percent of market740 'Annual Report 2011', Lukoil. 2011.
741 'General Information', Lukoil, retrieved 19 December 2012.
742 'Global 500: Lukoil', CNN Money, retrieved 9 December 2011.
743' The World's Biggest Oil Companies', Forbes, 16 July 2012.
744 'OAO Lukoil History', Funding Universe, retrieved 19 December 2012.
745 'Lukoil', New York Times Business, retrieved 19 December 2012.
131
able hydrocarbon production are in Russia 741, but the company also explores for oil
and gas in Azerbaijan, Colombia, Egypt, Iran, Kazakhstan, and other areas in the
Middle East and Central Asia. 746 Average daily production as of 2012 was 2.2 million boe
per day.743
In July 2010 US oil major ConocoPhillips sold its entire 20 percent stake in Lukoil, val ued at around $9 billion. Lukoil agreed to buy back 7.6 percent of its stock from Cono coPhillips for $3.44 billion.747
Lukoil operations in Iraq
History
Lukoil was granted the rights to develop oilfields in 1997 by Saddam Hussein. The
company held a 68.5 percent share in the consortium, a project which was then cancelled by Hussein's regime after Lukoil refused to violate UN sanctions against Iraq by
drilling.748. Lukoil had been trying to revive the deal since 2003 after Moscow wrote off
most of Iraq's $12.9 billion in debts 749 and in April 2009 Lukoil’s CEO unsuccessfully lobbied Iraqi Prime Minister Nouri al-Maliki to reinstate the contract from the Hussein
era.750
West Qurna 2
After unsuccessfully bidding for the first phase of the West Qurna project, Lukoil and
partner Statoil won rights in 2009 to develop the second phase of Iraq’s 'super giant'
West Qurna crude deposit, the largest offered to foreign investors in the second round
of bidding in Iraq.750 The consortium offered to develop the field in exchange for $1.15
for each barrel of oil it extracted, outbidding companies including BP and Total. Under
the terms of the contract, Statoil would hold an 18.75 percent stake in the consortium,
with Lukoil holding 56.25 percent and the Iraqi state's North Oil Company (NOC) holding the remaining 25 percent.751 Lukoil announced in 2010 that they planned to invest
US $4.5 billion at West Qurna 2 over the following 4-5 years and $300 million over
2010.752.
In November 2012 Lukoil CEO Vagit Alekperov suggested that Lukoil may look to
"wade deeper into Iraq" by expanding through participation in the West Qurna-1 field.
UPI reported that officials in Baghdad considered bringing Lukoil into the project to
potentially replace ExxonMobil, who angered the central government by signing deals
746 'Lukoil Company Profile', Yahoo Finance, retrieved 9 December 2011.
747 'ConocoPhillips to Sell Lukoil Stake After Posting Profit Gain', Bloomberg, 28 July 2010.
748 'Iraq: Lukoil Chief Says Prewar Deal Still Valid', CorpWatch, 11 March 2004
749 'Russia's Lukoil Has Won Iraq's 'Crown Jewel' Oil Field', Business Insider, 29 December 2009.
750 'Lukoil, Statoil Win West Qurna ', Bloomberg, 12 December 2009
751 'Oil Field Project in Iraq Won by Lukoil and Statoil', New York Times, 29 December 2009.
752 'Statoil, Lukoil ink Iraq oil contract', RiaNovosti, 31 January 2010
132
directly with the semi-autonomous Kurdistan Regional Government (KRG). 753
Reuters reported in November 2012 that Lukoil put its relationship with the central
government at risk when its Geneva-based trading arm Litasco bought oil from Kurdistan, in defiance of Baghdad. An official from Iraqi state oil marketer SOMO dismissed the claims.754
Marathon Oil Corporation
Type
Traded as
NYSE:MRO
Founded
1887
Headquarters
Houston, Texas
Key people
Clarence Cazalot Jr (President and
CEO)
Revenue
US $14.7 billion (2011)755
Net Income
US $3 billion (2011)755
+14.7%755
Total assets
Total equity
Employees
3,322 (end 2011)755
Website
www.marathon.com
Global snapshot
Marathon Oil Company is a Houston-based international energy company engaged in
exploration and production, oil sands mining and integrated gas. Its worldwide production operations are focused in North America, Africa and Europe. 756
The company's origins lie in the purchase of the Ohio Oil Company by John D. Rockefeller's Standard Oil Trust in 1889, but the company resumed independent production
following its dissolution in 1911. The Ohio changed its name to the Marathon Oil Company in 1962 in honour of its brand name motor fuel. Having been bought out by
United States Steel in 1982, the steel business was finally sold off in 2001. 757 In May of
2011, Marathon's Board approved the spin-off of its downstream business, Marathon
753 'Lukoil may wade deeper into Ira',q UPI, 30 November 2012.
754 'Russia's LUKOIL joins rush to export Kurdish oil',, Reuters, 28 November 2012.
755 '2011 Annual Review', Marathon Oil Corporation, 2011.
756 'About Us', Marathon Oil Corporation, retrieved 11 October 2011.
757 'About Us: History', Marathon Oil Corporation, retrieved 11 October 2011.
133
Petroleum Corporation.758
At the end of 2011 Marathon had proven reserves of 1.8 billion barrels of oil equivalent
(boe).759 As of 2012 Marathon was developing strategic growth assets in US unconventional liquid-rich plays and deepwater Angola. Production in these assets was expected to grow at a 25 percent annual growth rate through until 2015, with liquids accounting for around 70 percent of the mix. 760
Marathon operations in Iraq
History
Marathon pre-qualified to participate in the central government's second licensing
round in 2009, but eventually decided not to bid. 761 Hence contracts signed with the
Kurdistan Regional Government (KRG) in 2010 marked the beginning of Marathon's
operations in Iraq.
In 2010 Marathon acquired a position in four exploration blocks in Kurdistan in October 2010, under the framework of production sharing contracts (PSCs) signed directly
with the KRG. These were the Harir (approximately 78,000 net acres) and Safen (approximately 47,000 net acres) blocks, located north-east of Erbil, and the Atrush and
Sarsang blocks, located north-west of Erbil. 762
Harir and Safen
Marathon became the operator at the Harir and Safen blocks, while the KRG held a 20
percent interest.763 However in July 2012 the company agreed to 'farm down' these two
blocks, reducing their stake to 45 percent. 764 This was to make way for French oil major
Total's entry into the region. 765 As of 2012 the company remained the operator of the
Harir block and the exploration operator of the Safen block. The first exploration well
on the Harir block began drilling in July 2012 and the first exploration well on the
Safen block is planned for the first half of 2013. 762
758 'Marathon's Board Approves Spin-Off of Marathon Petroleum Corporation', OilVoice, 25 May
2011.
759 'Marathon Oil Sets 2013 $5.2 Billion Capital, Investment and Exploration Budget', Offshore
Source, retrieved 19 December 2012.
760 '2010 Annual Review', Marathon Oil Corporation, retrieved 11 October 2011.
761 'Iraq's Oil Bid Round 2: U.s. Firms' Participation', Wikileaks 21 December 2009.
762 'Kurdistan Region of Iraq', Marathon Oil, retrieved 6 December 2012.
763 'Marathon Acquires Positions in 4 Exploration Blocks in Kurdistan', Iraq Business News, 20
October 2011.
765 'Marathon Oil sells stake in oil fields in Iraq's Kurdistan', Reuters', 31 July 2012.
134
Atrush
Marathon took a 20 percent working interest in the Atrush block. The remaining 80
percent was taken by joint-venture company General Exploration Partners (GEP). 766.
However in December 2012 GEP sold 53.2 percent of its interest in the block to Abu Dh abi National Energy Company (TAQA). 767 In April 2011 Marathon announced the discovery of oil at the Atrush site.768
Sarsang
At Sarsang the company has a 25 percent working interest. 769
Occidental Petroleum
Type
Traded as
NYSE:OXY
Founded
1920
Headquarters
Los Angeles, USA
Key people
Ray R. Irani (Chairman), Stephen
Chazen (President and CEO)
Revenue
US $23.9 billion (2011)770
Net income
US $ 6.6 billion (2011)770
+45.3%770
Total assets
$60 billion (end 2011)770
Total equity
$37.6 billion (end 2011)770
Employees
over 40,000 (2011)770
Website
www.oxy.com
Global snapshot
Occidental Petroleum, often referred to as 'Oxy' due to its abbreviation on the NYSE
stock exchange,771 has oil and gas operations consolidated in three core areas: the US,
the Middle East and Latin America. In 2011 the company's US operations accounted for
59 percent of their worldwide production, the Middle East and North Africa 37 percent
766 'Atrush Well Delivers for Marathon Consortium', Rigzone, 14 April 2011.
767 'TAQA Buys into Atrush Block', Iraq Business News, 3 December 2012.
768 'Marathon Strikes Oil in Iraq', Zacks Equity Research 20 October 2011.
770 'Annual Report 2010' Oxy, retrieved 06 October 2011.
771 'Occidental Petroleum Corp Profile', Reuters, retrieved 06 October 2011.
135
and Latin America 4 percent.770
The company was founded in California in 1920. Chairman Ray Irani was elected on
the death of Armand Hammer in 1990, who had headed the company since 1957. 772
At the end of 2011 Oxy held 2.3 billion barrels of oil equivalent (boe) in reserves and
average daily production was 428,000 barrels per day (bpd). 770 According to a feature in
Forbes magazine, the secret of the company's success is 'no wildcatting' and company
president Steve Chazen, a former investment banker, commented in 2010 that "we're
in the oil recovery business, not the oil discovery business". 773
Occidental operations in Iraq
History
The service contracts signed in 2009 marked the start of Occidental's work in Iraq. In a
leaked US diplomatic cable from early 2010, the Iraq country manager for Chevron
commented that, excluding state-controlled companies, "Occidental Petroleum was
the only Western IOC that is not a former IPC (Iraq Petroleum Company) partner and
that bid aggressively enough to be awarded a contract from Iraq's 2009 oil bid
rounds."774
Zubair
Occidental originally bid for development of the Zubair field in Iraq's first post-war li censing round, as part of a consortium with fellow companies Eni, Sinopec and Kogas,
proposing a remuneration fee of $4.80 per barrel. However on this occasion no bids for
the field were accepted as the per-barrels fees bid were considered too high by the Ir aqi government.775 However following bilateral negotiations, in January 2010 Oxy announced that the amended consortium had signed a contract with the state-owned
South Oil Company (SOC) and Maysan Oil Company (MOC) to develop the field. The relative stakes in the consortium were as follows: Eni (32.8 percent), Occidental (23.44
percent) and Kogas (18.75 percent).776
A US diplomatic cable from January 2010 claimed that the Eni/Occidental/Kogas consortium was the only consortium not to have accepted changes demanded by the Ministry of Oil and suggested the companies may have gained some concessions on the
changes demanded by the Ministry.777
772 'Corporate History', Oxy, retrieved 19 December 2012.
773 'Occidental Petroleum's Path to Easy Oil', Forbes, 3 November 2010.
774 'Chevron On Ioc Investing In Iraq', Wikileaks, 20 February 2010.
775 'Zubair Contract Area - Bidding Results', LA Times, 2 July 2009.
776 'Occidental Petroleum and partners to develop massive Iraqi oil field', LA Times, 23 January
2010.
777 'All Oil Bid Round Contracts To Be Signed By January 31', Wikileaks, 19 January 2010.
136
Pakistan Petroleum
Type
State-owned
Founded
1950778
Headquarters
Karachi (Pakistan)
Key People
Asim Khan (CEO)779
Website
www.ppl.com.pk
Global snapshot
Pakistan Petroleum (PPL)'s shareholding is divided between the government (71 percent), the PPL Employees Empowerment Trust (7 percent) and private investors (22
percent).
Within Pakistan, the company operates six producing fields and holds a working interest in 13 partner-operated producing fields. The company contributes around 24
percent of the county's total natural gas supplies. PPL has also expanded its operations
internationally. As of 2012 it had an interest in a joint venture exploration license in
Yemen, as well as having acquired an exploration block in Iraq. 778
Pakistan Petroleum operations in Iraq
History
The contracts signed following Iraq's fourth licensing round in 2012 marked the start
of Pakistan Petroleum's work in Iraq.
Block 8
In 2012 PPL signed a gas exploration contract with the Iraqi government to explore for
natural gas in Block 8 in Diyala and Wasit provinces in eastern Iraq. CEO Asim Khan
commented that "we are planning to spend a minimum of $100 million to start exploration activities and we might need additional $400 million as investments."779
778 'Overview', Pakistan Petroleum Limited, retrieved 6 December 2012.
779 'Iraq, Pakistan Petroleum Sign Final Gas Deal', Natural Gas Asia, 6 November 2012.
137
Petronas
Type
state-owned
Founded
1974
Headquarters
Kuala Lumpur, Malaysia
Key People
Shamsul Azhar Bin Abbas (CEO)
Revenue
US $97.4 billion (2011)780
Net income
US $21.9 billion (2011)780
+25.4%780
Total Assets
US $157.4 billion (end 2011)780
Employees
43,860780
Website
www.petronas.com.my
Global snapshot
Petronas, short for 'Petroliam Nasional Berhad', was founded in 1974 and is Malaysia's
state-owned national oil company and the country's most profitable company. The
company is Malaysia's only representative in the Fortune 500 781 and in 2012 was the
25th largest global oil company by production, at 1.4 million barrels per day (bpd). 782
Petronas subsidiaries operate in more than 20 countries, primarily in Asia and Africa.
In 2011 the company had reserves of more than 27 billion barrels of oil equivalent
(boe) and was a major producer of liquid petroleum gas (LPG) and liquefied natural gas
(LNG).783
In 2007, the Financial Times identified Petronas as one of the 'new seven sisters' - one of
the most influential energy companies from countries outside the Organisation for
Economic Co-operation and Development (OECD). 784 In turn, the Economist refers to
Petronas as 'a successful example of a national oil company' commenting that, in contrast to Brazil's Petrobras, Malaysia has not made significant domestic oil discoveries
in recent years. During the 1990s the company began expanding abroad, mostly in
Africa and by 2007 had invested in 66 upstream projects in 22 countries. 785
780 'Petronas', Forbes, retrieved 19 December 2012.
781 'Malaysia's Petronas profit falls 23 percent ', The Boston Globe, 1 july 2010 .
782 'The World's 25 Biggest Oil Companies', Forbes, 7 July 2012 .
783 'Petronas', Hoovers, retrieved 15 December 2011.
784 'The New Seven Sisters', Financial Times, 12 March 2007.
785 'Drilling and nation-building', Economist, 8 October 2009.
138
Petronas operations in Iraq
History
The contracts signed by Petronas in 2009 marked the beginning of their operations in
Iraq. Petronas was the most prolific bidder in Iraq's second licensing round that year,
submitting five bids and winning four.786
Petronas operates in Iraq via fully owned subsidiary Petronas Iraq Garraf Ltd (formerly
known as Petraonas Carigali Iraq Ltd), the head office of which is in Dubai. 787 788
Garraf
A consortium led by Petronas submitted a bid for development of the Garraf field on
the first day of bidding in December 2009. According to leaked US diplomatic cables,
the undeveloped Garraf field was one of the first two fields offered, which received
bids at 'stunningly low prices'. The partners in the winning consortium were Petronas
(60 percent) and Japex (40 percent).786
Halfaya
Petronas held a 25 percent interest in the winning consortium bidding for the Halfaya
field. Other partners were CNPC (the operator with 50 percent) and Total (25 percent).
The remuneration fee offered was $1.40 per barrel. The contract was signed on the 27
January 2010.786
Majnoon
Petronas also signed a 20-year service contract to develop the Majnoon field, along
with international oil company Shell. Shell is the lead operator in the consortium with
a 45 percent stake. Petronas holds 30 percent and the Iraqi state holds 25 percent. 789
Badra
Only one consortium, led by Gazprom, bid for the Badra contract area in the second licensing round. The Oil Ministry announced in December 2009 that it had accepted a
revised bid from the consortium, which comprised of Gazprom (30 percent), Korean
Gas Company (22.5 percent), Petronas (15 percent) and TPAO (7.5 percent). The 25 percent Iraqi state partner was the Oil Exploration Company (OEC). 790
786 'Oil Stampede: Iraq,s 2nd Bid Round Result',s Wikileaks, 14 December 2009.
787 'Petronas', Dubai International Finance Centre, retrieved 6 December 2012.
788 'Petronas Directory', Petronas, retrieved 6 December 2012.
789 'Iraq Signs Majnoon Oilfield Agreement With Shell, Petronas', Bloomberg, 17 January 2010
790 'Iraq’s Second Petroleum Licensing Round Badra Contract Area – Bidding Results', Iraqi
Ministry of Oil, 2009.
139
Community relations
According to Iraq Oil Report Petronas has experiences a serious of problems in its relationship with the local community since beginning operations in the country in
2009.791
In 2010 tribal leaders near the Garraf field demanded that Petronas compensate them
for developments in the region, causing the exploration unit to halt its work. Among
the issues raised by the tribal leaders was the damage done by pipelines to local agriculture, a claim refuted by local officials. Abdul Hussein Hadi Hajr, technical adviser to
Dhi Qar's provincial council, said that tribal leaders had engaged in extortion using vi olent threats against both Petronas and Iraqi state companies. An Oil Ministry spokesman said that any attempt by the tribes to negotiate a compensation package directly
with Petronas was against the law.792
In early 2012 security guards at the Garraf site staged a sit-in protest against the company, demanding wage parity with security guards at the Ahdab oil field and compensation for landowners negatively affected by operations. In addition, locals have protested about pollution levels at Garraf, accusing Petronas of not utilising a proper incinerator for disposing of test oil. State officials put the problem down to the heavy
nature of the oil at the site, which creates more smoke, but Dhi Qar's Environment Dir ector Raji Nu'eima Minshid commented that they should abide by pledges made in
their environmental impact assessment (EIA) and threatened legal action by the Environment Ministry.793
In a further blow to the company's operations, in November 2012 villagers from near
the Garraf field stormed the field offices of Petronas and damaged much equipment.
The unrest followed a dispute over Shi'ite religious observances, in what is a reli giously conservative region of Iraq, sparked when Petronas employees allegedly removed flags hung to celebrate the start of the month of Muharram. As a result of the
events, one Malaysian and one Iraqi were hospitalised. 791
Shell
Type
Traded as
LSE:RDSA NYSE:RDSA
Founded
1907
Headquarters
The Hague (Netherlands), London
(UK)
Key People
Peter Voser (CEO), Jorma Ollila
791 'Protestors storm Garraf oil field after religious dispute', Iraq Oil Report, 30 November 2012.
792 'Tribal demands, alleged extortion stall oil development', Iraq Oil Report, 2 June 2010.
793 'Beyond the Headlines: May 14, 2012', Iraq Oil Report, 14 May 2012.
140
(Chairman)
Revenue
US $484.5 billion (2011)794
Net Income
US $31.2 billion (2011)794
+52.3%794
Total Assets
US $345.3 billion (end 2011)794
Total Equity
US $171 billion (end 2011)794
Employees
90,000 (end 2011)794
Website
www.shell.com
Global snapshot
Anglo-Dutch company Shell was ranked in first place on the 2012 Global Fortune 500
list of the world's most valuable companies. 795 It engages worldwide in the upstream,
downstream and corporate segments, and also has interests in chemicals and other
energy-related businesses.796 In 2012 Shell was also ranked as the 7th largest oil company worldwide by production, with average daily production of 3.9 billion barrels of
oil equivalent (boe) per day.797
The company name and the corporate logo were decided upon due to founder Marcus
Samuel's background in importing and exporting oriental shells. He and his brother
renamed their oil transport company the Shell Transport and Trading Company in
1897. Royal Dutch was a company formed to develop oil fields in the Dutch East Indies
and the two companies joined forces in order to protect themselves against competitor Standard Oil. The full merger of the two companies came in 1907. 798
According to CNN, as access to oil gets tighter Shell is looking to develop its alternative energy assets and in 2010 signed an agreement with a Brazilian biofuel company
called Cosan that makes ethanol from sugarcane. In 2011 Shell was also developing
technology to build the first floating, liquefied natural gas (LNG) plant, which would
give the company an edge over competition when it comes to accessing fuel in deep
water. This will be particularly critical as Shell has signed off on new drilling projects
in the Gulf of Mexico and off the coast of Brazil. 795
Shell operations in Iraq
History
Shell first entered Iraq before it was a sovereign country, as part of the Turkish Petro794 'Annual Review 2011', Shell, 2011.
795 'Global 500:Royal Dutch Shell', CNN Money, retrieved 19 December 2012.
796 'Royal Dutch Shell Profile', Reuters, retrieved 12 December 2011.
798 'The beginnings', Shell, retrieved 19 December 2012.
141
leum Company (predecessor of the Iraq Petroleum Company). The company enjoyed
monopoly rights to the country's oil fields and dictated the terms of production and
development until 1972, when Iraq fully nationalised its oil sector and expelled the
foreign oil companies.
After the US-led invasion in 2003, Shell was among the many international oil firms
who returned seeking to explore Iraq's reserves, taking stakes in the West Qurna 1 and
Majnoon fields.799 A 2012 report by Reuters suggested that Shell was exploring the possibility of entering the Kurdistan region, a suggestion denied by government officials.
A Shell spokesman said that "over time, we want to work in all of Iraq, but for the time
being we've got three mega-projects on the go (in southern Iraq),". According to the
report, Shell had come close to securing contracts in the Kurdistan region twice, but
pulled back so as not to antagonise the government in Baghdad, which considers contracts signed by the KRG as illegal. 800
West Qurna 1
Following Iraq's first post-war licensing rounds in 2009, in January 2010 Shell was the
junior partner in the consortium that finalised a deal to develop the West Qurna field
(Phase 1), after further negotiations with the Iraqi government. The senior partner in
the consortium was ExxonMobil.801 ExxonMobil holds a 60 percent stake in the project,
Shell holds 15 percent and the remaining 25 percent belongs to the Iraqi state.
Reports by Dow Jones newswire in November 2011 suggested that Shell might take over
Exxon's stake in the field if their contract was terminated by the government as a con sequence of the deals its signed with the Kurdistan Regional Government (KRG). 802 As
of November 2012 Exxon was progressing with the sale of its West Qurna assets, but it
was not yet confirmed who the buyer would be.803
Majnoon
In Iraq's second post-war licensing round in 2009, Shell was part of a consortium including Petronas that won the contract to develop the Majnoon oil field. Shell holds a
45 percent share in the contract, Petronas 30 percentand an Iraqi state company holds
the remaining 25 percent.804 The fee was set at $1.39 per barrel and the consortium
pledged to increase output from the field to 1.8 million barrels per day (bpd), more
than twice what Iraq had expected.805
799 'The secret history of the Shell gas deal', Iraq Oil Report, 21 January 2010
800 'Iraq says Shell denies oil talks with Kurdistan', Reuters, 26 September 2012.
801 'Exxon, Shell Sign Final Deal For Iraq’s West Qurna 1 Oil Field', Royal Dutch Shell, 25 January
2010.
802 'Shell to Replace Exxon at West Qurna 1?', Iraq Business News, 21 November 2011.
803 'Iraq says expects Exxon to finish West Qurna sale by December',Reuters, 9 November 2012.
804 'Royal Dutch Shell plc welcomes Iraq Majnoon contract award', Shell, 11 December 2009.
805 'Iraq Oil Field Goes to Royal Dutch Shell and Petronas', New York Times, 11 December 2009.
142
In October 2010 Shell CEO Peter Voser announced that the company had already raised
production at the Majnoon field to 70,000 bpd, up from 45,000 bpd previously, however acknowledging that the risk of operating in Iraq had increased in recent
months.806 The company suffered a series of setbacks in the development of the field in
achieving a production target of 175,000 bpd, the level required for the company to
start recovering costs under its deal with the Iraqi oil ministry. 807
According to Shell's director of media relations Diego Perez, 2,500 out of 3,000 Shell
staff at the Majnoon field in 2012 were Iraqis.808
South Gas Utilisation Project
See also: South Gas Utilisation project
In September 2008, Shell signed a Heads of Agreement (HOA) with the Oil Ministry to
capture some of the gas flared at Basra in the south, for a project which later came to
be known as the 'South Gas Utilisation Project'.
Sonangol
Type
Parastatal
Founded
1976
Headquarters
Luanda, Angola
Key People
Manuel Vicente (President)
Revenue
US $34 billion (2011)809
Net Income
US $3.2 billion (2011)810
+32%810
Website
www.sonangol.co.ao
Global snapshot
Sonangol UEE was established in 1976 following the nationalisation of 'Angol', the oil
group that Angola's new rulers inherited from the Portuguese following independence. Sonangol UEE became Sonangol EP in 1999. 811809 The company claims that, despite having the government as its sole shareholder, Sonangol has always been gov806 'Shell Already Reports Success at Majnoon', Iraq Business News, 12 October 2010
807 'Shell Expects To Meet Iraq Oil Field Target Despite Setbacks', Wall Street Journal, 19
September 2012.
808 'Beyond the Headlines: Oct. 9, 2012', Iraq Oil Report, 9 October 2012.
809' Sonangol: An economic octopus', Sonangol, 18 July 2012.
810 'Sonangol’s $3.2bn profit shows NNPC’s model as broken', Business Day, 12 December 2012.
811 'Our History', Sonangol, retrieved 19 December 2011.
143
erned as a private company and is under strict performance standards to ensure efficiency and productivity.812
Sonangol EP engages in research, exploration, and production of oil and gas. Its activities include prospecting, development and refining of hydrocarbons and their derivatives. The company also operates a network of gas and service stations and operates
an airline, which provides air transportation to the oil industry through a fleet of airplanes and helicopters in Africa and internationally. 813 It also has an expansive portfolio of interests in everything from infrastructure, banking and real estate to a football
team.814
In 2012 Sonangol was producing around 100,000 barrels per day (bpd) but was looking
to increase this fivefold to 500,000 bpd.814
According to a 2011 report by the Organisation for Economic Co-operation and Development (OECD), the revenues earned from oil and gas sales have made Sonangol the
second largest company in Africa in terms of turnover and profits. The report also
claims that Sonangol has been behaving like a sovereign wealth fund (SWF), using oilbased funds for investments in other countries, such as investments in West African
iron ore mines.815
Transparency watchdog Revenue Watch has criticised the complexity and secrecy of
Sonangol, which does not divulge all financial relations and sub-contracting procedures for assigning work.816
Sonangol operations in Iraq
History
The contracts signed in 2009 marked the beginning of Sonangol's operations in Iraq.
Sonangol won two contract areas during Iraq's second round of licensing in 2009, Najmah and Qayara. Both lie in Nineveh province, known as one of Iraq's most troubled
areas. "We know that the area where we are going is risky but we are also sure that
with the cooperation with the Iraqi authorities we will be able to fulfil our compromise and be able also to produce oil for Najmah and Qayara," said Gaspar Martins, Pres ident and CEO of Sonangol.817
812 'About Sonangol EP', Sonangol, retrieved 19 December 2011.
813 'Sonangol EP', Bloomberg Business Week, retrieved 19 December 2011.
814 'Sonangol: An economic octopus', Sonangol, 18 July 2012.
815 ' Sonangol EP', OECD Publishing, 3 May 2011, p70.
816 'Angola: Transparency Snapshot', Revenue Watch Institute, retrieved 19 December 2012.
817 'Angola's Sonangol sign Iraqi oilfield deals', ITN, 28 January 2010
144
Qayara
At the Qayara field, Sonangol took a 75 percent stake in the venture. Sonangol said
that it would invest IS $2 billion at the field. 818 In March 2011 Sonangol started work at
the Najmah field and was due to start to dig wells in April 2011. 819
Najmah
Sonangol was the only company to bid for the Najmah contract area in the second licensing round and the Oil Ministry announced on 12 December 2009 that the company
had been awarded the contract area.820
Security problems
As of March 2012 Sonangol's projects in Iraq remained paralysed under 'force majeure'
following an attack on facilities in 2011. This set back the company's international
plans. Under current conditions it has been suggested that Sonangol would start producing at a rate of 50,000 barrels per day (bpd) from around 2013. 821
Statoil
Type
Partially state-owned
Traded as
OSE:STL NYSE:STO
Founded
1972
Headquarters
Stavanger, Norway
Key people
Helge Lund (CEO), Svein Rennemo
(Chairman)
Revenue
US $119.6 billion (2011)822
Net Income
US $6.3 billion (2011)823
+116.4%823
Total assets
NOK 768.6 billion (approx. US
$138.4 billion), 2011.822
818 'FACTBOX-Oil deals between Iraq and global majors', Reuters, 26 February 2010.
819 'Sonangol to Start Work on Ninewa Oilfields', Iraq Business News, 14 March 2011.
820 'Iraq’s Second Petroleum Licensing RoundNajmah Contract Area – Bidding Results', Ministry
of Oil Petroleum and Licensing Directorate, 12 December 2009.
821 'Sonangol's Iraq Field Still Under Force Majeure', Energia, 13 March 2012.
822 'Annual Report 2011', Statoil, 2011.
823 'Fortune 500: Statoil', CNN Money, retrieved 19 December 2012.
145
Total equity
NOK 285.2 billion (approx. US$51.4
billion), 2011.822
Employees
30,300 (end 2011).823
Website
www.statoil.com
Global snapshot
Statoil, formerly known as 'StatoilHydro', became the largest offshore operator in the
world following its merger with Norsk Hydro in 2007. 824 The Norwegian government is
the largest shareholder in Statoil with 67 percent. 825 However head of Statoil for
Canada Stale Tungesvik has told press that Statoil behaves like a private company and
the state has no role in its management. 826 Statoil was also named the most transparent of the world's 105 publicly traded companies by pressure group Transparency In ternational in 2012.827
In Europe Statoil is the second-largest supplier of natural gas 826 and internationally,
Statoil has operations in 34 countries and is listed on the New York and Oslo stock ex changes.828
At the end of 2011 Statoil had proven reserves of 5.43 billion barrels of oil equivalent
(boe).829 As of 2012 the company was producing between 1.8 - 2.1 million boe daily, according to differing estimates, 830831 but was aiming to increase this figure to 2.5 million
boe per day by 2020 by ramping up its unconventional exploration and North Sea operations.831
Statoil operations in Iraq
History
2009 marked the beginning of Statoil's involvement in Iraq.
West Qurna 2
After unsuccessfully bidding for the first phase of the West Qurna field, Statoil and
824' Statoil to buy the natural gas and oil operations of Norsk Hydro for $28 billion', New York
Times, 18 December 2006.
826 'Norway’s state-owned energy giant Statoil wants to be judged on its own actions', Financial
Post, 15 October 2012.
827 'Statoil tops, Gazproms flops in transparency ranking', Barents Observer, 10 July 2012.
828 'Statoil in Brief' Statoil, retrieved 07 October 2011.
829 'Annual Report 2011', Statoil, retrieved 12 December 2012.
831 'Shale to spur Statoil output drive', Petroleum Economist, 28 November 2012.
146
partner Lukoil won rights in 2009 to develop the second phase of Iraq’s 'super giant'
West Qurna crude deposit, the largest offered to foreign investors in 2009's second
round of bidding832. The consortium offered to develop the field in exchange for $1.15
for each barrel of oil it extracted, outbidding offers from companies including BP and
Total. Under the terms of the contract, Statoil was to hold an 18.75 percent share of
the consortium, with Lukoil holding 56.25 percent and the state-owned North Oil Company (NOC) holding the remaining 25 percent. 833 Peter Mellbye, Statoil's Head of International Exploration and Production said in 2010 that the company would invest $1.4
billion over the following 4 to 5 years.834
However, after receiving the approval of the Iraqi Oil Ministry in March 2012, Statoil
began selling off its stake in the field, leaving Russian Lukoil as the sole foreign partner in the project. Reuters reported that the company was looking to turn its attention
to less risky assets elsewhere, such as Norway and the US. 835
Talisman Energy
Type
Traded as
TSX:TLM NYSE:TLM
Founded
1992
Headquarters
Calgary, Canada
Key People
John Manzoni (CEO, President)
Revenue
US $8.3 billion (2011)836
Net Income
$776 million (2011)836
Total Assets
$24.2 billion836
Employees
3,695 (2012)836
Website
www.talisman-energy.com
Global snapshot
Talisman Energy is an upstream oil and gas company that engages in the exploration,
development, production, transportation, and marketing of crude oil, natural gas, and
natural gas liquids. It primarily operates in North America, the UK, Scandinavia, and
south-east Asia. Talisman was created in 1992 when BP spun off its Canadian unit. CEO
John Manzoni formerly worked for BP as head of the company's refining and market832 'Lukoil, Statoil Win West Qurna', Bloomberg, 12 December 2009.
833 'Oil Field Project in Iraq Won by Lukoil and Statoil', New York Times, 29 December 2009.
834 'Statoil plans to invest $1.4bn in Iraq oilfiel'd, Gulf Daily News, 9 January 2010.
835 'Iraq OKs Statoil sale of oilfield stake -sources', Reuters, 9 January 2010.
836 'Talisman Energy', Forbes, retrieved 19 December 2012.
147
ing unit.837 The company is listed on the Toronto and New York stock exchanges. 838
In 2012 Talisman Energy was ranked at number 624 in Forbes' Global 2000 list of the
world's biggest public companies. 836 Over 2011 average daily production stood at
426,000 barrels of oil equivalent (boe) per day and global proven reserves stood at 1.49
billion boe.839
Talisman Energy operations in Iraq
History
Contracts signed with the Kurdistan Regional Government (KRG) in 2008 marked the
beginning of Talisman's operations in Iraq.
Blocks K44, K39 and K9 (Kurdistan)
As of November 2011 Talisman held contracts in three oil fields in Kurdistan, 840. In
2008 the company acquired a 40 percent non-operated interest in Block K44 (Kurdamir
Block), in partnership with Calgary-based Western Zagros (40 percent) and the KRG
(20 percent)841. They also acquired a 60 percent operating interest in Block K39 and
signed a Production Sharing Contract (PSC) for a 55 percent working interest in Block
K9 in June 2009.842
In June 2008 Talisman announced that they would spend CAD $300 million to explore
in the region. A company spokesman said that the company had performed a security
assessment and thought that the region "stacks up with other areas in the world
where it operates, such as Southeast Asia." 843 In March 2012 the company announced
that it had discovered light oil at one of its Kurdistan wells. 844
In December 2012 Talisman's head of exploration Richard Herbert commented to the
Petroleum Economist that capitalising on gas sales from its fields may offer a way of
monetising its hydrocarbons in Kurdistan given the political constraints on oil exports, which are controlled by the central State Oil Marketing Organisation (SOMO).
This would allow them to recoup some of the money the firm had invested in the Kurdamir prospect.845
837 'BP sells $1.9B Colombian assets to Ecopetrol, Talisman', Colombia Reports, 3 August 2010.
838 'About Our Company', Talisman Energy, retrieved 19 December 2011.
839 'Annual Report 2011', Talisman Energy, 2011.
840 'Bickering Over Oil and Gas Law Hurts Foreign Investment', Rudaw, 22 November 2011.
841 'Iraq Kurdistan K44 oil reserves doubled to 2.2 billion barrels: audit', Platts, 20 July 2011.
842 'The Role of the Private Sector in Peace and Development - Delivering for Results, Beyond
Economics', Talisman Energy Report, 12 May 2011.
843 'Talisman heads into Iraq with $300-million stake', Calgary Herald, 24 June 2008.
844 'Talisman finds light oil at Iraq well', Reuters, 26 March 2012.
845 'Kurdistan eyes major role in Turkish gas market, Petroleum Economist, 13 December 2012.
148
Total
Type
Traded as
Euronext:FP NYSE:TOT
Founded
1924
Headquarters
Courbevoie, France
Key people
Christophe De Margerie (CEO),
Thierry Desmarest (Chairman)
Revenue
billion), 2011.846
Net Income
€12.3 billion (approx. US $16.3 billion), 2011.846
+16.1%846
Total assets
billion), end 2011.846
Employees
96,104 (end 2011)847
Website
www.total.com
Global snapshot
In 2012 Total was the world's 13th largest oil company by production, with an average
of 2.7 million barrels of oil equivalent (boe) produced per day. 848 It had operations in
more than 130 countries.847
The company has been through several name changes through its history. It was foun ded as the Compagnie Francaise des Pétroles in 1924 and in 1927 it made its first discovery at the Baba Gurgur oil field in northern Iraq. The company renamed itself Total
CFP in 1985 and later in 1991 the name was changed to Total. At this time the French
government owned over 30 percent of the company's stock, but reduced this to less
than 1 percent by 1996. When Total took over Belgian Petrofina in 1999 it became
known as Total Fina and after merging Elf Aquitane in 2000 it was temporarily named
TotalFinaElf.849
At the end of 2011 the company had proven reserves of 11.4 billion barrels of oil equivalent (boe).847
846 'Form 20F 2011', Total, 2011.
847' Group Presentation', Total, retrieved 19 December 2012.
848' The World's 25 Biggest Oil Companies', Forbes, retrieved 19 December 2012.
849' An illustrated history of Total', Total, retrieved 19 December 2012.
149
Total operations in Iraq
History
Total S.A. began its work in Iraq as part of the Iraq Petroleum Company (IPC) in the
1920s when it discovered the Kirkuk field, followed by further developments at the
Buzurgan and Abu Ghirab fields in the 1970s.850.
Under Saddam Hussein’s regime in the 1990s, Total signed agreements to develop the
Majnoon and Nahr Bin Omar fields in the case of the country being freed from sanctions. However after Hussein’s fall in 2003, the new administration announced that
they would not recognise deals signed under the dictator. In 2007, it was reported that
Total signed an agreement together with Chevron that would lead to the two companies exploring and developing hydrocarbons from the Majnoon field once the country
had put an oil law into place.851
However as of December 2012 the company's position in the country remained uncertain following the deals it signed in the summer of that year directly with the semiautonomous Kurdistan Regional Government (KRG).852
Halfaya
In 2009 Total was part of the consortium that won the contract to develop the Halfaya
oil field, with Total holding an 18.75 percent stake in the project, CNPC 37.5 percent,
Petronas 18.75 percent and the Iraqi state-run South Oil Company (SOC) holding the
remaining 25 percent stake.853. The contract stipulated a remuneration fee of $1.40 per
barrel and the payment of a non-recoverable signature bonus of US $150 million 854 The
consortium pledged to boost output at Halfaya to 535,000 barrels per day (bpd) from a
2010 level of 3,100 bpd855
Harir and Safen (Kurdistan)
In July 2012 Total purchased Kurdish assets from US-based Marathon Oil Corporation,
acquiring a 35 percent stake in two blocks, at Harir and Safen and becoming operator
of one license.852
Total CEO Christophe de Margerie had signalled earlier that year that the company
would consider investments in Kurdistan given the more attractive fiscal conditions
850' Total and partners Petrochina and Petronas to develop the Halfaya oil field ', Total, 28
January 2010.
851 'Total sign Iraq oil contract for Majnoon Field', The Bush Agenda, 8 August 2007.
852 'Total faces ultimatum on Kurdistan deal', Financial Times, 13 August 2012.
853 'Iraq : CNPC's Halfaya project in Iraq to start operation in H2', The Free Library, 9 March 2010.
854 'Iraq inks CNPC, Total, Petronas Halfaya deal', Iraq Oil Field, 30 January 2010.
855 'CNPC says Iran, Iraq oil projects proceed well' Reuters, 21 April 2010.
150
than in the south.856 A Paris-based industry analyst quoted by Reuters said that the
challenge for Total in these blocks would be the transportation of the product, as
Baghdad could block the use of its pipelines to the south. 856
The UK's Financial Times reported that Hussein Shahristani, Iraq’s Deputy Prime Minister for energy, presented Total with an ultimatum to roll back the deal with the KRG
or give up its interests controlled by the federal government (the Halfaya field). However these reports were not confirmed 852 and later that year De Margerie described as
"unclear" whether the central government would like Total to quit operations at Halfaya.857
Türkiye Petrolleri Anonim Ortaklığı (TPAO)
Type
State-owned
Founded
1954
Headquarters
Ankara (Turkey)
Key People
Mehmet Uysal (CEO)
Revenue
US $3.3 billion (2011)858
Net Income
US $1.4 billion (2011)858
+6.1%858
Total Assets
Shareholder Equity
Employees
4,851 (end 2011)858
Website
www.tpao.gov.tr
Global snapshot
TPAO was established in 1954, when it took over from Turkey's State Minerals Exploration Institute (MTA).859
TPAO has approximately 5,000 employees throughout Turkey and at its branch offices
abroad. According to official company literature, in a bid to improve regional energy
security, TPAO conducts its international activities in the Caspian region, North Africa
and the Middle East. As of 2011, exploration and production activities were being act ively carried out in Azerbaijan, Kazakhstan, Libya and Iraq, and the company was
searching for business opportunities in countries including Syria, Turkmenistan, Iran,
856 'Total's Kurdistan oil deal angers Iraq', Reuters, 31 July 2012.
857 'Total says unclear if Iraq wants it to exit Halfaya', Iraq Business News, 17 November 2012.
858 '2011 Annual Report', TPAO, retrieved 20 December 2012.
859 'TURKEY - TPAO & Its Fields', All Business, 24 April 2000.
151
Russia, Colombia, Sudan and Venezuela. 860 As of late 2012 the company remained stateowned but Reuters reported in early 2011 that the Turkish government was preparing
for the privatisation of TPAO.861
Turkey's oil and gas transportation company BOTAS was established as a subsidiary of
TPAO in 1974.862 In November 2012 BOTAS signed an agreement with Azerbaijani state
oil company SOCAR as shareholders of the Trans-Anatolian pipeline project (TANAP),
one of the links in the chain of the Southern Corridor pipeline project aimed at bringing gas supplies into Eastern Europe and bypassing Russian territory. BOTAS will hold
a 20 percent share in the project.863
TPAO operations in Iraq
History
TPAO began work in Iraq in 1994 864 and has signed several contracts with the Iraqi government since then to operate in southern Iraq.
However following a souring of relations between Baghdad and Ankara, TPAO was expelled in late 2012 from Block 9, acquired during the country's third licensing round
earlier that year.865 Iraq Oil Report reports an increasingly close relationship between
the Turks and the Kurdistan Regional Government (KRG) as being a cause of the col lapse in relations, however as of 2012 TPAO itself had no investments in the Kurdistan
region.866
Badra
Following Iraq's second licensing round in 2009, TPAO was part of the consortium
which won a contract to develop the Badra oilfield. The consortium, in which TPAO
holds a 10 percent stake, (Gazprom 40 percent, KOGAS 30 percent and Petronas 20 percent)867 originally requested $6 per barrel of oil extracted from the field but later accepted the Oil Ministry's offer of $ 5.50868.
Iraqi Oil Minister Hussein Shahristani said in 2009 that he was pleased that TPAO won
the tender for Badra oilfield, adding that Iraqi authorities had been exerting efforts to
860 '2010 Annual Report', TPAO, retrieved 15 December 2011.
861 'Turkey's plans to privatise TPAO at key stage', Reuters, 7 January 2011.
862 'About Us', BOTAS, retrieved 20 December 2012.
863 'SOCAR, Botas and TPAO establish company for TANAP pipeline', Azernews, 7 November 2012.
864 'Eastern Promise', O&G Next Generation, retrieved 7 December 2012.
2012.
866 'Baghdad blacklists TPAO without explanation', Iraq Oil Report, 8 November 2012.
867 'Iraq signs deal with Gazprom group for Badrah', Reuters, 28 January 2010.
868 'Russian energy giant Gazprom wins contract for Iraq's Badra oil field ', Taiwan News, 13
December 2009.
152
boost political, economic and social relations with Turkey. The head of TPAO's International Projects Department Mehmet Ali Kaya also added in 2009 that the company
regarded the tender as a first step for Iraq and that TPAO were eager to participate in
other projects in Iraq.869
Maysan
In 2010 TPAO joined forces with Chinese CNOOC in a second deal to develop the
Maysan oilfield complex.870 TPAO stepped in to take the place of Sinochem, which
withdrew from the consortium during negotiations. CNOOC holds a 63.75 percent majority stake in the group, while TPAO holds 11.25 percent and the Iraqi government
the remaining 25 percent.871
President of the Executive Board and Director General of TPAO Mehmet Uysal said
that "by winning two tenders, TPAO plans to produce 100,000 barrels of oil per day in
the next three years in Iraq".872
Mansuriyah and Siba
When Iraq launched its third licensing round in 2010, three gas fields were tendered
for development: Akkas, Mansuriyah, and Siba.873
A consortium of TPAO (50 percent), Kuwait Energy Company (30 percent) and Kogas
(20 percent) finalised deals in June 2011 to jointly develop the Mansuriyah field in
eastern Iraq,874 which pays $7 per barrel of oil equivalent (boe) extracted 875
Kuwait Energy (60 percent operating stake) and TPAO (40 percent) won the bid to
jointly develop the Siba field in the south and signed a deal that will pay them $7.50
per boe extracted.876
TPAO and its partners expected to invest approximately US $2.5 billion in the Mansuriyah field and $1 billion in Siba. The regional and geographical proximity of TPAO and
Kuwait Energy to Iraq played a role in their winning of the contracts, according to the
Cyprus-based energy newsletter Middle East Economic Survey (MEES).873
Block 9
Following Iraq's fourth licensing round in May 2012, TPAO was part of the consortium
869 'Iraqi Oil Minister Glad TPAO Wins Oil Tender in Iraq', Turkish Weekly, 13 December 2009.
870 'Iraq signs deal with Chinese, Turkish oil firms ', The Peninsula, 18 May 2010.
871 'Iraq in deal with CNOOC, TPAO for Maysan oilfields', Reuters, 17 May 2010 .
872 'Turkey's TPAO awarded second Iraq oil deal', World Bulletin, 18 May 2010.
2010.
874 'Kuwait Energy Bags Contracts For Siba, Mansuriya Gas Fields In Iraq', Arab Times, 20 October
2011.
875 'Mansuriyah Contract Area - Bidding Results', Petroleum Contracts and Licensing Directorate, 20
October 2011.
876 'Siba Contract Area - Bidding Results', Petroleum Contracts and Licensing Directorate, 20 October
2011.
153
that was awarded the contract for the 900-square-kilometre Block 9. The relative
stakes held were the following: Dragon Oil (30 percent), TPAO (30 percent) and Kuwait
Energy (40 percent and operator). The accepted remuneration fee was $6.24 per barrel.
However in November 2012 the Iraq cabinet expelled TPAO from the consortium. Ab dul Mahdi al-Ameedi, director of the Oil Ministry’s Petroleum Contracts and Licensing
Directorate (PCLD) explained that "for reasons to do with non-technical issues and
outside the responsibility of my office and me personally … the Turkish company
TPAO was excluded from the consortium … this decision is final, there is no approval
to sign the contract for Block 9 … the decision (to expel TPAO) is from the cabinet.“
The change would mean that Kuwait Energy's holding would rise to 70 percent. 877 According to Iraq Oil Report, "it appears that regional politics are to blame" for the decision.878
Companies with contracts with the KRG
A growing list of international energy companies have signed contracts with the KRG,
despite the fact that the Iraqi government in Baghdad has declared any oil deals
signed with the KRG illegal. 879 A KRG official said in December 2012 that there were 45
to 50 contractors now working in the region.880
The following is a (non-exhaustive) list of the international firms with operations in
the region, listed by country. The list was compiled from the relevant corporate websites, accessed in December 2012:
Companies with operations in Kurdistan
Austria
OMV: www.omv.com
Canada
Groundstar Resources: www.groundstarresources.com
Niko Resources: www.nikoresources.com
Shamaran Petroleum: www.shamaranpetroleum.com
Talisman Energy: www.talisman-energy.com
Vast Exploration: www.vastexploration.com
2012.
878 'Baghdad blacklists TPAO without explanation', Iraq Oil Report, 8 November 2012.
879 'Iraq sees Exxon's interest in south larger than Kurd deal', Reuters, 19 November 2011.
154
WesternZagros: www.westernzagros.com
China
Addax Petroleum: www.addaxpetroleum.com
Hungary
MOL: www.mol.hu
India
Reliance Industries: www.ril.com
Norway
DNO International: www.dno.no
Papua New Guinea
Oil Search: www.oilsearch.com
Russia
Gazprom: www.gazprom.com
South Korea
Korea National Oil Company: www.knoc.co.kr
Turkey
Dogan Enerji: www.doganholding.com.tr
Genel Energy: www.genelenergy.com
Petoil: www.petoil.com.tr
United Arab Emirates
Abu Dhabi National Energy Company (TAQA): www.taqa.ae 881
United Kingdom
Afren: www.afren.com
881 'TAQA Buys into Atrush Block', Iraq Business News, 3 December 2012.
155
Gulf Keystone Petroleum: www.gulfkeystone.com
Perenco: www.perenco.com
Sterling Energy: www.sterlingenergyuk.com
United States
Aspect Energy: www.aspectenergy.com (in process of divesting assets as of December
2012)881
Chevron: www.chevron.com
Hess: www.hess.com
Hunt Petroleum: www.huntoil.com
Murphy Oil Corporation: www.murphyoilcorp.com
156
Iraqi Entities
Ministry and its operating companies
Ministry of Oil
Structure
The Oil Ministry is the key institution in Iraq's hydrocarbons sector. 882 The Oil Minister
is the functional head of the Iraqi industry, with several undersecretaries reporting
directly to him. Under the umbrella of the Ministry are state-run companies which are
functionally defined, each led by a Director General and other senior staff. 883
The dissolution of the Iraq National Oil Company in 1987 led to the creation of 15 state
owned oil companies directly under the Ministry of Oil. By 2013 this number had
grown to 23 and the operating entities were as follows, each fulfilling a different role:
Petroleum Research & Development Center (PRDC); Baiji Oil Training Institute
(BaiOTI); Basra Oil Training Institute (BasOIT); Kirkuk Oil Training Institute (KOTI);
Baghdad Oil Training Institute (BOTI); Heavy Engineering Equipments (HEESCO); South
Refineries Company (SRC); Midland Refineries Company (MRC); North Refineries Company (NRC); Gas Filling Company (GFC); South Gas Company (SGC); North Gas Company
(NGC); Maysan Oil Company (MOC); South Oil Company (SOC); Midland Oil Company
(MDOC); North Oil Company (NOC); Iraq Drilling Company (IDC); Oil Products Redistribution Company (OPDC); State Organisation for Marketing of Oil (SOMO); Oil Pipelines
Company (OPC); Iraqi Oil Tanker Company (IOTC); Oil Exploration Company (OEC);
State Company of Oil Project (SCOP).884
As of 2007 the Ministry had a total of 66,500 employees in total across all of its separ ate entities.885 On 21 December 2010 Abdul Karim al-Luaibi became Oil Minister after
the incumbent Hussein Shahristani moved posts to become Deputy Prime Minister for
Energy.886
Role
The Ministry is responsible for the day-to-day management of the oil industry, includ882 'Iraq Energy Outlook', International Energy Agency, 9 October 2012.
883 'Iraq's Oil Sector: Issues and Opportunities', James A. Baker Institute for Public Policy, December
2006.
884 'Ministry Establishments' Iraqi Ministry of Oil, retrieved 9 January 2012.
885 'Case Study on Iraq’s Oil Industry', Baker Institute, March 2007.
886 'Iraqi parliament approves new government', BBC, 21 December 2010.
157
ing the overall implementation of oil policy, encouraging investments, coordination
between the state-owned oil companies and training centers, and operation of infrastructure.887 It is also responsible for publishing information on revenue generation,
which includes monthly data on production and exports. 888 Negotiation of oil contracts
is carried out through the State Oil Marketing Organisation (SOMO). 889
The Ministry also receives and considers applications for the establishment of crude
oil refineries after a governorate or province has given preliminary approval for their
construction.890 And, inasmuch as it is the federal government's ministry in charge of
oil and gas, it establishes guidelines for the measurement of hydrocarbon products. 891
By means of the Oil Products Distribution Company (OPDC), the ministry provides and
delivers the petroleum products needed for civilian, commercial and military activities, as well as supplementing electricity needs in order to establish permanent power
supplies.892 Additionally it commands its own police force, which is tasked with the security of the country's oil infrastructure, preventing the smuggling of crude and fuel,
and even the location and defusion of land mines. 893
State Oil Marketing Organisation (SOMO)
Role
Iraq's State Oil Marketing Organisation (SOMO) is an important actor in the Iraqi oil
sector, deemed by the federal government to be the sole body invested with the authority to organise the sale and export of Iraqi oil. The proceeds of oil exported and
marketed by SOMO go to the central government in Baghdad. 889
SOMO is also responsible for covering local consumption needs by purchasing and im porting oil products such as gasoline, gas oil, kerosene and liquid petroleum gas
(LPG).894
SOMO's director as of 2012 was Falah al-Amri, 895 who also served as Iraq's representative to OPEC.896
887 'The Role of Government in Oil and Gas', National Investment Commission, retrieved 23
November 2011.
888 'Domestic Consumption' Iraqi Ministry of Oil, retrieved 23 November 2011.
889 'SOMO is sole marketer of Iraq oil – ministry', Zawya, 10 May 2009.
890 'Instructions No. (1) of 2009', Iraqi Ministry of Oil, retrieved 18 November 2011.
891 'Iraqi national code for measurements of hydrocarbon fluids', IAMB Iraq, retrieved 23
November 2011.
892 'Ministry Services', Iraqi Ministry of Oil , retrieved 23 November 2011.
893 'Twelve Reasons Why Iraq Will Not Be a Major Oil Exporter, Part One', We Meant Well, 6 May
2011.
894 'About Us', SOMO, retrieved 11 January 2012.
895 'Iraq Increases December Oil Exports by 1.9% From Month Earlier', Bloomberg, 18 December
2011.
896 'Iraq facts and figures', OPEC Iraq, retrieved 8 January 2013.
158
History
After the nationalisation of Iraqi petroleum resources in June 1972, the Iraqi government formed the General Directorate for Oil Marketing (GDOM) to manage and run all
marketing operations related to crude oil and its refined products. The transformation
of the petroleum sector led to the merger of Iraq's Oil Tankers Company with the
GDOM, after which the Directorate became known as the State Oil Marketing Organisation (SOMO). In 1998, SOMO became a public company registered at the Ministry of
Trade under the name Oil Marketing Company. Despite its name change, the abbrevi ation SOMO was preserved. SOMO's new identity as a publicly registered company
gave it more flexibility and liberty to market Iraqi crude oil and refined products in
surplus of Iraq's domestic needs, according to Iraq Energy Expo. Since the 2003 US-led
invasion of Iraq, increase in domestic demand for some oil products led SOMO to gain
authorisation to import oil products for domestic consumption. 897
Official Website: www.somooil.gov.iq
Petroleum Contracts and Licensing
Directorate (PCLD)
Role
The Petroleum Contracts and Licensing Directorate (PCLD) is a structure under the Iraqi Ministry of Oil.898 The PLCD is responsible for: the announcement and pre-qualification processes of licensing rounds; the preparation of initial drafts of contracts and
specific technical information of exploration blocks; the reception of qualification
documents of international oil companies (IOCs); closing the qualification process and
declaring the results; the initial drafts of the contract and the initial tender protocol
(ITP) and providing technical data; receiving and answering the IOCs inquiries; issuing
the definitive model contract and final tender protocol (FTP); and, the bidding process
itself.899
As of April 2012 the Director General of the PCLD was Abdul Mahdi al-Ameedi. 900
Official Website: www.pcld-iraq.com
897 'Oil Marketing Company (SOMO)', Iraq Energy Expo, retrieved 11 January 2012.
898 'Iraq to Uphold Accord With Exxon Mobil ‘For Now,’ Al-Ameedi Says', Bloomberg, 14 December
2011.
899 '4th Licensing Round Schedule', Iraqi Ministry of Oil, retrieved 18 December 2011.
900 'Abdul Mahdi Al-Ameedi', Iraq Oil Forum, 29 April 2012.
159
North Oil Company (NOC)
Role
The North Oil Company is a state company within the Iraqi Ministry of Oil which oversees production in Iraq's northern fields,901 notably the supergiant Kirkuk field.902 The
company's operation area spans the governorates of Kirkuk, Nineveh, Erbil, Baghdad,
Diyala and part of Hilla and Kut.901
Operating in some of Iraq's least secure territory, the company has been subject to repeated attacks by insurgents and organised crime since 2003. In July 2006 a director,
Adel Qazzaz, was kidnapped in Baghdad 903 and in September 2012 a car bomb at the
company headquarters killed at least seven people and wounded 17 others. 904
The NOC supplies crude oil of different types to Iraqi refineries and associated gas to
the North Gas Company(NGC) units and to electric generation stations, as well as for
export through a network of pipelines to Turkey and Syria. 901 It had over 9,300 employees on its books in 2007.905 It provides housing for many of its employees, maintains a 200-bed hospital in Kirkuk as well as 11 clinics across its field of operations, a
private telephone nework and a station and pipeline network to pump drinking water
from the River Zab to installations at the Kirkuk field.906
In early 2013 Sameer Salman al-Taei was named new head of the NOC, replacing Hamid al-Saedi, who had been Director General since 2010.907
History
The North Oil Company was created following the dissolution of Iraq's National Oil
Company (INOC) in 1987.905
When al-Saedi replaced Manaa Abdullah al-Ubaidi as head of the NOC in January 2010
the appointment proved controversial as he is a Shi'ite from the southern province of
Maysan, despite having worked in the North Oil Company for many years. The outgoing Ubaidi lauded Saedi's experience but said his appointment was "not suitable for
the special status of Kirkuk" and a local oil workers union sent a letter protesting the
appointment to the city authorities in Kirkuk.908909.
901 'North Oil Company Profile', Iraqi Ministry of Oil, retrieved 30 December 2011.
902 'Iraq names North Oil Company head', Trade Arabia, 4 January 2010.
903 'Attacks on Iraqi pipelines, oil installations, and oil personnel', Institute for the Analysis of
Global Security, retrieved 20 July 2010.
904 'Car bomb at Iraq North Oil Company kills seven', Agence France Presse, 9 September 2012.
905 'Case Study on Iraq’s Oil Industry', Rice University, March 2007.
906 'Main Installations', North Oil Company, retrieved 20 July 2010.
907 'Iraq Names New Deputy Oil Minister, North Oil Co Chief', Rigzone, 8 January 2013.
908 'Iraq names new head of North Oil Company', Reuters, 4 January 2010.
909 'Iraq names Shi'ite to head North Oil Company', Reuters, 4 January 2010.
160
Official Website: www.noc.gov.iq
South Oil Company (SOC)
Role
With production output of just over 2 million barrels per day (bpd) as of January 2012,
Iraq's state-run South Oil Company (SOC) is one of the biggest producers in the world
and, according to Iraq Oil Report, it is the dominant company in Iraq.910
The Basra-based company is run as an autonomous company with its own management structure which, according to the Baker Institute, increasingly responds to regional leadership.911 It has operatorship of Iraq's southern fields, including its biggest
producing field at Rumaila.912 Other key fields include Zubair, Majnoon, West Qurna
and Luhais.
The company plays a key role in expanding export infrastructure in order to support
the production growth it hired the international oil companies (IOCs) to create. As of
2012 the SOC was progressing with plans to fix single-point moorings (SPMs), complete metering stations and pipelines in order to ease exports, with plans to repair and
upgrade the existing al-Basra oil terminal (ABOT) to increase capacity as a second
phase.910
In 2006 the SOC had a staff of 14,200 employees911 and as of early 2012 was headed up
by Dhia Jaffar.910
History
During the 1970s the SOC was a subsidiary of the Iraq National Oil Company (INOC). 913
It grew throughout the 1970s as Iraq's oil industry expanded, reaching peak production levels of 2.75 million bpd of oil.914
The company's operations were badly damaged in the war of 1991 and again in the
war of 2003. But by early 2004 the SOC had managed to restore production of over 2
million bpd.914
In July 2005 the General Union of Oil Employees, which comprises thousands of workers from the SOC, went on a 24-hour strike, demanding that a larger share of oil revenues be sent back to their local economy, after the governor of Basra Mohammed Mosbeh Al-Waeli called for the central government to give a fair share of oil money to his
910 'Q&A: South Oil Co. chief Dhia Jaffar', Iraq Oil Report, 15 February 2012.
2006.
912 'Exploration and Production: Business Report Iraq', BP Magazine, 2010.
913 'South Oil Company', Oil Voice, retrieved 10 January 2013.
914 'About the Company', South Oil Company, retrieved 6 January 2012.
161
region.915
In 2008, as plans for expansion of the Iraqi oil industry proceeded, the Maysan Oil
Company was spun off from SOC.916
Company director Fayad al-Nema was removed from his post in July 2009 in what the
government said was "restructuring". However according to the Arabian Oil and Gas
website, it was widely believed that Nema was sacked because he opposed the auctions
of service contracts for Iraqi fields to international oil companies (IOCs). 917
Official Website: www.soc-basrah.com
Iraq Drilling Company (IDC)
Role
The Iraq Drilling Company (IDC) is a state-owned company under the Iraqi Ministry of
Oil which is located in Baghdad and Kirkuk and specialises in drilling and oil and gas
well workovers. In 2006 it had 18 rigs in operation and employed 4,170 staff. 915
The IDC is divided in two departments: the Northern Operations Department and the
Southern Operations Departments.918
History
The IDC was formed as such in 1987, when the Iraq National Oil Company (INOC) was
disbanded.919
The first joint venture (JV) in the post-Saddam Iraqi oil industry occurred when a deal
was finalised in 2009 between the IDC and the Mesopotamia Petroleum Company, from
the United Kingdom.920 The IDC also signed a memorandum of understanding (MoU)
for joint drilling and training opportunities with KCA DEUTAG, a British oil and gas
service company, in 2010.921 Although the JV with Mesopotamia Petroleum Company
eventually failed, in 2011 the IDC won a contract to drill in the Rumalia oil field together with Schlumberger, the world's largest oilfield services provider. 922
2006.
916 'New Iraq oil firm aims to triple production in Maysan', Reuters, 28 June 2008.
917 'Iraq Oil Ministry fires South Oil Company chief', Arabian Oil and Gas, 30 July 2009.
918 'Iraq Drilling Company (IDC)', Iraq Energy Expo, retrieved 30 November 2011.
919 'Iraq National Oil Company, An Historical And Political Perspective', Middle East Economic
Survey 21 September 2009.
920 'Iraq finalizes oil drilling joint venture with Mesopotamia Petroleum', Iraq Oil Report, 26
February 2009.
921 'KCA DEUTAG establishes presence in Iraq', KCA DEUTAG, 14 October 2010.
922 'IDC's Success Story', Iraq Oil Forum, 22 July 2011.
162
In 2010 the IDC drilled 189 oil wells and planned to drill and rehabilitate 140 other
wells over the course of 2011. 923 In 2011 the IDC started to drill and repair wells in the
Hamrin mountains for the first time in 21 years. The mountains, located to the north
of Baghdad, had been a haven for insurgents, including al-Qaeda, following the 2003
occupation of the country.924
Maysan Oil Company (MOC)
Role
The Maysan Oil Company (MOC) is responsible for fields in the Maysan province which
includes six producing fields (Bazergan, Abu-Gharb, Fakka and Halfaya), as well as Majnoon, which it operates in partnership with the South Oil Company (SOC). Maysan
also holds five discovered but unproducing fields, including the Huweiza, al-Rafi’e,
East Rafidan, Dujeila and Kumait fields.925
The company's headquarters are in the capital of Maysan province, Amara. 926 Managing Director Ali Muarij was reported to have been removed from the post in June
2011 after being charged with bad administration and failure to achieve higher oil production results during his tenure.927 However as of mid-2012 press reports suggested
he was still in his post as head of the company.928
History
Maysan Oil Company was spun off from the South Oil Company (SOC) in 2008 to deal
with plans for expanded production in Maysan governorate. 929
The Maysan Oil Company was created as part of a plan that aimed for each Iraqi
province producing at least 100,000 barrels per day (bpd) to have its own state-run oil
company to focus on developing its own oil fields. Total oil output from Maysan
province was between 100,000 and 110,000 bpd when the company was created, 929 and
the company planned to increase output to 120,000 bpd by the end of 2011. 930 The
start-up capital of the company was US $8 million, according to government statements.786
Official Website: www.moc.oil.gov.iq
923 'Iraqi Drilling Company - 140 Wells in 2011', Iraq Business News, 18 January 2011.
924 'Iraq Starts Drilling for Oil in Hamrin Mountains', Iraq Business News, 5 June 2011.
925 'Foreign Companies Keen to Work for Missan Oil', Iraq Business News, 1 December 2011.
926 'Contact Us', Maysan Oil Company, retrieved 5 January 2012.
927 'South Iraq Missan’s Council sacks Missan Oil Company’s DG from his post', Aswat Al-Iraq, 9
June 2011.
928 'Missan heralds oil boom with Halfaya opening', Iraq Oil Report, 19 July 2012.
929 'New Iraq oil firm aims to triple production in Maysan', Reuters, 28 June 2008.
930 'Iraq Aims to Join OPEC Quota System in 2014', Bloomberg, 26 October 2011.
163
Other Iraqi Entities
Iraq has numerous entities organised under the Oil Ministry in addition to the major
producing companies, which are listed and outlined below.
North Gas Company (NGC)
The state-owned North Gas Company (NGC), based in Kirkuk, 931 is responsible for the
utilisation of all associated gases produced at Iraq's northern fields: dry gas used in
electricity generation stations, fuel gas used in other industrial factories, and raw materials used in the petrochemical industry in order to manufacture fertilisers; liquid
petroleum gas (LPG); natural gasoline; and, sulphur. 932
Official website: www.ngc.gov.iq
South Gas Company (SGC)
The state-owned South Gas Company (SGC) is responsible for the processing of associated gas from the Iraq's southern fields in order to produce dry gas, liquid gas and natural gasoline, in addition to the industrial management of liquefied gas storage tanks
and export terminals.933
In November 2011, Reuters reported the approval of a $17 billion deal between the SGC,
Royal Dutch Shell and Mitsubishi to capture gas that is flared off in the oilfields around
the southern oil hub of Basra. The deal established a new company called the Basra
Gas Company (BGC), a joint venture of the SGC and the Shell/Mitsubishi consortium,
which could eventually lead to the export of liquefied natural gas (LNG). 934
Official website (ar): www.sgciraq.com
North Refineries Company (NRC)
The state-owned North Refineries Company (NRC) is the largest of the Ministry's refining companies. The NRC's total refining capabilities as of October 2011 were estimated to be 402,000 barrels per day (bpd). The NRC produces various refined products,
which include: unleaded gasoline, kerosene, aviation turbine, kerosene (ATK), diesel
and gasoline, lubricant oil products, spindle oil, transformer oil, asphalt, sulfur, liquefied refinery gases, and others. The NRC operates the North, Saladin, Sininya, Qayara,
Kasak, Kirkuk and Hadeetha refineries.935
931 'North Gas Company', Zawya, retrieved 10 January 2013.
932 'North Gas Company (NGC)', Iraq Energy Expo, retrieved 25 December 2011.
933 'South Gas Company', Iraq Energy Expo, retrieved 25 December 2011.
934 'Iraq Approves $17bn Gas-Capture Contract With Shell, Mitsubishi', Iraq Business News, 16
November 2011.
935 'North Refineries Company', North Refineries Company, retrieved 25 December 2011.
164
The NRC is headquartered at the Baiji Oil Refinery (BOR). 936 and as of April 2012 the
Director General was Abdul Ghafoor Mohamed Abdul-Jabar. 937
Official website: www.nrcbaiji.com
Midland Refineries Company (MRC)
The state-owned Midland Refineries Company (MRC) is responsible for the industrial
management and operation of oil refineries in the midland region of Iraq, such as the
Daura refinery. The MRC produces a wide range of refinery products, which include: liquid petroleum gas (LPG), lubricant oils, greases, wax and asphalt. 938
It was established in 1953 and became operative in 1955. 939 The company is
headquartered at the Daura Refinery936 and as of December 2011 the Director General
was Dathar al-Khasbab.938
Official website: www.dauramrc.com (ar)
South Refineries Company (SRC)
The South Refineries Company (SRC) provides a variety of refined oil products and operates the Basra, Dhi Qar and Maysan refineries.940
The company is headquartered at the Basra Refinery 936 and as of mid-2011 the Director
General was Abdul Hussein Nasir Qasim.941
Official website: www.src.gov.iq
Oil Projects Company (SCOP)
The Oil Projects Company (SCOP) is responsible for the design and execution of oil
projects: refineries, oil depots, pipelines, storage tanks, and exporting crude oil terminals.942
As of late 2011 the Director General of SCOP was Nihad Mousa, the first Iraqi woman to
hold this position in any of the subsidiary companies of the Iraqi Oil Ministry. 943
Official website: www.scop.gov.iq
936 'Iraqi Refineries Present And Future', Wikileaks, 8 January 2009.
937 'Iraq Refinery 2012 conference programme', 17 April 2012.
938 'Midland Refineries Company (MRC)' Iraq Energy Expo, retrieved 25 December 2011.
939 'Daura', Midland Refineries Company, retrieved 10 January 2013.
940 'Department', South Refineries Company, retrieved 25 December 2011.
941 'US Approves Grant for Basra Refinery Feasibility Study', Iraq Business News 25 July 2011.
942 'Oil Projects Company', Iraq Energy Expo, retrieved 25 December 2011.
943 'Nihad Mousa', Iraq Oil Forum, 27 October 2011.
165
Oil Pipelines Company (OPC)
The Oil Pipelines Company (OPC) is responsible for management and operation of oil
depots, pumping stations, and pipelines that lead to distribution depots and industrial
consumers.944
It is with the OPC that private companies must sign contracts in order to work on
pipeline projects in the country.945
Official website: www.opc.oil.gov.iq
Iraqi Oil Tankers Company (IOTC)
The Iraqi Oil Tankers Company (IOTC), based in Basra, is responsible for seaborne
transportation of oil in the Iraqi oil industry.946
The IOTC's fleet was almost destroyed in the second Gulf War. 946 However in 2012 the
company put out a tender for the purchase or construction of a new crude oil tanker,
which would be the government's third state-owned oil transport vessel, to add to the
two currently in operation which were bought in 2007 and 2008.947
Official website: www.iotc-basra.com
Petroleum Research & Development Center
(PRDC)
The Petroleum Research & Development Center (PRDC) is a research institute established with the purpose of developing methods of scientific, pilot and experimental research for the oil industry. In this sense, the PRDC: solves technical problems related
to petroleum, develops refining techniques in order to find new products or improve
petroleum products that already exist, provides scientific support and information
services to the Iraqi oil industry, follows the latest scientific and technological research on oil industry development and reduction of environmental pollution, and
sustains bilateral cooperation efforts with Iraqi universities, their post-graduate students and professors.948
Official website: www.prdc.gov.iq
Gas Filling Company (GFC)
The Gas Filling Company (GFC) was founded in 1998 949 and is responsible for industrial
944 'Pipe Line Company', Iraq Energy Expo, retrieved on 25 December 2011.
945 'KOGAS wins $127m Iraqi Pipeline Project', Iraq Business News, 9 October 2012.
946 'Iraqi Oil Tankers Company', Iraq Expo Online, retrieved 25 December 2011.
947 'Iraq Extends Deadline for Crude Tanker Tender', Iraq Business News, 19 April 2012.
948 'About the center', Petroleum Research & Development Center, retrieved 25 December 2011.
949 'About Us', Iraqi Gas Filling Company, retrieved 10 January 2013.
166
management and operation of gas filling complexes. The company receives gas that is
produced by the North Gas Company (NGC) and South Gas Company (SGC) in order to
treat it and fill bottles to bring to market. 950 The company plays an important role in
supplying the Iraqi market with liquid petroleum gas (LPG). 951
As of 2012 the Director General of the GFC was Hamid Yunis Saleh. 951
Official website: gfc.oil.gov.iq
Oil training institutes
The Iraqi Ministry of Oil runs four state-owned oil training institutes throughout the
country, specifically, in Baghdad (BOTI), Basra (BasOTI) , Kirkuk (KOTI) and Baiji (BaiOTI).952953
Established in 1951, the Institute in Kirkuk is the oldest petroleum technical institute
in the Middle East. After the second Gulf War, the institute as a whole was transferred
to Baiji, but in 2005 the institutes were separated and became independent. 953 The Institute in Baghdad is considered one of the largest Arab petroleum technical institutes.
The Institute in Basra is the second largest of those that are run in Iraq. All four institutes educate their students in a variety of technical education courses related to the
oil industry and send their students, later on in their studies, to petroleum industry
worksites for further training and acclimation to the industry's work environment. 952
BOTI website: www.boti.oil.gov.iq
BasOTI website: www.bsroti.oil.gov.iq
KOTI website: www.kirkukoti.net
BaiOTI website: www.otibaiji.oil.gov.iq
Other Iraqi actors
Iraqi Ministry of Finance
The Iraqi Ministry of Finance is responsible for drafting the country's fiscal budget
and overseeing its implementation, imposing and collecting taxes and coordinating
the payment of pensions and salaries of government employees. 954 It is also responsible for reporting the country's official expenditure data.955
950 'Gas Filling Company', Iraq Energy Expo, retrieved 25 December 2011.
951 'Ministry of Oil increases pumping liquid gas for actual need', Iraqi News, 14 August 2012.
952 'Baghdad Oil Training Institute', Baghdad Oil Training Institute, retrieved 25 December 2011.
953 'About us', Kirkuk Oil Training Institute, retrieved 25 December 2011.
954 'Ministry of Finance Iraq', Maps of the World, retrieved 25 November 2011.
955 'Report to Congressional Committees: Securing, Stabilizing, And Rebuilding Iraq', United
167
The federal budget, which is passed as a law by the Iraqi parliament, is drafted by the
Ministry of Finance in consultation with other ministries, governorates and the regional government. The investment budget is drafted with the assistance of the Min istry of Planning.956
From the 2003 occupation onwards, revenues from export sales of Iraqi petroleum
products were deposited into the Development Fund for Iraq (DFI), an account held by
the Central Bank of Iraq (CBI) at the New York Federal Reserve Bank. The DFI is man aged by the Iraqi Ministry of Finance and administered by the CBI. Expenditures from
the DFI are carried out via checks issued by the CBI upon instruction from the Iraqi
Ministry of Finance on the basis of the budget.956
On the 21 December 2010, Rafi al-Isawi became Finance Minister and remained in that
position as of late 2012.957
Central Bank of Iraq (CBI)
The Central Bank of Iraq (CBI) was established on the 6 March 2004 on introduction of
the Central Bank of Iraq Law. The bank's principal functions are to: maintain price stability; implement monetary policy and exchange rate policies; manage foreign reserves; issue and manage the Iraqi currency; and regulate the banking sector. The
head office of the CBI is in Baghdad and has four branches, located in Basra, Mosul, Sulaymaniyah and Erbil.958
In 2011 Iraq's Supreme Court ruled that the CBI and other previously independent
bodies should be put under supervision of the Cabinet instead of parliament, a ruling
which the Huffington Post reported as attracting criticism for putting the non-partisan
nature of these institutions at risk.959
Further to this, In October 2012 an arrest warrant was issued by the Ministry of Interi or for Sinan al-Shabibi, who had led the bank since its creation. The stated reason for
the arrest were allegations of financial wrongdoing, but government critics see the
charges as politically motivated and an attempt by those in power to sideline the politically independent economist959 and to gain greater control over the US $63 billion of
reserves held by the bank. Toby Dodge, Iraq specialist at the London School of Economics in London, suggested that Prime Minister al-Maliki had "long wanted to access
the dollar reserves that Sinan was holding back to stabilise the Iraqi dinar". 960 Abdul
Baset Turki, head of the Supreme Audit Board, was named interim central bank governor after al-Shabibi's suspension.961
States Government Accountability Office, retrieved 25 November 2011.
956 'Iraq: Extractive Industries', Revenue Watch Institute, retrieved 25 November 2011.
957 'Iraqi parliament approves new government', BBC, 21 December 2010.
958 'History of the CBI', Central Bank of Iraq, retrieved 25 November 2011.
959 'Sinan al-Shabibi, Iraqi Central Bank Chief, Issued Arrest Warrant Over Corruption
Allegations', Huffington Post, 18 October 2012.
960 'Iraqi central bank chief suspended', Financial Times, 17 October 2012.
961 'Iraq Dismisses Central Bank Chief Amid Investigation', Wall Street Journal, 16 October 2012.
168
Role in management of oil revenues
From the 2003 occupation of Iraq to July 2011, the CBI had arrangements with the Fed eral Reserve Bank of New York (FRBNY) whereby the FRBNY maintained an oil proceeds account that received Iraqi oil sales revenues. Of these proceeds, 95 percent
were assigned to the Development Fund for Iraq (DFI), 962 created by a United Nations
Security Council (UNSC) resolution in May 2003963 and housed within the CBI. The remaining 5 percent was assigned to the United Nations Compensation Commission's
fund account,962 established in 1991 for Iraq to pay compensation for losses resulting
from its invasion and occupation of Kuwait in 1990.964
During this period, an organisation called the International Advisory and Monitoring
Board (IAMB) had oversight of the operations of the DFI. This included audit oversight,
both over the control and reporting of oil export revenues, and over the use of reven ues by the Iraqi ministries. On the 1 July 2011 oversight of the DFI was handed over to
the Iraqi Committee of Financial Experts (COFE). 965 The UNSC welcomed the Iraqi federal government's assumption of oversight and full authority over its development
fund at the same time that it underscored the importance of the Iraqi government ensuring that oil revenues are used in the interest of the country’s people. 966
Iraqi Prime Minister's Office
The Iraqi Prime Minister is the direct executive authority responsible for the general
policy of the state and the commander-in-chief of the Iraqi armed forces. He directs
the Council of Ministers, presides over its meetings, and has the right to dismiss any
Minister with the consent of the Council of Representatives. 967
Role in hydrocarbons industry
While the Prime Minister’s Office is not directly involved in the day-to-day management of the oil and gas industry, it is tasked with monitoring developments and raising issues for discussion at meetings of the Council of Ministers. Major oil contracts
with international companies also require the approval of the Council of Ministers. 968
The Prime Minister’s Office is also often directly involved in negotiations between
political blocs with regards to proposed legislation related to the oil industry. 969
962 'FSVC and Central Bank of Iraq Meet to Discuss New Central Bank HQ and Future
Arrangements for Development Fund for Iraq', Financial Services Volunteer Corps, 14 June 2010.
963 'Iraq: Transparency Snapshot', Revenue Watch Institute, retrieved 25 November 2011.
964 'Introduction', United Nations Compensation Commission, retrieved 25 November 2011.
965 'IAMB Fund for Iraq: Press Release', Iraq Business News, 5 July 2011.
966 'Security Council welcomes Iraq’s assumption of oversight over development fund', United
Nations News Service, 30 June 2011.
969 'Analysis: Oil law dissent shows cracks in Maliki's government', Iraq Oil Report, 8 September
169
The Prime Minister’s Advisory Board (PMAB), headed by former Oil Minister Thamir
Ghadban, is tasked with formulating Iraq’s long-term strategic oil policy. 970971 The
PMAB’s energy advisor, Ali al-Mashat, is responsible for liaising with international or ganisations including the World Bank.971
Starting in February 2011, a 'visa blackout' that affected a variety of employees of international oil companies, from labourers to prospective investors, managers to technicians with specialised skills, was reported in March of the same year by Iraq Oil Report journalists. This was based on two anonymous sources, as the result of a decision
by the Prime Minister's Office that applications for visas should go through themselves and not the Iraqi Ministry of Interior.972
Official website: www.pmo.iq
Kurdistan Regional Government (KRG)
The Erbil-based Kurdistan Regional Government (KRG) is the official and democratically elected executive body of the Kurdistan Region, also known as Iraqi Kurdistan. An
autonomous region of Iraq since 1992, Iraqi Kurdistan reconstituted itself as a federal
region upon the ratification of the new 2005 Iraqi constitution. 973
Rather than the technical service agreements offered by the central government, the
KRG instead offers production sharing contracts (PSCs) to investors in the region, per ceived by many as more generous to international companies, according to industry
analyst Derek Brower.974
Government structure and leadership
The President of the KRG, who delegates executive powers to the cabinet, is directly
elected.975 The cabinet selects the head of the legislature, the Prime Minister.976
KRG President Massoud Barzani was elected in 2005 977 and re-elected in 2009 with 71
percent of the vote. Prior to this he was leader of the Kurdistan Democratic Party
(KDP), one of the main parties controlling the region since 1991. During the 1990s the
KDP was at war with the other leading political faction in the region, the Patriotic Uni2011.
970 'Q&A:Thamir Abbas Ghadhban', Society of Petroleum Engineers, retrieved 18 December 2011.
971 'Iraq Outlines Oil Production Strategy To 2030', Energia, 20 October 2011.
972 'Iraq Entry Visa Quagmire Blamed on al-Maliki', Iraq Business News, 23 March 2011.
973 'About the Kurdistan Regional Government', Kurdistan Regional Government, etrieved 18
November 2011.
974 'About the Kurdistan Regional Government', Petroleum Economist, 13 December 2012.
975 'Kurdisan Region Presidency', Kurdistan Regional Government, retrieved 23 November 2011.
976 'Prime Minister Salih pledges renewal as cabinet is sworn in' Kurdistan Regional Government, 29
October 2009.
977 'Masoud Barzani', Kurdistan Regional Government, 27 June 2007.
170
on of Kurdistan (PUK), under the leadership of Jalal Talabani. 978 Talabani went on to be
elected President of Iraq in 2005.979
As of December 2012 Nechirvan Barzani was Prime Minister of the Kurdistan region, a
man who Time magazine credited with the growing Turkish-Kurdish rapprochement.980 The region's Natural Resources Minister as of December 2012 was Ashti
Hawrami.974
The Iraqi Kurdistan Parliament examines proposals for new laws, scrutinises government policy and administration, and debates major issues that concern the region. Although the regional Parliament shares legislative power with the Iraqi federal government, priority is given to regional laws in matters that relate to customs, electric energy and its distribution, general planning, and internal water resources. Elections are
held at least every four years.981
Relations with central government
Over recent years relations between the central government and the KRG have deteriorated, provoked by contracts signed between oil majors and the KRG, viewed as illegal by the government in Baghdad.
According to media site Al-Monitor, this can be attributed to a number of reasons, one
being the complete breakdown of trust between the two sides, particularly the damaged relationship between Nouri al-Maliki and Massoud Barzani, aggravated by strings
of accusations.982
Aside from this, leaders in Baghdad have disputed the right for the Kurds to export the
oil they produce, outside of the centrally controlled infrastructure. Furthermore the
KRG claims control over large areas of disputed territories and has enlisted international oil companies (IOCs) to explore and produce in these areas, which overlap the
boundaries of Nineveh, Kirkuk, Saladin and Diyala provinces. In late 2012 Iraq Oil Report reported that the central government and the Kurds came close to open conflict
when both deployed troops near the contested border area between north and south,
on territory where US companies ExxonMobil and Hunt Oil had agreed to drill.
However officials on both sides of the conflict have said that war is not in either side's
interest and may be a consequence of the heated run-up to provincial and national
elections in 2013-14.983 In December 2012 the two sides agreed to gradually withdraw
their troops from the disputed territories. However according to Turkey's Hurriyet
Daily News, the clash raised questions about Baghdad’s federal unity with the KRG. 984
978 'Massoud Barzani - Fast Facts', CNN, 14 December 2012.
979 'Jalal Talabani', New York Times, 18 December 2012.
980 'An Interview with Nechirvan Barzani: Will There Be an Independent Kurdistan?', Time, 21
December 2012.
981 'The Kurdistan Parliament', Kurdistan Regional Government, retrieved 30 November 2006.
982 'Baghdad-KRG Relations Go from Bad to Worse', Al-Monitor, 16 December 2012.
983 'Disputed oil drilling could provoke war', Iraq Oil Report, 12 December 2012.
984'Baghdad, KRG agree to withdraw soldiers from disputed area', Hurriyet Daily News, 15
December 2012.
171
Official website: www.krg.org
172
Key Infrastructure
Overview of Infrastructure in Iraq
Recurring conflict in Iraq has left much of the existing energy infrastructure either
damaged or in a poor state of repair. The International Energy Agency (IEA) earmarked the state of Iraq's energy transport, storage and export infrastructure as a serious constraint to progress in the energy sector. 985
In order to reach its stated production targets, Iraq will have to expand its export ca pacity. By law the country's oil infrastructure is in the hands of the state. Deputy
Prime Minister for energy Hussein Shahristani has said that US $500 billion of investment will be needed to lift oil production in line with targets. 986 According to the IEA,
sufficient oil storage and transportation capacity will also be needed to avoid over-reliance on the southern sea-borne export route.985
Refineries
A leaked US diplomatic cable from 2009 commented on the poor maintenance and antiquated design of Iraq's refinery infrastructure. Whereas modern refineries produce
80 to 90 percent of a barrel of oil into light or medium distillates, Iraq's refineries produce between 50 and 55 percent, thus creating large amounts of heavy fuel oil. 987
Iraq's principal refineries are at Basra, Daura, and Baiji. The country's refineries are divided between three operating companies: the North Refineries Company (NRC), the
Midland Refineries Company (MRC), and the South Refineries Company (SRC). 987 The
facilities at Baiji, Daura and Basra account for around 70 percent of total output. 985
The country's oil processing facilities have run below capacity following the 2003 invasion. As of October 2012 overall refining capacity in Iraq stood at around 620,000 barrels per day (bpd), however following a series of expansions, particularly at the Daura
and Basra facilities, the Iraqi government hoped to expand this by 23 percent to reach
760,000 bpd by early 2013.988 But estimates differ and according to a US diplomatic
cable from early 2009, design refining capacity in Iraq stood at approximately 740,000
bpd.987 According to a leaked US diplomatic cable from 2009, plans to modernise and
expand Iraq's refineries have moved slowly due to difficult contracting procedures, a
shortage of skilled staff and unreliable electricity supplies making operation of equipment unsafe.987 The country is also planning to build four new refineries at a cost of
around $25 billion, including a 300,000 bpd plant in Nasiriyah and a 140,000 bpd plant
985 'Iraq Energy Outlook', International Energy Agency, 12 November 2012.
987 'Iraqi Refineries Present And Futur',e Wikileaks, 8 January 2009.
988 'Iraq Plans to Boost Oil-Refining Capacity by 23% Early Next Year', Bloomberg, 4 October 2012.
173
in Karbala.989
In the northern Kurdistan region the majority of official refining capacity is provided
by the Khabat refinery near Erbil 990 (capacity of 40,000 bpd in 2010). 991 Other refineries
in the region are Bazian in Sulaymaniyah and Kat in Kirkuk. Iraq Oil Report estimated in
2012 that the region's major refineries are capable of processing 66,000 bpd in total,
and the government had plans to expand capacity with two new refineries. In addition, in 2012 there were an estimated 80-100 so-called 'topping plants' available to the
KRG, that is smaller and less efficient facilities with an estimated cumulative capacity
of 150,000 bpd.990
Terminals
Iraq has two terminals at Basra and Khor al-Amaya. Up until the construction of two
new export terminals at Khor al-Amaya in March 2012, Basra was the country's main
export terminal, with the terminal at Khor al-Amaya handling only small volumes. 992
The EIA's 2012 report notes that the lack of sufficient storage in the south of Iraq is a
particular problem, meaning that any delays or weather-related interruptions to loading tankers at the offshore facilities can lead directly to a production shut-down. New
storage capacity was being built in 2012 at the main export depot at Fao, but further
expansion of capacity was required.993
Pipelines
According to Iraq Oil Report, Iraq's crude pipelines are long overdue for inspection and
would need to be upgraded or replaced if Iraq is to succeed in increasing its oil ex ports. The country urgently needs to expand its capacity and find alternative export
routes, as the primary export route through Basra is 'logistically constrained' to
around 5 million barrels per day (bpd) of exports, while Iraq is looking to increase production capacity to 8 million bpd by 2018.994
Aside from the export terminals at Basra and Khor al-Amaya, Iraq's other principal export route is the northern pipeline route to Ceyhan. According to the Ministry of Oil
the maximum capacity along this route in July 2012 was 600,000 bpd, far below the
'nameplate capacity' of 1.6 million bpd. Actual flow rates averaged just over 300,000
bpd.993
The pipeline system from Iraq to Turkey suffered much damage during Iraq's wars,
causing a fall in capacity. Iraq's reversible north-south pipeline, the Strategic Pipeline
was also damaged by the conflict and can carry only a fraction of its 1.4 million bpd ca989 'Iraq Plans to Boost Oil-Refining Capacity by 23% Early Next Year', Bloomberg, 4 October 2012.
990 'KRG oil deals buoyed by refinery plan', Iraq Oil Report, 29 March 2012.
991' Kurdish Refinery to Start Selling Petrol', Iraq Business News, 8 December 2010.
992 'Iraq ramps up its crude exports', Lloyd's List Intelligence, 20 September 2012.
993 'Iraq Energy Outlook', International Energy Agency, 12 November 2012.
994'Iraq sets Jordan pipeline into motion', Iraq Oil Report, 2 January 2013.
174
pacity.995
Iraq has announced plans in the past to rebuild its national strategic pipeline network,
calling for expanding capacity into Turkey and opening routes to both Jordan and Syria. A strained relationship with Turkey and conflict in Syria complicated these plans.
But in 2012 the Iraqi government set a target of creating 1 million bpd of export capacity to Jordan, via a 1,680 kilometre pipeline from Basra, up to Haditha and into
Jordan. This would be the first cross-border pipeline constructed since the Iraq
Pipeline through Saudi Arabia (IPSA) was built in the 1980s and later expropriated by
the Saudis.996
The Iraq Pipeline through Saudi Arabia (IPSA) remained out of operation in early 2013
despite talk of reactivation.997
Other projects
Since 2008 the Iraqi government has also been pursuing a project to capture and use
surplus gas produced at the country's southern fields, in collaboration with oil major
Shell, known as the South Gas Utilisation Project (see separate article). 998
Refineries
Baiji Refinery
Baiji, located roughly 180 kilometres north of Baghdad, is Iraq's largest refinery 999 and
supplies 11 Iraqi provinces with refined petroleum products. 1000 It was built in 19821001
and is part of a complex that includes a thermal power plant, also the largest in the
country, which is a major contributor to Baghdad's electricity supply. 1002
Baiji is operated by the the North Refineries Company. 1003 According to the IEA in 2012,
Baiji, like other refining infrastructure in Iraq, was in urgent need of upgrading. 1004
996 'Iraq sets Jordan pipeline into motion', Iraq Oil Report, 2 January 2013.
997 'Circumventing the Strait of Hormuz' Bottleneck', Atlantic Sentinel, 20 December 2011.
998 'Shell signs £11bn deal to fuel Iraq's power stations with gas', Guardian, 27 November 2011.
999' All units at Iraq’s Baiji oil refinery re-started', Arab News, 25 June 2011.
1000 'UPDATE 2-Iraq Baiji refinery says restarts partial operation', Reuters, 28 February 2011.
1001 'Iraq's Baiji refinery 'back to normal'', France 24, 4 March 2011.
1002 'Bayji [Beiji]', Global Security, retrieved 14 December 2011.
1003 'The biggest 25 refineries in the Middle East', Arabian Oil and Gas, retrieved 14 December
2011.
1004 'Iraq Energy Outlook', IEA, 12 November 2012.
175
Capacity
According to a leaked US diplomatic cable, the design capacity at Basra in 2009 was
310,000 barrels per day (bpd), accounting for 40 percent of the country's overall design
capacity. However the distinction is highlighted between "design capacity" and "operational capacity", noting that the BOR has an operational capacity of approximately 75
percent of its design capacity, largely due to difficulties in acquiring spare parts for
maintenance, damage caused by unreliable electricity supplies, the long-term effects
of the sanctions period, and a shortage of highly skilled workers. As of early 2009 total
operations capacity was approximately 65,000 bpd (or 10 percent) lower than design
capacity.1005
As of mid-2011, the Baiji refinery was functioning at about 70 percent of its 310,000
barrel per day (bpd) capacity, according to Arab News. However other press sources estimate total capacity at the lower figure of 300,000 bpd. 1006 However this could be a result of a lack of clarity over production levels and design capacity.
On 22 November 2011 the Japanese Prime Minister Yoshihiko Noda announced a loan
of $35 million for Iraq to upgrade engineering services to modernise the Baiji refinery,
and on 28 November US-based firm Honeywell announced it had obtained a contract
to upgrade the refinery's control and process system. 1007
Security
The refinery was heavily damaged during bombing in 1991 Gulf War. In the years following the 2003 invasion Baiji's supply chain, especially a pipeline carrying crude oil
from the supergiant Kirkuk field, was the subject of repeated attacks by insurgents
and organised crime syndicates. The refinery itself was also targeted, and production
was interrupted on numerous occasions. 1008 Baiji was shut down again in late February
2011 when insurgents detonated several bombs, killing two people and damaging several units. The attack halted the production of around 150,00 bpd of petroleum
products,1009 but production levels returned to normal in early March 2011.
Basra Refinery
Also known as the Ash Shaabiya refinery, 1010 the Basra Oil Refinery (BOR) is located in
the far south of the country about 545 kilometres (km) from Baghdad and 55 km from
the Persian Gulf. Basra is Iraq's primary terminal point for oil pipelines and is also the
1006 'Baiji refinery’s capacity reach 300,000 barrels per day – ministry', Iraqi News, 21 March 2011.
1007 'Honeywell Has $360 Mln Of Contracts In Iraq - Executive', Wall Street Journal 28 February
2011.
1008 'Iraq Pipeline Watch' Institute for the Analysis of Global Security, 27 March 2008.
1009 'Bombing Damages Iraq’s Largest Oil Refinery', New York Times, 26 February 2011.
1010 'Iraq’s Baiji Refinery Unit to Restart Next Week, Ministry Says', Bloomberg, 28 February 2011.
176
site of Iraq's chief export terminal. 1011
The refinery began production in 19741012 and was heavily damaged in the 1980-1988
Iran-Iraq war. The complex is owned and operated by Iraq's South Refineries Company.1013
Capacity
According to a leaked US diplomatic cable, "design capacity" at the Basra refinery in
2009 was at 160,000 barrels per day (bpd). However operational capacity was approximately 15 percent of this figure. 1014 In other press sources there are some discrepancies in the capacity figures cited, with many sources claiming 140,000 bpd of production, and Arabian Oil and Gas citing a figure of 210,000 bpd.101510161017
In July 2011, the US Trade and Development Agency signed an agreement with the
South Refineries Company for a grant of $502,798 to conduct a feasibility study for the
upgrade and rehabilitation of the refinery. The refinery's modernisation is intended to
support the Iraqi Ministry of Oil’s goal to reach a capacity of 12 million barrels per day
in production by 2020.1018
Daura Refinery
The Daura refinery was built in 1953 and began operations in 1955. 1019 It is located 20
kilometres south-west of Baghdad. Operated by Iraq's Midland Refineries Company
(MRC),1020 the Daura refinery is Iraq's second-largest. 1021
The refinery itself and pipelines supplying it with crude oil were attacked numerous
times by insurgents between 2003 and 2008. 1022
Capacity
Daura's refining capacity has undergone major fluctuations. It was expanded in 1996
to nearly 130,000 barrels per day (bpd), but its capacity had fallen to 110,000 bpd by
1011 'Basrah', Global Security, retrieved 5 January 2012.
1012 'Homepage', South Refineries Company, retrieved 5 January 2012.
1013 'Basrah Refinery', A Barrel Full Retrieved 5 January 2011.
1015 'Iraq eyes upgrade for Basra refinery', World Tribune, 25 May 2012.
1016 'Shaw to Conduct Feasibility Study to Basra Refinery', Gulf Oil and Gas, 13 December 2011.
1017 'Top 22 Regional Downstream Projects', Arabian Oil and Gas, 29 October 2012.
1018 'United States approves grant for Basrah refinery feasibility study', US Embassy Baghdad, 21
July 2011.
1019 'Daura Refinery Expansion On Schedule', Business Monitor International, 26 October 2009.
1020 'Iraq - The Daura Refinery', APS Review Downstream Trends, 11 May 2011.
1021 'Bombs in Daura refinery intensify security scare', Iraq Oil Report, 17 June 2011.
177
2005.1023 A leaked US diplomatic cable from January 2009 claimed a 'design capacity' of
90,000 bpd, but noted that the refinery regularly operated at 50 percent capacity due
to inadequate supplies of crude oil, as the Strategic Pipeline was unable to fuel all of
the users along its route.1024
Between 2009 and 2011, the refinery's capacity was raised to 210,000 bpd following the
construction of new units, and remained at this level as of mid-2011. 1025 In late 2012
Deputy Oil Minister Ahmad al-Shamaa announced that expansion of the Daura refinery would be a component of plans to increase overall refining capacity by 23 per cent by 2013.1026
Erbil Refinery
Owned by the KAR Group, Erbil refinery is the first major refinery in the northern Kurdistan region and the first private sector refinery in Iraq. It received its first oil in
2009. The oil is transported via pipeline from the processing station at the Khurmala
Dome.1027 Feedstock for the Erbil refinery comes from the disputed Kirkuk field. 1028
The refinery project is a key part of expansion plans in the Kurdistan region in order
to absorb increasing production levels under the Kurdistan Regional Government
(KRG).1028 The UK's Financial Times described the project as a "symbol of private, local
investment in Kurdistan - and of the region's ambitions." 1029
Construction originally began on the refinery in 2005 under a contract between the Ir aqi Ministry of Oil and the Iraqi Ministry of Industry and Minerals. However following
delays and budget difficulties, the KRG intervened in late 2008 and awarded the construction contract to the KAR Group.1027
Capacity
According to the KAR Group, the complex had an initial capacity of 20,000 barrels per
day (bpd).
In late 2011 the refinery was processing 40,000 bpd of crude, but following an expansion plan was expecting to nearly triple the figure to 110,000 bpd by late 2012. KAR
founder Baz Karim estimated that once the expansion is complete, the refinery will be
able to cater for close to 80 percent of local needs.1029
1023 'IRAQ - The Daura Refinery', APS Review Downstream Trends, 9 May 2005.
1025 'Iraq - The Daura Refinery', APS Review Downstream Trends, 11 May 2011.
1026 'Iraq Plans to Boost Oil-Refining Capacity by 23% Early Next Year', Bloomberg, 4 October 2012.
1027 'Erbil Refinery', KAR Group, retrieved 15 January 2013.
1028 'KRG oil deals buoyed by refinery plan', Iraq Oil Report, 29 March 2012.
1029 'Refining: Domestic processing capacity is rising quickly', Financial Times, 7 December 2011.
178
Terminals
Khor al-Amaya Oil Terminal (KAAOT)
The Khor al-Amaya oil terminal (KAAOT), along with Iraq's Basra Oil Terminal, is used
to export 'Basra blend' crude.1030 The terminal was built in 1961 1031 and lies south-east
of the Al-Faw peninsula in the Arabian Gulf.1032
Crude produced at Iraq's southern fields, or processed at domestic refineries, is sent
onto onshore storage facilities and exported into the Gulf via KAAOT. According the
International Energy Agency (IEA) analysis from a 2012 report, 113,000 barrels per day
(bpd) is exported via this route, compared to 1.5 million bpd via the Basra terminal
and 442,000 bpd into the Gulf via single point mooring (SPMs).1033
Capacity
When the KAAOT re-opened for exports after the 2003 invasion of Iraq, it had an initial
capacity of 300-400,000 barrels per day (bpd). 1034 By 2011 it still had an effective capacity of 300,000 bpd.1035
Security
According to the UK Ministry of Defence, since 2003 UK, US and Australian naval
forces were committed to almost round-the-clock patrols of the waters around Khor
al-Amaya, until responsibility was handed over to Iraqi forces.1036
In a 2009 US leaked diplomatic cable, it was reported that an Iranian letter claiming
that the KAAOT was located in Iranian territorial waters had alarmed Iraqi officials. 1037
Basra Oil Terminal (ABOT)
The al-Basra Oil Terminal (ABOT), formerly known as Mina al-Bakr, was built in 1975
by the Iraq National Oil Company. It lies some 50 kilometres off the Iraqi coast. 1038
1030 'Iraqi Oil Industry', IAS Group, March 2011.
1031 'Oil Minister Complacent About Upstream Production Plans', Wikileaks, 9 April 2009.
1032 'Excavating a path through Iraq’s unexploded ordnance', Oil Online, 9 September 2011.
1033 'Iraq Energy Outlook', International Energy Agency, 2012.
1034 'Iraqi American Chamber of Commerce and Industry', IAS Group, March 2011.
1035 'Iraqi Oil Industry', IAS Group, March 2011.
1036 'Last Iraq oil terminal patrol for Royal Navy', UK Ministry of Defence, 25 January 2011.
1037 'Oil Minister Complacent About Upstream Production Plans', Wikileaks, 9 April 2009.
1038 'Al Basrah Oil Terminal, Special Inspector General for Iraq Reconstruction, 26 April 2007.
179
Capacity
As of mid-2011 ABOT had an effective export capacity of about 1.5 million barrels per
day (bpd) of oil, handling about 80 percent of Iraq's exports. 1039
However in September 2010 Iraq’s cabinet approved a US $733 million deal to build a
new oil export terminal, with a capacity of 1.8 million bpd, at the site. 1040 Over 2012
two single-point mooring systems came on stream, each with a capacity of 900,000
bpd. Two further systems were due to come on stream in 2013, bringing total export
capacity out of the south to 4.5 million bpd.1041
Impact of conflict
The terminal's infrastructure has been badly damaged by years of war and instabil ity.1042 Major expansion work was stalled by the outbreak of the Iran-Iraq War in
September 1980. The terminal was heavily damaged in the fighting and exports did
not resume until the war ended in 1988-9.1043
The Basra terminal suffered further serious damage during the second Gulf War in
January 1991 and exports were halted completely. Iraq managed to start repairs at
ABOT in the 1990s, but it was only possible to export around 400,000 bpd through the
terminal. By 2003 its capacity reached some 1.3 million bpd. During the US-led invasion the terminal was captured by US Navy Seals in a night-time amphibious attack in
the war of 2003.1044
Pipelines
Kirkuk-Banias Pipeline (IPC)
The 880-kilometre Kirkuk-Banias pipeline was first brought online in 1952 and transported oil from Kirkuk in central-northern Iraq to the port of Banias in Syria. According to Pipelines International, the building of the pipeline marked a significant moment
in the development of Iraq's petroleum industry.1045
The pipeline stopped operating in 2003 during the US-led invasion of Iraq and as of
late 2012 remained closed.1046
1039 'Iraqi Oil Industry, IAS Group, March 2011.
1040 '$733m Contract Awarded for Basra Oil Terminal', Iraq Business News, 28 September 2010.
1041 'Will Iraq be the next oil superpower?'. Petroleum Economist, 12 December 2012.
1042 'Aging Oil Terminal Vital To Iraq's Economy', NPR, 20 June 2009
1043 'Iraq’s Oil Export Outlets, Middle East Economic Survey, 30 November 2009.
1044 'Task Forces Bolster OIF, OEF Maritime Security, WhisperWave, 16 February 2006.
1045 'The Kirkuk – Banias Pipeline', Pipelines International, March 2011.
1046 'Syria Oil Gas Profile', A Barrel Full, retrieved 6 January 2011.
180
Capacity
The Kirkuk-Banias pipeline had a capacity of 300,000 barrels per day (bpd) prior to
2003. However its original capacity when built in the 1950s was 1.4 million bpd. 1047
History
In 1950 the Iraq Petroleum Company (IPC) contracted Bechtel to construct the 30-32
inch pipeline, which was laid by British, American, Syrian and Iraqi workers. Construction was completed in 1952. The pipeline was damaged by the Syrian army in response
to the Anglo-French seizure of the Suez Canal zone in 1956, but was later repaired.
In 1972 Iraq nationalised the IPC, prompting Syria to nationalise the IPC's assets in
Syria, including the Syrian section of the Kirkuk-Banias pipeline. 1045
The pipeline was closed for much of the 1970s and 1980s, but in the 1990s it was reopened so that Iraq could bypass the UN oil embargo. At the time, reports put Iraq's
exports through the line at about 150,000-200,000 bpd. 1047 But the pipeline was bombed
by US forces during the invasion that removed Saddam Hussein in 2003, stopping the
flow of oil.
In 2007 it was reported that Syria and Iraq were discussing plans to revive the
pipeline, however ongoing security issues stalled the deal according to then Oil Minister Shahristani.1048 Reports suggested that Russian firm Stroytransgaz had secured a
contract for repairs, however Christopher Blanchard reported that in 2007 the Syrian
government was seeking alternative foreign firms. In April 2009 Syria and Iraq again
announced that the two sides had reached an agreement to repair the line, however
the deal was not followed through.1049
In April 2011, Stroytransgaz reported that Iraq was finalising the terms of engagement
for a contract to construct two crude export pipelines and a gas pipeline through Syria
to the Banias port, to be offered to investors. Capacity for the two pipelines was expected to reach 2.75 million bpd. The first pipeline would transport heavy crude from the
northern Baiji area, potentially including oil from Majnoon, Halfaya, Badra, Ahdab and
the East Baghdad fields, as well as Najmah and Qayara. The second would follow the
route of the existing damaged pipeline, with a capacity of 1.25 million bpd. As of late
2011 the project had not been confirmed.1050
Iraq Pipeline through Saudi Arabia (IPSA)
The Iraq Pipeline through Saudi Arabia (known as IPSA) travels through Saudi Arabia
1047 'NOC lets contract for Kirkuk-Banias oil line repair', Pipelines International, 4 July 2008.
1048 'Iraq says oil flows through Syria depend on security', Reuters, 20 August 2007.
1049 Blanchard, Christopher ' Iraq: Regional Perspectives and US Policy', Congressional Research
Service, 6 October 2009.
1050 'Iraq Finalises Tender Terms for Syria Export Pipelines', Stroytransgaz, 21 April 2011.
181
to the Red Sea Port of Mu'ajiz, just north of Yanbu. IPSA has suffered several closures
as a result of wars and other political events and has been out of operation since the
Gulf crisis.1051
The terminal at Mu’ajiz has 10 million barrels of storage and loading facilities for
handling tankers up to 400,000 tons.1052
Capacity
IPSA has a design capacity of 1.65 million barrels per day (bpd). 1052
History
IPSA was laid in the 1980s in order to diversify export routes after oil tankers were attacked in the Gulf by both sides during the Iran-Iraq war. However it has not carried
Iraqi crude since Saddam Hussein invaded Kuwait in 1990, causing relations between
the two countries to deteriorate.
Saudi Arabia confiscated the pipeline in 2001 as compensation for debts owed by Baghdad and from then until 2012 had only used the line to transport gas to power plants
in the west of the country.1053
According to former Iraqi Oil Minister Issam al-Chalabi, no attempts were made to recover the pipeline system following the 2003 invasion, and political relations between
Iraq and Saudi Arabia remained sour.1054
In September 2003, unnamed official sources stated that Saudi Arabia had decided to
reopen the IPSA pipeline to allow Iraqi oil to be exported from the country's southern
oilfields to Yanbu.1055 However by October of the same year, a Saudi Aramco official
stated that Iraqis "don't know what they are talking about... the pipeline is not in a us able form because of its long-term and sudden closure."1056
In December 2011, after Iranian authorities threatened to close the Persian Gulf to international oil trade, consideration of alternative export routes to the Strait of Hormuz led to renewed discussion about the various oil pipelines that run across Saudi
Arabia. The IPSA pipeline and the Trans-Arabian Pipeline (also known as Tapline)
could carry the equivalent of up to 2 million bpd to ports on the Red Sea and Mediter ranean coasts.1057 Nonetheless Iraq's security concerns, which include protection of
threatened oil infrastructure and reserves, would also need to be considered before
any decision to reopen the IPSA pipeline could be suggested as a viable option, accord1051 'Energy Profile of Iraq', Encyclopedia of Earth, 3 July 2007.
1052 'Baker Institute paper suggests pipeline alternative to Hormuz oil route', Pipeline and Gas
Journal, May 2012.
1053 'Saudi Arabia reopens oil pipeline with Iraq to counter Iran Hormuz threat', Al Arabiya, 29
June 2012.
1054 'Iraq’s Oil Export Outlets', Middle East Economic Survey, 30 November 2009.
1055 'Saudi to reopen Iraq pipeline', AME Info, 11 September 2003.
1056 'Iraq-Saudi oil pipelin is unusable', Gas And Oil, 20 October 2003.
1057 'Circumventing the Strait of Hormuz' Bottleneck', Atlantic Sentinel, 20 December 2011.
182
ing to reports by Reuters.1058
Taq Taq-Khurmala Oil Pipeline
The 75-kilometre Taq-Taq-Khurmala pipeline, under construction as of late 2012, will
link the Taq Taq oil field to the Khurmala dome, the northernmost part of the giant
Kirkuk field and the entry point for the Kirkuk-Ceyhan pipeline. The pipeline was being built by the Erbil-based KAR Group, has a capacity of 150,000 barrels per day (bpd)
and was due for completion in late 2012. 1059 In the meantime crude for export was being transported by truck, either 135 kilometres (km) to Khurmala or 255km to Fishkabur on the Turkish border.
The project constitutes the first part of a two-phase project envisaged to link producing fields in Kurdistan to Fishkabur. The completed pipeline will have a capacity of 1
million bpd. The second phase was expected to be completed by the end of 2013, according to Genel Energy.1060
Kirkuk-Ceyhan Oil Pipeline
Transporting oil from fields near Kirkuk in Iraq's north to the Turkish Mediterranean
port of Ceyhan, the Kirkuk-Ceyhan pipeline spans 941 kilometres. It comprises two
parallel pipelines, the first of which was commissioned in 1977 and the second in
1987.1061 In 2012 the pipeline was carrying a quarter of Iraq's crude exports 1062 and as of
2012 was the only export route for Iraq's northern oil production. 1063
The pipeline is operated by the Iraqi Oil Ministry's North Oil Company (NOC). 1064 Since
it rests directly within the sphere of influence of the Kurdistan Regional Government
(KRG) some Kurdish observers, such as the newsletter Kurdish Aspect, have argued that
the pipeline should be automatically incorporated into KRG geography pursuant to
Article 140 of Iraq's 2005 constitution.1065
As of December 2011, the Turkish-backed company Genel Energy had plans to build a
US $400 million oil pipeline to link the southern Taq Taq field with the Kirkuk-Ceyhan
pipeline. Genel hoped to start construction on the new 400,000 bpd pipeline in the
spring of 2012.1066
1058 'FEATURE-Iraq oil security tested as U.S. forces withdraw', Reuters, 16 December 2011.
1059 'Kurdistan Taq Taq oil exports rise ahead of Sept deadline', Reuters, 6 September 2012.
1060 'Taq Taq PSC', Genel Energy, retrieved 7 December 2012.
1061 'Pipeline projects in the Middle East', Pipelines International March 2010.
1062 'Fire halts Kirkuk-Ceyhan pipeline', Upstream Online, 27 August 2012.
1063 'Syria’s transit future: all pipelines lead to Damascus?', OpenOil, 28 March 2012.
1064 'False Reports of Suspension of Oil Exports from Kurdistan', Iraq Business News 12 September
2011.
1065 'Kirkuk-Ceyhan pipeline belongs to Kurdistan', Kurdish Aspect, 22 September 2010.
1066 'Former BP chief explores the final oil frontier', Financial Times, 7 December 2011.
183
Capacity
The pipeline has a capacity of 1.6 million barrels per day (bpd) but in 2011 was typic ally pumping around 500,000 bpd.1067 The two component pipelines have diameters of
46 inches and 40 inches respectively, and the project includes four pump stations and
three storage tank farms on the Iraqi side, with a metering station at the Turkish border.1068
History
The pipeline was made operational in the 1980s in part to make possible the export of
crude oil while avoiding the risk of passing through the Persian Gulf during the Iran-Iraq war from 1980 to 1988. It has been under attack and subject to prolonged clos ures for much of its existence, contributing to its below-capacity operation. 1069
The pipeline was a primary target of insurgent attacks and sabotage in the years fol lowing the US-led invasion of Iraq, 1070 and was offline more than online between 2003
and 2007.1071 Since then it has been shut down on several occasions, sometimes due to
attacks (for instance, a bomb shut down operations for several days in March 2011) 1067
and at other times due to old, deteriorating infrastructure (as in September 2011,
when exports were halted because of a leak).1071
In September 2010 Iraq and Turkey signed an agreement to extend their joint operation of the pipeline for 15 years and to upgrade its capacity by about 1 million bpd,
though the Iraqi Oil Ministry provided no timetable for the upgrade's completion. The
extension also included amendments that raised the transit fees payable to Turkey as
well as an official guarantee by the Turkish government giving it the authority to dismiss orders by Turkish courts to seize Iraqi oil. 1072
Strategic Pipeline
Iraq's Strategic Pipeline was built in 1975, comprising two parallel 700,000 barrels per
day (bpd) pipelines capable of transporting crude from Kirkuk south to the Arabian
Peninsula.1073 The objective of this reversible pipeline was to give the option of pump ing Kirkuk crude southwards for export via the Gulf or of pumping crude from the
southern fields northwards, for export via Turkey or to refineries around Baghdad. 1074
1067 'UPDATE 1-Blast shut down Iraq Kirkuk-Ceyhan pipeline-sources', Reuters 9 March 2011.
1068 'The Main Installations', North Oil Company, retrieved 14 December 2011.
1069 'Terror threatening European energy', Hurriyet Daily News, 17 November 2011.
1071 'Iraq Shuts Kirkuk-Ceyhan Crude Export Pipeline Following Leak', Downstream Today, 29
September 2011.
1072 'Iraq, Turkey sign renewed oil pipeline accord', Reuters, 12 September 2010.
1073' The Kirkuk – Banias Pipeline ' Pipelines International, March 2011.
1074' Iraq Energy Outlook' IEA, 12 November 2012.
184
Work was halted on the second line during the Gulf War of 1990-91. 1075 Due to damage
to parts of the pipeline, as of 2012 the line was only used to transport oil for domestic
purposes, mainly from the South Oil Company to the refinery at Daura. 1074
Capacity
The Strategic Pipeline is designed to carry 850,000 bpd of crude, but the IEA estimates
operating capacity to be much lower. Actual flows in June 2012 were below 50,000
bpd.1074
Islamic Gas Pipeline
In summer 2011 Iran, Iraq and Syria signed a memorandum on laying a 5,000-kilometre pipeline,1076 to be named the Islamic Gas Pipeline. The proposed pipeline would
transport gas resources from Iran's South Pars field and would extend through Iraq,
Syria, Lebanon and to Europe under the Mediterranean sea.1077
Iran suggested in 2011 that the Islamic Pipeline could serve as an alternative to the
EU-backed Nabucco pipeline set to supply Europe with gas resources via Turkey and
Austria. The estimated cost of the project is US $10 billion and is expected to be in operation by 2016.1077
However Konstantin Simonov of the National Energy Safety Foundation commented
that "everyone is aware of political risks associated with Iran" and that "moreover, the
construction will never begin because Iran and Syria have no money and foreign financial resources are unavailable to them.”1077
Capacity
According to the Deputy Oil Minister Javad Owji, the proposed pipeline would be able
to pump 3.9 billion cubic feet (bcf), of natural gas per day.
Baghdad stated it wants up to 530 million cubic feet (mcf) per day for its own needs,
Syria would need up to 706 mcf and Lebanon up to 247 mcf. According to UPI, this
would leave 2.4 bcf for possible export.1078
Erbil-Dohuk gas pipeline
The Erbil-Dohuk pipeline is a project under construction, as of mid-2012, by the KAR
Group, built to transport gas to a power plant in Dohuk, near the Turkish border. How1075 'Iraq 'Reopens Strategic Pipeline'' Iraq Business News, 6 December 2012.
1076 'Seven Investors Ready to Fund Islamic Gas Pipeline' Gulf Oil and Gas, 8 June 2011.
1077 'Islamic Pipeline to challenge Nabucco' Voice of Russia, 26 July 2011.
1078 ''Islamic pipeline' seeks Euro gas markets' UPI, 25 July 2011.
185
ever according to Iraq Oil Report, the pipeline also has serious strategic implications, in that the Dohuk plant needs only around 100 million cubic feet (mcf) of gas per
day, while the pipeline has a capacity of 400 mcf, leaving space for potential exports.
According to the report, this would suggest that the KRG might be looking to build a
pipeline extending beyond Dohuk and north into Turkey. 1079
Other infrastructure projects
South Gas Utilisation Project
In September 2008 international oil company Shell signed a Heads of Agreement (HOA)
with the Iraqi Ministry of Oil to capture some of the surplus gas produced during oil
extraction at Basra in the south, for a project which later came to be known as the
South Gas Utilisation Project. The surplus gas was previously burnt off in a process
known as 'flaring', which is estimated to cost US $5 million a day in lost fuel. Shell
Chief Executive Peter Voser described the deal as heralding “a new chapter in the gas
industry in Iraq”.1080
The joint venture company established to manage the project was the Basra Gas Company (BGC), a collaboration between the state-run South Gas Company (SGC), Shell and
Mitsubishi Corporation. The documents finalising the creation of the BGC were approved by the energy committee at the Council of Ministers in September 2011, and
ratified by the Cabinet on the 15 November 2011. Under the agreement, gas was to be
supplied from the southern oil fields of Rumaila, Zubair and West Qurna-1 and the lifetime investment was estimated at more than $17 billion. 1081 The SGC holds a 51 percent
stake, Shell 44 percent and Mistubishi 5 percent. 1082 However when reacting to leaked
diplomatic cables in 2011, Iraq Oil Report suggests that in contrast to the transparent
and competitive bidding rounds of 2009 and 2010 for oil and gas contracts, the Shell
gas deal was brokered behind closed doors and may have put Shell's prerogatives
ahead of Iraq's interests.1083
Operations are to be overseen by a management committee consisting of five representatives from the ministry, four from Shell and one from Mitsubishi. As majority
shareholder, the SGC must approve any committee decision. 1084
1079 'Strategic KRG pipelines near completion' Iraq Oil Report, 29 August 2012.
1080 'Shell signs £11bn deal to fuel Iraq's power stations with gas', Guardian, 27 November 2011
1081 'Iraq’s Challenges On Its Path Toward A World Class Gas Industry', Middle East Economic
Survey, 21 November 2011.
1082 'Shell gets its gas deal', Iraq Oil Report, 27 November 2011.
1083 'The secret history of the Shell gas deal' Iraq Oil Report, 21 January 2010.
1084 'Shell gets its gas deal', Iraq Oil Report, 27 November 2011.
186
Project goals
Oil Minister Abdul Karim al-Luaibi has highlighted the important role the BGC was intended to play in Iraq's strategy to boost the country's "chronically underperforming
electricity sector". A further goal of the project is to diminish the environmental and
public health impact of gas flaring.1083
In the short term, the objective is to rehabilitate 30 existing facilities and two major
processing plants at North Rumaila and Khor al Zubair previously operated by the
South Gas Company. But as oil production increases, there will be total investment of
US $13 billion, with the possibility of an additional $4 billion for an LNG export plant if
there were to be sufficient surplus gas after domestic needs had been met. The object ive for throughput is 20 billion cubic metres (bcm) of gas per year. 1085
Obstacles
Despite the deal finally being brought to a conclusion in 2011, the project continued to
face opposition from key local stakeholders. The Basra provincial council has
threatened to file a lawsuit against the deal, claiming that local officials were not involved in the negotiations and did not have the opportunity to secure guarantees of
social investment. This is a claim denied by Shell management, however Iraq Oil Report
suggests that the validity of the Council's objections was acknowledged by one of PM
Nouri al-Maliki's top oil advisors.1083
The question of how to align the interests of the various parties involved present a
further challenge. As of December 2011, the issue of the relationship between the BCG
and the operators of the fields in question (including BP, ExxonMobil and Eni) still
needed to be resolved. There was some disagreement on who has first rights to the associated gas produced at the fields.1083 Analysis by the International Energy Agency
(IEA) expands on this challenge, arguing that as the technical service contracts signed
for fields supplying gas to the BGC do not include a remuneration fee for gas production, the contractors have little commercial incentive to make gas readily available.
However they do have an incentive to use the project to promote a strong public image on the question of flaring.1085
In addition the project presents complex economic problems. Low domestic gas prices
(fixed at just over $1 per million British thermal units, MBtu) do not offer sufficient
value to underpin the investment required, according to the IEA, meaning that the
BGC must rely on returns earned from the higher value of natural gas liquids extracted
from the raw gas (condensate and LPG), which command a higher price than the domestic gas price.1085
1085 'Iraq Energy Outlook', International Energy Agency, 2012.
187
Environmental Impacts of Iraq's Oil and
Gas Industry
Gas flaring
As of 2011, the only countries to 'flare' more natural gas than Iraq were Russia, Iran
and Nigeria.1086
See also: Natural Gas Flaring in Iraq
Water and marshlands
The process of oil extraction requires vast quantities of water, often more than the
volume of oil produced. In the past, oil companies in the south of Iraq have primarily
relied on the Tigris river for water supply, however Iraqi government officials have
predicted that southern Iraq will face a major water crisis in 15 to 20 years if things
continue as they are.1087
In particular tensions between Turkey and Iraq have arisen over the impact of Turkey's US $32 billion 1088 Southeast Anatolia Project (GAP) on Iraq's water resources. GAP
is an infrastructure project launched in 1975 and involving the construction of 22
dams across the Euphrates and Tigris basins. Turkey in the past has resisted reaching
an agreement with both Iraq and Syria, fellow 'owners' of the water from these rivers,
with former president Turgut Ozal saying that "we don’t tell Arabs what to do with
their oil, so we don’t accept any suggestion from them about what to do with our water."1089 According to Venkata Vemuri of pressure group One Water, for the neighbours
of Turkey and Iraq the immediate concern is that differences over water could disrupt
the flow of oil.1088
The NGO Coordination Committee for Iraq also reports concerns around the ultimate
destination of the large quantities of water used after oil extraction. This water is often contaminated during extraction with toxic byproducts and released into the
ground, from where acids, carcinogens and other toxins can enter the ecosystem and
pose major health risks such as cancer. Those working in the oil industry and exposed
to these toxins are at particular risk.1090 A 2007 Report by the United Nations Environment Programme (UNEP) states that 'oil industry sites.... are undoubtedly a major
source of contamination and hazardous waste.'1091
1086 'Shell signs £11bn deal to fuel Iraq's power stations with gas', Guardian, 27 November 2011.
1087 'Iraq may suffer clean water crisis in 15-20 years', Reuters, 21 September 2011.
1088 'Middle East- Turkey and Iraq, Partners in So Many Ways', One Water, retrieved 3 December
2012.
1089 Jongerden, Joost, 'Dams and Politics in Turkey: Utilizing Water, Developing Conflict', 2010.
1090 'Iraqis and NGOs Consider Future Engagement with International Oil Companies', NGO
Coordination Committee for Iraq, retrieved 7 December 2011.
1091 'UNEP in Iraq: Post-conflict Assessment, Clean-up and Reconstruction', UNEP, December
188
The same UNEP report addresses the alluvial plains in the south-east corner of the
country, which constitute approximately 30 percent of Iraqi territory and are formed
by the combined deltas of the Tigris and Euphrates rivers. The region begins north of
Baghdad and extends to the Persian Gulf. 1092 This region, known as the Mesopotamian
marshlands, is home to local tribes who live above some of the richest oil reserves in
Iraq. During Saddam Hussein's rule over the country, the marshes were dammed and
drained when Hussein accused the Marsh Arabs of treason during the 1980-88 war
with Iran.1093 The ecosystem forms part of the Tigris and Euphrates river basin, which
feeds Iraq, Turkey, Syria and Iran. However the heart of the wetlands lies in southern
Iraq, along the border with Iran and near big cities like Basra. 1094 According to a 2011
UN White Paper, the future of the marshlands 'depends on how successfully Iraq is
able to strike a balance between national development, including the development of
the oil industry infrastructure in the Marshlands area, and environmental conservation.' The central government initiated planning for the long term development of the
marshlands between 2005 and 2006, however the influence of the oil industry is cited
by the United Nations Integrated Water Task Force for Iraq as being one of the challenges in developing a single strategic plan for the area.1095
Oil transportation and spills
The transportation of oil may also entail environmental risks, with leaks or major oil
spills endangering parts of the Gulf, part of a fragile ecosystem. In the south where the
water table is just a few feet below the ground, oil from damaged pipelines also seeps
into water supplies used for agriculture and drinking water. 1096
Iraq's oil infrastructure has also come under attack frequently since 2003. The Institute for the Analysis of Global Security think-tank counts at least 469 significant attacks on Iraqi oil infrastructure between when exports resumed in June 2003 and
March 2008.1097 According to the BBC, the vast majority of attacks on the oil industry
were blamed on insurgents bent on destabilising Iraq.1096
Aside from sabotage, some ruptures have been linked to maintenance issues along
pipelines. In particular, in late October 2011 a pipeline which runs south from West
Qurna past the Rumaila oil field to the Fao port suffered an oil spill, following a rupture in a pipe scheduled to be replaced by Chinese CNPC. The spill was termed a 'disaster' by Deputy Environment Minister Kamal Latif, as it endangered Basra's only
source of fresh water and contaminated a 22-kilometre stretch of the Bada's channel,
which feeds the only water purification facility serving the city of Basra. According to
Iraq Oil Report, the incident was seen as an accident rather than an act of sabotage and
an official from the Oil Police admitted that poor maintenance was to blame for the
2007.
2007.
1093 'Iraqi Tribal Disputes Pose New Challenge to Oil Firms', Iraq Energy News, 31 May 2011.
1094 'Eden in the Line of Fire', Tierra America, retrieved 7 December 2011.
1095 'Managing Change in the Marshlands:Iraq’s Critical Challenge', United Nations, 2011.
1096 'Oil attacks target Iraq recovery', BBC News, 16 June 2004.
1097 'Iraq Pipeline Watch ', IAGS, retrieved 8 December 2011.
189
pipeline rupture in North Rumalia. 1098
Iraqi environmental regulation
Following the 2003 invasion of Iraq and subsequent upheaval, the operations of environmental authorities in Iraq were severely curtailed, with many laboratories in Baghdad looted following the conflict. According to a UNEP Report, the need to rebuild
Iraq's environmental monitoring capacity was urgent.1099
2005 Constitution
The 2005 Constitution of the Republic of Iraq demands shared responsibility for environmental regulation between the federal authorities and the producing administrative regions in management of oil and gas. However, the federal government remains
the decision maker on certain matters, including generating policies relating to water
sources from outside Iraq.1100
Environmental laws of 1997 and 2008
Law No. 3 of 1997 covered soil, air quality and water resources and formed the frame work for the protection of the environment in Iraq until being subsumed into the 2008
and 2009 Environmental laws. The goal of the 1997 Law is to "protect the environment
and to make it better including the territorial waters, from pollution and to extenuate
its effects on health, environment and natural resources.”
The subsequent Law No. 37 of 2008 strengthens the 1997 Environmental Law, and cre ated a formal Ministry of Environment. This Ministry executes formal ministerial instructions and orders, creates environmental policy and initiates compliance and deterrence mechanisms.1100
Environmental law under bid rounds
The technical service contracts (TSCs) signed in the first bid rounds in 2009 required
contractors and operators to conduct petroleum operations with due regard to the
protection of the environment and to the conservation of natural resources, adopting
'best international petroleum industry practices'.
However, the definition of 'best practices' is somewhat ambiguous. According to Iraq
Oil Report, an international oil company (IOC) may well already apply the highest
standards, as a result of its own corporate policies or those of its financiers, however
the TSCs would seemingly allow lower standards generally accepted as 'good
practice'.1100
1098 'Oil pipeline leak threatening Basra water supply', Iraq Oil Report, 3 November 2011.
2007.
1100 'Analysis: Iraqi legal regime protects environment', Iraq Oil Report, 31 January 2011.
190
2009 Environmental Law
The 2009 Environmental Law expanded the jurisdiction and enforcement powers of
the Ministry of Environment and introduced the concept of environmental impact assessments (EIAs), which should be submitted to the Ministry and approved before
work may begin. The assessment should include the following elements:
• positive and negative impacts of the project on the environment.
• means to prevent and address the causes of pollution in order to comply with regulations.
• contingencies for pollution emergencies and precautions.
• possible alternative to the use of technology less harmful to the environment.
• provisions to reduce waste.
The 2009 law also establishes penalties for non-compliance and environmental pollution, such as closure of operations for defined periods and fines of up to US $850 a
month until the non-compliant factor is removed. If not remedied, the authorities can
resort to imprisonment and further fines.1101
International treaty obligations
Aside from internal regulation, Iraq has also signed up to a number of environmental
conventions and agreements, including; the Basel Convention (2009); the Convention
on Desertification (2007); the Climate Change Convention and Kyoto Protocol (2008);
the UNESCO Convention (2008); and Convention for Biological Diversity (2008). 1101
However according to corporate attorney Thomas Donovan, Iraq has traditionally
lagged behind international standards and has only recently signed up to many conventions, the provisions of which had not yet been implemented into Iraqi law as of
2011.1101
1101 'Analysis: Iraqi legal regime protects environment', Iraq Oil Report, 31 January 2011.
191
Oil and Gas Fields
Fields awarded by central government
Ahdab Oil Field
Oil Reserves
1 billion barrels (estimate)1102
Oil Production
140,000 bpd (2012)1102
Estimated Gas in Place
750 bscf1103
Discovered
19791102
First Produced
20111102
Location
Wasit Province, East.
Principal Partners
CNPC (75%)1104
Secondary Partners
North Oil Company (25%)1102
The Ahdab field lies in a 303 square kilometre block in Iraq's Wasit province, 180 km
south-east of Baghdad. The field was originally explored using 1970s vintage 2D seismic data.1103
Iraqi officials have estimated that the field holds approximately 1 billion barrels of oil.
The field also holds 750 billion standard cubic feet (scf) of associated gas reserves,
however as of 2011 no plans had been announced for their commercial development,
in which case the gas would likely be flared or reinjected. 1102
Contracts negotiated
A deal for exploitation of the al-Ahdab field was first signed in 1996 between the CNPC
and Saddam Hussein's government. However, the deal was postponed after the UN imposed sanctions and delayed further by the US-led invasion in 2003. 1102
However in November 2008 Chinese CNPC secured rights to the Ahdab field under a
technical services contract signed with the Iraqi government. Under the terms of the
contract the company has development rights for 23 years and is to invest $3 billion.
Analysts told the New York Times in 2011 that the Ahdab operation is CNPC's
1102 'China Opens Oil Field in Iraq, New York Times, 28 June 2011
1103 'Iraq's Ahdab oil field development limits contractor profitability, Oil and Gas Journal, 8
January 2011
1104 'CNPC starts production Al-Ahdab oil field in Iraq, Penn Energy, 29 June 2011
192
largest in the Middle East. A Chinese oil executive also claimed in 2009 that the company would make a profit of less than 1 percent but that the contract was a way to 'get
a foot in the door' of the Iraqi industry.1105
According to a 2008 US diplomatic cable, CNPC estimates that output could reach as
high as 110,000 barrels per day (bpd) and that CNPC will be paid 'something like' $6
per barrel under the terms of the deal. But Chinese Trade Counselor Zhue Yuesheng
commented that the Chinese side was concerned about Iraqi security guarantees,
which had to be resolved before work could begin at the site. 1106
The deal over the oilfield has drawn criticism from residents and officials in Wasit
Province. Some people demanded that Wasit be granted a royalty of $1 per barrel to
improve access to clean water, health services, schools, roads and other public needs
in the province, which is among Iraq’s poorest. However, the Iraqi government rejected the demands. The residents complained in 2009 that Chinese development of the
field would hold no benefits for them, other than providing local employment for less
than $600/month. Fears were also raised over security for workers and fears of kidnapping.1105
Production and Export
In November 2012 it was reported that the field had a total of 170 operating wells and
was producing at a level of 140,000 bpd.1105
Akkas Gas Field
5.6 tcf1107
Discovered
19921108
Location
Al-Anbar governorate, West.
Principal Partners
Kogas (75%)1108
Secondary Partners
The Akkas gas field (also known as Salah Al Dine) is situated in the western deserts of
Iraq, in the al-Anbar province. It lies 30 km south of Al Qaim city on the Syrian border.
The Akkas structure is approximately 30km long and 12km wide. 1109
al-Anbar province was once a hotbed for insurgents, with one Iraq official referring to
the area as "the same source, for al-Qaida and gas." However, security was reported to
have improved in 2010 as Al-Qaida was chased to neighbouring territories. An Iraqi oil
1105 'China Opens Oil Field in Iraq, New York Times, 28 June 2011
1106 'Chinese Embassy On Wasit Oil Deal And Business In Iraq, WikiLeaks, 9 September 2008
1107 'Iraq Signs Final Akkas Gas Deal with KOGAS Iraq Business News, 17 October 2011
1108 'Iraq to Sign Contract With Korea Gas for Akkas Field Today'. Bloomberg, 13 October 2011.
1109 'Akkas'. Iraq Energy, retrieved 13 December 2011.
193
official acknowledged to Iraq Oil Report the difficulty of operating in the area,
though Iraqi and American security officials dismissed concerns. 1110
The field hold the country's largest reserves of gas, with 5.6 trillion cubic feet (tcf). Iraqi officials have said that the priority for the gas will be domestic consumption,
mainly for power generation, but has left open the possibility of allowing exports once
domestic needs are satisfied.1111
Contract negotiations
In May 2010, the government announced Akkas would be part of the m, which would
focus on Iraq's gas reserves. 1112 The original deal awarded to consortium partners Kogas and KazMunayGas was long delayed amid negotiations between different stakeholders, however the deal to develop the deposit was finally signed in October 2011
under an amended ownership structure.1113 Under the terms of the original bid, the
plateau production target was 100 MMscf (million standard cubic feet) per day and the
proposed remuneration fee was $7.50 per barrel of oil equivalent (boe) produced. 1114
In May 2011, KazMunayGas pulled out of the venture, leaving Kogas as the sole investor and operator and forcing the company to double its share in the project. 1110 A
new deal was then negotiated and signed in October 2011 between Kogas and the Iraqi
Oil Ministry. The company committed to increasing production to 400 MMscf per day
within seven years and holding that output for 13 years, earning a $5.50 remuneration
fee for each boe produced.1111
According to Iraq Oil Report the Akkas deal faces several political obstacles on a
local and national level. In particular, Anbari leaders demanded that all gas from the
field stay within the province to serve existing and future local demand, rather than
being exported.1115 The governor of Anbar threatened to withhold security and logistical support for foreign contractors if the deal went through and warned that, as a
measure of last resort, the province could assert autonomy from Baghdad. 1110
Production and export
According to Iraq Oil Report, there is a planned power plant linked to the Akkas
project, as well as a provision establishing a maximum number of years during which
the gas produced can be sent to a processing facility in Syria before a comparable domestic facility at Akkas must be ready.1116
The issue of future exports from the Akkas field has caused some discussion in Iraq.
Being located close to the Syrian border, Akkas is an attractive source of gas for the
1110 'Anbar, central governments poised for fight over Akkas'. Iraq Oil Report, 1 June 2010.
1111 'Akkas deal finally signed'. Iraq Business News, 13 October 2011.
1112 'Iraqi Gas From 'Akkas Field Allbusiness.com 22 March 2010
1113 'Iraq Signs Final Akkas Gas Deal with Kogas'. Iraq Business News, 17 October 2011.
1114 'Bidding Results Overview for Licensing Round 3'. Iraq Energy, retrieved 13 December 2011.
1115 'Gas deals advance, political hurdles remain'. Iraq Oil Report, 15 November 2010.
1116 'Akkas deal finally signed'. Iraq Business News, 13 October 2011.
194
'Southern Corridor' pipeline project, which needs a guaranteed supply of gas to compete with Russian pipelines feeding European customers. According to Iraq Oil Report, Baghdad officials promised Iraqi gas for Nabucco, but only after local demand
for refined products and electricity has been met. 1117
Badra Oil Field
Oil Reserves
3 billion barrels1118
Oil Production
n/a
Discovered
1979
First Produced
2013 (forecast)1119
Location
Wasit Province, East.
Principal Partners
Gazprom (30%)
Secondary Partners
Kogas (22.5%), Petronas (15%),
TPAO (7.5%), Oil Exploration
Company (25%)1118
The Badra oil field is situated in Wasit governorate, 160 km south-east of Baghdad, and
extends across the border with Iran. The field is approximately 16km long and 6km
wide. The Badra discovery well was drilled in 1979. A second appraisal well, drilled in
the late 1980s, was abandoned due to the impact of war. 1120
Gazprom describes the Basra deposit as having a 'challenging profile', with a significant part of the surface requiring clearance of mines. In preparation for a 2011 3D seismic survey of the deposit, work was carried out to remove weapons over an area of ap proximately 12,000 square metres.1119
The Gazprom-led consortium was the only group to bid for the contract area in Iraq's
second licensing round of 2009. The Oil Ministry announced in December 2009 that it
had accepted a revised bid form the consortium, which comprised of Gazprom (30 per cent), Kogas (22.5 percent), Petronas (15 percent) and TPAO (7.5 percent). The 25 percent Iraqi state partner was the Oil Exploration Company. 1121
The contract specified the consortium would pay a $100 million signature bonus and
the remuneration fee would be $5.50 per barrel. The official press release announcing
1117 'Anbar, central governments poised for fight over Akkas'. Iraq Oil Report, 1 June 2010.
1118 'Gazprom begins drilling at Iraq's Badra field', Arabian Oil and Gas, 27 November 2011
1119 'Gazprom Neft Starts Drilling In The Badra Field In Iraq', OilVoice, 28 November 2011
1120 'Badra'. Iraq Energy, retrieved 12 December 2011.
1121 'Iraq’s Second Petroleum Licensing Round Badra Contract Area – Bidding Results', Petroleum
Contracts and Licensing Directorate, 2009.
195
the contract said the consortium had originally offered $6 a barrel but ultimately accepted the lower figure. As well as crude oil, the contract stipulates that the fee is also
payable on liquid petroleum gas (LPG) and natural gas handed over to the state partner from a gas processing plant. The fee was to kick in when production reaches
15,000 barrels per day (bpd). The release specified that the state partner also born the
costs of development of the field.1121
In November 2011, the governor of Wasit announced that the first oil well had been
drilled at Badra field, one of 17 wells to be drilled at the site. The governor expected
that the field would reach peak production of 170,000 bpd by 2016, making the Wasit
province one of the main oil producing provinces in the country. 1122
The depth of the appraisal well reached 4,900 metres and drilling was expected to be
completed in April 2012.1123
Bai Hassan Oil Field
Oil Reserves
2.078 billion barrels1124
Oil Production
200,000 bpd (2012)1124
Location
Dibis Province, North.
Principal Partners
state-managed
The Bai Hassan field lies in the northern province of Dibis, just south-west of the
Kirkuk field.1125 The field lies within a tract of disputed territory that is claimed by
both the central government and Kurdish regional authorities. The field is operated by
Iraq's state-owned North Oil Company (NOC).1124
Security concerns were raised in June 2012 when seven bombs were discovered at the
field, including two that exploded beneath pipelines at the site, although production
output was not disrupted.1124
On the 2 July 2009 the Petroleum Contracts and Licensing Directorate of the Ministry
of Oil announced that, despite several bids from international oil companies (IOCs) for
the Bai Hassan contract area, the country decided not to award an international contract for the field.1126 A bid was proposed by a consortium of ConocoPhillips, CNOOC
1122 'First well in Badra oil field drilled, Governor', Iraq Daily Journal, 28 November 2011
1123 'Gazprom Neft Starts Drilling In The Badra Field In Iraq', OilVoice, 28 November 2011
1124 'Bombs target Kirkuk province oil field', Iraq Oil Forum, 9 June 2012.
1125 'Bai Hassan', Iraq Energy, retrieved 12 December 2011.
1126 'Iraq’s First Petroleum Licensing Round: Bai Hassan Contract Area – Bidding Results',
196
and Sinochem, however the remuneration fee bid of $26.70 was well in excess of the
minimum established by the Ministry of Oil. According to a leaked US diplomatic
cable, Conoco's bid was by far the highest fee requested in the bid round and though
they were the sole bidders, they refused to reduce their offer to the maximum $4 fee
and walked away with no award.1127
According to comments made by Manaa al-Obeidi, Director General of North Oil Company (NOC) in 2009, production at Bai Hassan increased from 150,000 barrels per day
(bpd) in mid-2008 to 175,000 bpd in 2009 following a water injection project and the
drilling of three new wells.1128 It was reported in 2011 that the NOC expected to increase production to 240,000 bpd.1129
'Eastern Fields'
Oil Production
n/a
Discovered
1927, 1938, 1976, 1979
Location
Diyala governorate, North-East
Principal Partners
state-managed
The 'Eastern Fields' is the collective name for a group of four undeveloped fields; Gilabat, Khashem AlAhmar, Nau Doman and Qumar. The fields are located in Diyala governorate in north-eastern Iraq, some 100-150km south of Kirkuk city.
The fields were discovered in 1927 (Khashem Al-Ahmar), 1958 (Gilabat), 1976 (Nau Doman) and 1979 (Qumar). As of December 2009, eight wells had been drilled at the con tract area, two in Khashem Al-Ahmar, three wells in Gilabat, two wells in Nau Doman
and one well in Qumar.1130 Oil and gas discoveries have been made in multiple reservoirs in the four field, confirmed by successful well tests. 1131
Al-Qaida and other insurgent groups have been active in the area around the fields,
and pose an added risk to investors and workers. They are also grouped in disputed
territories fought over between Iraq's Arabs and Kurds. 1131
Republic of Iraq Ministry of Oil, 2 July 2009.
1127 'Iraq Ministry Of Oil Prepares To Invite In Foreign Oil Companies', WikiLeaks, 7 October 2008
1128 'Mana’a Al-Obeidi', Iraq Oil Forum, 4 September 2009
1129 'Export infrastructure deal latest of oil re-investment', Iraq Oil Report, 17 September 2011.
1130 'Iraq’s Second Petroleum Licensing Round: Eastern Fields Contract Area – Bidding Results',
Ministry of Oil Petroleum and Contracts Licensing Directorate, 11 December 2009.
1131 'No bidders for Eastern Fields', Iraq Oil Report, 11 December 2009.
197
Following Iraq's second postwar licensing round, the Petroleum Contracts and Licensing Directorate (PCLD) of the Ministry of Oil announced in December 2009 that no bids
had been received for the Eastern Fields contract area. 1132 According to Iraq Oil Report, the Iraqi Oil Ministry wanted the fields to be producing at 80,000 barrels per day
(bpd) within seven years and then maintained for another seven years. The winning
bidder would have to pay a $100 million and would be required to spend at least $150
million in project costs, which would be refundable. 1133
East Baghdad Oil Field
Oil Reserves
8 billion barrels (2010)1134
Discovered
1976
First Produced
19801135
Location
East Baghdad.
Principal Partners
state-managed
The super-giant East Baghdad oil field is situated in the Baghdad and Saladin gov ernorates, 10 kilometres east of Baghdad city. The contract area for the field is around
65 kilometreslong and 11 kilometres wide and covers only the section north-west of
the Diyala river.1135
Despite proved reserves of 8 billion barrels, during the 2009 licensing rounds in Iraq
there were no bids by the international consortia to exploit the deposit. Forbes
magazine suggests that this may because much of the deposit lies under residential
areas,1134 as part of the field lies under the city of Baghdad. 1136 Following this, Oil Minister Shahristani announced that the Oil Ministry would develop the East Baghdad field
on its own.1137
In May 2010 then-Oil Minister Shahristani said another bidding round could be held if
there was enough preliminary interest from international companies. "We will talk to
companies and if we find the desire to develop these fields, then we could announce
another bidding round for the qualified companies to develop those fields," he said in
an interview.1138
1132' Iraq’s Second Petroleum Licensing Round: Eastern Fields Contract Area – Bidding Results',
Ministry of Oil Petroleum and Contracts Licensing Directorate, 11 December 2009.
1133' No bidders for Eastern Fields', Iraq Oil Report, 11 December 2009.
1134 'The World's Biggest Oil Reserves', Forbes, 21 January 2010
1135 'East Baghdad', Iraq Energy, retrieved 12 December 2011
1136 'Iraq Progresses toward a Future Built on Oil Wealth', Der Spiegel, 4 October 2012.
1137 'Iraq Oil Field Goes to Royal Dutch Shell and Petronas', New York Times, 11 December 2009.
1138 'Iraq may hold third oilfield auction', Calgary Herald, 28 May 2010.
198
Production
As of 2012 Iraqi and Jordanian companies were drilling at the site and production
reached 10,000 barrels per day (bpd). However production at the field is slower than in
desert regions as the area is so densely populated. 1139
Garraf Oil Field
Oil Reserves
860 million - 1 billion barrels11401141
Oil Production
35,000 bpd (2012)1142
Discovered
1980s1142
Location
Dhi Qar Governorate, South.
Principal Partners
Petronas (45%)1141
Secondary Partners
Japex (30%), South Oil Company (25%)
API Specificity
15-36°
The Garraf oil field is situated in Dhi Qar Governorate in southern Iraq, some 5 kilo metres (km) north west of Al-Refaei city, 9 km south-east of Qal’at Suker city and 85
km north of Nasiriyah. Discovered in 1984, the oil found ranges in gravity from 15 to
36 °API, in multiple reservoirs. The field is 17.5 km long and 5.5 km wide. 1143 According
to Iraq Oil Report the Dhi Qar province is slated to be one of the biggest producing areas
in the country.1144
A consortium led by Malaysian Petronas submitted a bid for development of the Garraf
field on the first day of Iraq's second licensing round in December 2009. According to
leaked US diplomatic cables, the undeveloped Garraf field was one of the first two
fields offered, which received bids at 'stunningly low prices'. The international partners in the winning consortium were made up of Petronas, (60 percent), and Japex (40
percent). According to the deal, the remuneration fee offered was $1.49 and the 'plat eau production target' was 150,000 barrels per day (bpd). 1145
The consortium suffered a setback at the site when local tribesmen refused to cede
their ancestral lands peacefully without a cash payment from Petronas. The alleged
1139 'Iraq Develops East Baghdad Oilfield', Iraq Business News, 19 April 2012.
1140 'Q&A: Garraf Oilfield Director Settar Mahdi Jabara', Iraq Oil Report, 14 November 2012.
1141 'Weatherford Wins $200m Project at Garraf Oil Field', Iraq Business News, 20 October 2011.
1142 'Petronas taking bids for Garraf oil line in Iraq', Arabian Oil and Gas, 11 June 2012.
1143 'Garraf Iraq Energy, retrieved 12 December 2011.
1144 'Protestors storm Garraf oil field after religious dispute', Iraq Oil Report, 30 November 2012.
1145 'Oil Stampede: Iraq,s 2nd Bid Round Results', Wikileaks, 14 December 2009.
199
extortion drew condemnation from the Iraqi Oil Ministry however, and the tribal
sheiks denied any threat of violence. 1146
According to Adnan Galay, former chairman of the field's management committee,
output from the field was expected to hit 50,000 barrels per day (bpd) by the end of
2012, 60,000 bpd in 2013 and 100,000 bpd in 2014. Garraf has an eventual output target
of 230,000 bpd, although the Petronas-Japex partnership may look to increase production beyond that level, according to officials. However in July 2012 Hussein
Shahristani, Iraqi Deputy Prime Minister for Energy Affairs, reportedly urged the consortium developing the Garraf field to speed up progress on the project. 1147
In June 2012, as the consortium was ramping up production, Petronas opened up a
tender for the construction of a new pipeline to take crude from the field to central
transport infrastructure.1148
Halfaya Oil Field
Oil Reserves
Oil Production
70,000 bpd (July 2012)1150
Discovered
1976
Location
Maysan governorate, South-East.
Principal Partners
CNPC (37.5%)1151
Secondary Partners
Total (18.75%), Petronas (18.75%),
South Oil Company (25%)1151
The Halfaya oil field was discovered in 1976 and is located in the Maysan governorate
in the south-east of Iraq, 35 kilometres (km) south-east of Amarah city. 1152 As of 2010
the field was proven to hold 4.1 billion barrels of recoverable reserves, with a produc tion potential of 200-535,000 barrels per day (bpd). 1151 The Halfaya deposit is approximately 35 km long and 10 km wide.1152
According to Iraq Oil Report in 2012, Maysan province is emerging as a major new
source of oil and is on track to becoming Iraq's second largest producing province. 1150
1146 'Petronas preparing for drilling in Garraf', Iraq Oil Report, 8 July 2010.
1147 'Shahristani tells Japex, Petronas to Speed up Development at Gharraf', Iraq Business News, 17
July 2010.
1148 'Petronas taking bids for Garraf oil line in Iraq', Arabian Oil and Gas, 11 June 2012.
1149 'CNOOC, TPAO finalize Missan fields contract', Iraq Oil Report, 17 May 2010.
1150 'Missan heralds oil boom with Halfaya opening', Iraq Oil Report, 18 July 2012.
1151 'Iraq-CNPC/SOC - Halfaya Oil Field', Energy World, 17 September 2010.
1152 'Halfaya' Iraq Energy, retrieved 14 December 2011.
200
Following Iraq's second petroleum licensing round held in December 2009, the Halfaya
contract area was awarded to an international consortium led by Chinese CNPC. The
consortium split was 37.5 percent to CNPC, 18.75 percent each to Petronas and Total,
and 25 percent to the Iraqi state partner. The CNPC-led group beat three consortia
which submitted offers to win the field, including offers led by Norway's Statoil and
Russia's Lukoil.1153
Under the terms of the deal, the group is paid a remuneration fee of $1.40 per barrel,
lower than the $1.76 sought by a rival consortium led by Indian state-owned ONGC
Videsh Ltd.1154 They must also pay Iraq a non-recoverable signature bonus of US $150
million.1155 The contract stipulates that production should reach 535,000 bpd, in addition to provision of gas products to neighboring power stations. 1156
In April 2010 Total CEO Christophe de Margarie said his company would like to acquire
a larger stake in the field. "Iraq is a strong part of our strategy in the world and we
certainly don't intend to remain a minority partner in the Halfaya field," de Margarie
was quoted as telling Reuters.1157
Oil Minister Abdul Kareem Luaiby said that the second phase of Halfaya will involve
production capacity reaching 200,000 bpd by the end of 2013, while after the third
phase production will rise to 400,000 bpd by the end of 2014. The consortium plans to
hit production of 600,000 bpd by the end of 2016. 1158 In June 2012, the company said the
first phase of operations at Halfaya was operational and producing around 120,000
bpd.1159
Maysan Oil Company (MOC) has stated that any liquid petroleum gas (LPG) from Halfaya would be transferred to Iraqi state-run South Gas Company for domestic needs
and power generation.1153
Majnoon Oil Field
Oil Reserves
1153 'Iraq-CNPC/SOC - Halfaya Oil Field', Energy World, 17 September 2010.
1154 'ONGC Videsh qualifies for Iraq's oil exploration bidding', The Economic Times, 9 August 2011
1155 'Iraq inks CNPC, Total, Petronas Halfaya deal', AME Info, 26 January 2010.
1156 'Four Oil Wells Drilled at Halfaya', Iraq Business News, 16 May 2011.
1157 'Total eyes bigger Halfaya slice', Upstream Online, 22 April 2010.
1158 'PetroChina, Total, Petronas Calgari Start Oil Production at Iraq's Halfaya', Rigzone, 18 July
2012.
1159 'CNPC pumping 120,000 bpd from Halfaya field', ArabianOilandGas.com, 18 June 2012.
1160 'Iraq oil development rights contracts awarded', BBC News, 11 December 2009
201
Oil Production
18,600 bpd (first quarter 2012) 1161
Discovered
1975
Location
Al-Basrah, South-East.
Principal Partners
Shell (45%)
Secondary Partners Petronas (30%), Maysan Oil Company (25%) 1162
The super-giant Majnoon oil field is situated in the Basra governorate in south-east
Iraq, extending northerly toward the Maysan governorate. 1163 The name Majnoon
(meaning 'crazy') was chosen due to the excessive presence of oil in a limited area on
the east of the Tigris River.
The field is around 60 kilometres (km) long and 15 km wide, is located 60 km northwest of Basra city and lies mostly under man-made islands in the Hawizah marshes,
close to the Iranian border.1164
Majnoon was discovered by Brazilian Braspetro in 1975, however development came
to a halt in 1980 during the engineering phase of the project, due to the Iran-Iraq War.
At the time, Braspetro had finished drilling of 20 wells and 14 drilling rigs were in ser vice. Over the course of the war, Iran occupied and sabotaged the area. Following the
war, Iraq's South Oil Company (SOC) restarted the production. In the 1990s French
Total negotiated a development contract with Saddam Hussein but was ultimately unable to sign the deal due to UN sanctions imposed on Iraq. The deal was eventually annulled by Hussein in 2002. In 2007 Total and Chevron signed an agreement with the
new Iraqi government to explore the Majnoon field.1165
Following Iraq's second post-war licensing round in 2009, the Iraqi government signed
a 20-year service contract with international oil companies Shell and Petronas to develop the Majnoon oil field. Iraqi state-owned South Oil Company (SOC) and Maysan
Oil Company (MOC) also formed part of the group, which intended to boost production
to 1.8 million barrels per day (bpd) from 45,000 bpd in 2010. Shell is the lead operator
in the consortium with a 45 percent stake, Petronas holds 30 percent and the Iraqi
state holds 25 percent.1166
The bid from Shell and Petronas beat a rival bid from France's Total and China's CNPC.
The consortium pledged to increase output to 1.8 million bpd. Under the terms of the
1161 'UPDATE 1-Shell says may miss 2012 Majnoon output target', Reuters, 18 September 2012.
1162 'Halliburton Signs $150m Contract for Iraq’s Majnoon Oilfield', Iraq Business News, 24
November 2010
1163 'Majnoon', Iraq Energy, retrieved 12 December 2011.
1164 'Majnoon Field, Iraq', Offshore Technology, retrieved 12 December 2011.
1165 'Under Tight Security, Iraq Sells Rights to Develop 2 Oil Fields', New York Times, 11 December
2009.
1166 'Iraq Signs Majnoon Oilfield Agreement With Shell, Petronas', Bloomberg, 17 January 2010.
202
deal the companies receive a remuneration fee of $1.39 per barrel.1167
In September 2011, Shell Vice President Hans Nijkamp announced that production was
at a level of approximately 75,000 bpd. 1168 But in the first quarter of 2012 production
fell - output levels varied, with highs of 54,000 bpd but an average of only 18,600 bpd.
The upper limit was as much as pipeline capacity could handle. As a result of these
constraints in June 2012 a shutdown began at Majnoon for maintenance and in order
to bring new production facilities online.1169
Regional Shell boss Mark Carne commented in 2012 that "it would be fair to say that
progress has been slower than we originally hoped."1170 But according to Shell's 2013
development programme for Majnoon, output was expected to rise above 200,000 bpd
over the year, above the level needed to start recovering costs. 1171
Infrastructure limitations have been a key obstacle for the consortium, as the existing
28-inch Majnoon pipeline cannot cope with the projected increase in crude production. A letter from Shell's managing director at Majnoon stated that "a key concern...
remains the uncertain delivery of the First Commercial Production (FCP) pipeline". 1172
The development has also suffered setbacks such as unexpected mine clearance work,
delays in customs and inclement weather conditions, that hampered development. 1173
In December 2012 the discovery of an ancient Persian archaeological site at Majnoon
added further complications in Shell's development of the field.1174
Mansuriyah Gas Field
Gas in Production
n/a
Location
Diyala governorate, East.
Principal Partners
TPAO (37.5%)1175
Secondary Partners
Oil Exploration Company (25%),
Kuwait Energy Company (22.5%),
Kogas (15%)1175
1167 'Iraq oil development rights contracts awarded', BBC News, 11 December 2009.
1168 'Iraq's Majnoon producing 75,000 bpd', Reuters, 27 September 2011
1169 'UPDATE 1-Shell says may miss 2012 Majnoon output target', Reuters, 18 September 2012.
1170 'Gently does it', Petroleum Economist, 26 September 2012.
1171 'UPDATE 1-Shell sees Iraq Majnoon 2013 output at over 200,000 bpd', Reuters, 12 November
2012.
1172 'Exclusive: Iraq pipeline delays threaten Shell's Majnoon', Reuters, 26 August 2012.
1173 'Shell Expects To Meet Iraq Oil Field Target Despite Setbacks', Wall Street Journal, 19
September 2012.
1174 'Beyond the Headlines: Dec. 11, 2012', Iraq Oil Report, 11 December 2012.
1175 'KBR Awarded FEED, QCSS Contracts at Mansuriya', Iraq Business News, 6 December 2012.
203
The Mansuriyah gas field is located 50 kilometres (km) north-east of Baquba city in
Diyala province, which is about 100 km north-east of Baghdad. 1176 According to Iraq Oil
Report, in 2011 the province was still suffering from persistent insurgent violence. 1177
The Mansuriyah field was initially put up for bidding during the first postwar licensing
round in Iraq in June 2009, however the contract area attracted no bids. 1178
The winning bid for the field during Iraq's third round of licensing in 2010 came from
an international consortium led by Turkish energy company TPAO, who held a 50 percent stake. Other companies to participate in the consortium were Kuwait Energy,
with a 30 percent stake and Kogas with 20 percent.1179
In October 2010 the Petroleum Contracts and Licensing Directorate (PCLD) of the Ministry of Oil announced that only one bid had been received for the field. The initial remuneration fee proposed the consortium of $10 per barrel of oil equivalent (boe) was
above the 'maximum remuneration fee' set by the Ministry, however the lower figure
of $7 was subsequently accepted by the consortium. Under the terms of the deal, the
target production plateau was 320 million standard cubic feet (Mmscf) per day. 1180
As of December 2012, the Mansuriyah field was still in the development stage and no
gas had yet been produced at the site.1181
Maysan Oil Fields
Oil Reserves
Oil Production
90,000 bpd (2010)1183
Location
Maysan governorate, South-East.
Principal Partners
CNOOC (63.75%)1184
Secondary Partners
TPAO (11.25%), Iraq Drilling Company (25%)1184
1176 'Mansuriya', Iraq Energy retrieved 13 December 2011.
1177 'Turkey continues energy strategy in Iraq', Iraq Oil Report 6 June 2011.
1178 'First Iraqi Petroleum Licensing Round', Deloitte, retrieved 13 December 2011.
1179 'Gas deals advance, political hurdles remain', Iraq Oil Report, 15 November 2011.
1180 'Bidding Results Overview for Licensing Round 3', Iraq Energy retrieved 13 December 2011.
1181 'Iraq-Mansuriya', Kuwait Energy, retrieved 13 December 2012.
1182 'UPDATE 2-Iraq in deal with CNOOC, TPAO for Maysan oilfields', Reuters, 17 May 2010.
1183 'Iraq to Double Oil Output from Maysan Fields', BEDigest, retrieved 13 December 2011.
204
The Maysan oil fields (also known as the Missan Oil Fields) are a complex of fields located around 175 kilometres (km) north of Basra city and include the Abu Ghirab, Jabal
Fauqi (Fakka) and Buzurgan oil fields.1185
The Maysan province shares a border with Iran and in December 2009 a group of Irani an border guards crossed the border and occupied one of the wells at the Fakka field,
raising an Iranian flag. The occupation lasted for less than 48 hours, however the
guards remained in the area for another month. According to Iraq Oil Report, this raised
an anti-Iranian sentiment borne from war in the 1980s, further complicating the efforts to demarcate the border and thus the fields that cross it. 1186
The Maysan contract area was put up for bidding in Iraq's first petroleum licensing
round, but the field only attracted one bid and no contract was awarded. 1187
However in May 2010 Iraq signed a final deal with China's CNOOC and Turkish staterun TPAO to develop the Maysan oilfield complex. CNOOC's original partner for developing the field, Sinochem, pulled out of the deal when CNOOC decided to reconsider
and accept the Iraqi government's proposed remuneration fee of $2.30 per barrel of oil
produced. TPAO then joined the venture to fill the gap. CNOOC and TPAO set the production plateau target for the field at 450,000 barrels per day (bpd). CNOOC holds a
63.75 percent stake in the venture, while TPAO holds 11.25 percent 1188 and the Iraq
Drilling Company (IDC) holds a 25 percent stake.1185
As of 2010, the Maysan fields were producing at a level of 90,000 bpd. 1189
Middle Furat Oil Fields
Oil Reserves
600 million barrels of oil1190
Discovered
1960, 1983, 1981
Location
Karbala governorate, Centre.
Principal Partners
state-managed
The Middle Furat area is a cluster of three undeveloped oil fields located in Karbala
1186 'CNOOC, TPAO finalize Missan fields contract', Iraq Oil Report, 17 May 2010.
1187 'Iraq: Oil and Gas Legislation, Revenue Sharing, and U.S. Policy', Congressional Research
Service, 3 November 2009.
1188 'UPDATE 2-Iraq in deal with CNOOC, TPAO for Maysan oilfields', Reuters, 17 May 2010.
1189 'Iraq to Double Oil Output from Maysan Fields', BEDigest, retrieved 13 December 2011.
1190 'No bids for Middle Furat fields', Iraq Oil Report, 12 December 2009.
205
governorate in central Iraq, south of Al-Razaza Lake. The fields were discovered in
1960 (Kifl), 1983 (Merjan) and 1987 (West Kifl). 1191 Karbala province is home to one of
the holiest cities in Shi'ite Islam.1192
The approximate sizes of the fields are 2.5 kilometres (km) by 2 km (Merjan), 10 k m by
8 km (West Kifl) and 5 km by 1.5 km (Kifl).1191
The contract area was put up for bidding in Iraq's second post-war licensing round.
However on the 12 December 2009 Iraq's Petroleum Contracts and Licensing Directorate (PCLD) announced that no bids had been received for the Middle Furat contract
area.1193 In May 2010, oil minister Hussein Shahristani announced that the government
was considering inviting foreign companies to develop the fields. 1194
Nahr Bin Umar Oil Field
Oil Reserves
Oil Production
50,000 barrels of oil per day
(2009)1195
12 bcf1196
Discovered
1940s
Location
Basra Province, South.
Principal Partners
state-managed
The Nahr Bin Umar field (also known as the Nahr Umr field) is located in southern
Iraq, 15 kilometres (km) to the north of Basra. The deposit covers an area roughly 40
km long by 25 km wide and was first drilled in 1948.1197
France's Total agreed to survey the field in 2008. They estimated that it held 6.6 billion
barrels of crude and 12 billion cubic feet (bcf) of natural gas. 1196
1191 'Middle Furat', Iraq Energy, retrieved 13 December 20011.
1192 'No bids for Middle Furat fields', Iraq Oil Report, 12 December 2009.
1193 'Iraq’s Second Petroleum Licensing Round: Middle Furat Contract Area – Bidding Results',
Ministry of Oil Petroleum and Licensing Directorate, 12 December 2009.
1194 'Iraq mulls inviting cos to develop Furat oilfields', Reuters, 17 May 2010
1195 'Three IOCs in bilateral negotiations as Iraq attempts to improve licensing round terms',
AMEinfo 24 March 2009.
1196 'Total Seeks Iraqi Oil Fields in Return to Roots', Gulf Oil & Gas, 12 February 2009.
1197 'The Development Plans of Nahr Umr Field for the New Millenium', Mohammad Al-Gailani,
retrieved 14 December 2011.
206
In March 2009 Total, Statoil, Chevron and a possible fourth Iraqi state-owned oil company were reported to be holding negotiations with the Iraqi Ministry of Oil over the
Nahr Umr field.1198
However as of December 2012 no deals had been made and Iraq's state-owned South
Oil Company (SOC) was developing the field.
In September 2010, the SOC decided to increase the field's production to 70,000 barrels
per day (bpd) by the last quarter of 2011.1199
Najmah Oil Field
Oil Reserves
807 million barrels1200
Oil Production
n/a
Discovered
19341200
Location
Nineveh governorate, North.
Principal Partners
Sonangol (75%)1201
Secondary Partners
The Najmah oil field was discovered in 1934 and is situated in Nineveh governorate, 50
kilometres (km) south of Mosul city.1202 The field is 11 km long and 4.5 km wide1203
Angolan oil company Sonangol was the only company to bid for the Najmah contract
area in the second licensing round of 2009. The Oil Ministry announced on the 12
December 2009 that the company had been awarded the contract area. 1202
The contract specified the consortium would pay a US $100 million signature bonus. 1202
Sonangol originally offered to accept a remuneration fee of $8.50 per barrel, but later
1198 'Three IOCs in bilateral negotiations as Iraq attempts to improve licensing round terms',
AMEinfo 24 March 2009.
1199 'New Quarterly Production Targets for Basra's Oilfields', Iraq Business News, 7 September
2010.
1200 'Sonangol takes Najmah', Iraq Oil Report, 12 December 2009.
1201 'Duo eye Sonangol's Iraqi assets', Upstream Online, 19 July 2010.
1202 'Iraq’s Second Petroleum Licensing Round Najmah Contract Area – Bidding Results', Ministry
1203 'Najmah', Iraq Energy, retrieved 12 December 2011.
207
accepted the maximum figure of $6 per barrel allowed by the Ministry of Oil. The deal
specified that the state partner, the Iraq Drilling Company (IDC), also bore the costs of
development of the field.
The Najmah field holds significant accumulations of heavy oil (15 to 20°API). 1204 Reports by the BBC suggested that the high fees paid for the contract area to Sonangol
reflect the operational risks at the site and the relatively low quality of oil. 1205
Under the contract, the company committed under the agreement to reaching a production plateau of 110,000 barrels per day (bpd), and holding it for nine years. 1206 In
March 2011 Sonangol started work at the Najmah field and was due to start to dig
wells in April 2011, according to a report from Aswat al-Iraq.1207
Nasiriyah Oil Field
Oil Reserves
Oil Production
12,000 bpd (2012)1209
First Produced
2009
Location
South of Baghdad.
Principal Partners
state-managed
The Nasiriyah field, located south of the capital Baghdad and with an estimated 4.4 billion barrels of crude reserves, was not included in either of Iraq's 2009 bidding rounds.
A Japanese-led consortium, including Nippon Oil Corporation, reached an accord in
principle with the Iraqi government in August 2009 for oil development rights at the
field, but negotiations were effectively suspended in January 2010. The Japanese consortium had submitted bids for the contract to Iraq's Oil Ministry in February 2009
along with Spain's Repsol and Italy's Eni. In January 2011 Japanese trade minister Akihiro Ohata made an unannounced visit to Baghdad and called on the Iraqi government
to resume negotiations with a group of Japanese firms over the development of the
Nasiriyah, but without success. The Iraqi government subsequently made the decision
1204 'Najmah', Iraq Energy, retrieved 12 December 2011.
1205 'Iraq oil contract goes to Angola's Sonangol', BBC News, 30 December 2009.
1206 'Iraq’s Second Petroleum Licensing RoundNajmah Contract Area – Bidding Results', Ministry
1207 'Sonangol to Start Work on Ninewa Oilfields', Iraq Business News, 14 March 2011.
1208 'Iraq to develop Nasiriyah oilfield alone', MEED, 1 March 2010
1209 'Nasiriyah oil field production will rise to 35 thousand barrels per day', The Iraqi Dinar, 10
September 2012.
208
to develop the Nasiriyah oil field on its own.1208
However in August 2012 Iraq's Petroleum Contracts and Licensing Directorate (PCLD)
announced that it was preparing for a licensing round to develop the field and to build
a refinery in the area. The field and refinery would be considered as a single project. 1210
In June 2009, the chief engineer at the field told press that production was due to start
imminently and that oil from the field would be transferred to Basra via pipeline. 1211
Dhiya Jaafar, head of the South Oil Company (SOC), stated in February 2010 that they
planned to drill ten oil wells in Nasiriyah over the year. He commented that “we are
capable of boosting production from Nasiriyah from 10,000 barrels per day (bpd) to
50,000 bpd by the end of 2010."1212
Qayara Oil Field
Oil Reserves
800 million barrels (2010)1213
Discovered
1927
First Produced
1930s
Location
Nineveh governorate, South-East.
Principal Partners
Sonangol (75%)1214
Secondary Partners
South Oil Company (25%)1214
API Specificity
15
The 800-million barrel Qayara field is located in Nineveh, known as one of the most
dangerous regions of the country. 1215 The field was discovered in 1927 by British Oilfield Development. Qaraya lies within the same structures as the Najmah field. 1216
The deposit is notable for its very heavy and sour crude compared to the crudes of
other Iraqi fields.1217 In 1990 the oil could not yet be refined and only a limited volume
was used for asphalt and other purposes. All of the surrounding fields contain large accumulations of very sour soil (11-18° API with 6.5-8 percent sulphur). Oil at Qayara itself has an API gravity of 15°, by far the lowest among the ten fields offered at Iraq's
1210 'Nassiriyah Oilfield and Refinery to be Offered as Single Contract', Iraq Business News, 31
August 2012.
1211 'Nasiriyah field to begin production in Iraq', Arabian Oil and Gas, 20 June 2009.
1212 'Iraq to develop Nasiriyah oilfield alone', MEED, 1 March 2010
1213 'IRAQ: Angola's Sonangol sign Iraqi oilfield deals', ITN, 28 January 2010.
1214 'Duo Eye Sonangol's Iraqi Assets', Iraq Energy, 20 July 2010.
1215 'Iraq oil contract goes to Angola's Sonangol', BBC, 30 December 2009.
1216 'IRAQ - The Main Fields In The North', Free Library, retrieved 12 December 2011.
1217 'Sonangol wins oil deals in Iraq's riskiest region', Reuters, 12 December 2009.
209
second bidding round. 1218
In December 2009, the field was awarded by the Iraqi government to Angolan Sonangol in the second bidding round, when the company was the sole bidder for the contract.1219
Sonangol signed a deal with the Iraqi government on the 26 January 2010 to take a 75
percent stake in a venture to exploit the Qayara field. Under the terms of the deal,
Sonangol receive a remuneration fee of $5 per barrel and has said that it would invest
US $2 billion at the field. According to Reuters, the oil company could start recovering
costs once production levels hit 30,000 barrels per day (bpd). 1220
The remuneration fee accepted was among the highest paid to any of the oil firms that
won contracts at tender, reflecting the security risks in the region and the relatively
low quality of the oil at the site.1221
Originally, the firm had rejected cutting its bid fee of $12.50 per barrel but won the
deal after revising estimates that excluded the cost of facilities to lighten the heavy
oil, according to a senior Sonangol official. The consortium is committed under the
agreement to reaching a production plateau of 120,000 bpd, and holding it at that level
for nine years.1222
Rumaila Oil Field
Oil Reserves
Oil Production
1.35 million bpd (2012)1224
Discovered
19531223
Location
Basra, South.
Principal Partners
BP (38%), CNPC (37%)1225
Secondary Partners
South Oil Company (25%)
Rumaila, together with the northern 'supergiant' Kirkuk field, have historically made
up most of Iraq's oil production.1226, and as of 2012 production at Rumaila made up for
1218 'IRAQ - The Main Fields In The North', Free Library, retrieved 12 December 2011.
1219 'Iraq fails to award contract for Qayara oilfield', Allrroya, 12 December 2009.
1220 'FACTBOX-Oil deals between Iraq and global majors', Reuters, 26 February 2010.
1221 'Duo Eye Sonangol's Iraqi Assets', Iraq Energy, 20 July 2010.
1222 'Sonangol wins oil deals in Iraq's riskiest region', Reuters, 12 December 2009.
1223 'Highs And Lows For Iraq’s Rumaila Oil Field', Commodities Universe, 27 October 2011.
1224 'UPDATE 2-BP proposes cuts to Iraq's Rumaila target-sources', Reuters, 13 December 2012.
1225 'BP and CNPC to Develop Iraq's Super-Giant Rumaila Field', BP, 3 November 2009.
1226 'Iraq’s First Petroleum Licensing Round Rumaila Contract Area Bidding Results', Petroleum
210
more than a third of Iraq's total crude output. 1227 Prior to 2009 Rumaila was seen as
two contract areas, Rumaila North and Rumaila South, but in the 2009 bidding rounds
they were bundled together into one asset.1228
The field is located in the Basra region of southern Iraq, about 20 miles from the
Kuwaiti border. Discovered in 1953 during an expedition by British Petroleum, it was
nationalised by Saddam Hussein and subsequently became Iraq's chief source of revenue. Rumaila is estimated to contain approximately 15 percent of all Iraqi oil reserves, and as of 2011 the field accounted for 40 percent of the country's oil production.1229
Rumaila's 17.7 billion barrels of proven reserves are said to be sitting less than 8,000
feet below the surface of the earth, making them an easy target for drilling. 1229 The oil
at the site is sweet (low in sulphur) and around 34°API Gravity. 1230
Two consortia bid for the Rumaila development in the first licensing round in 2009,
one led by ExxonMobil and the other by BP. The Ministry of Oil announced that the
ExxonMobil group had originally scored more points in the evaluation than the BP
group, but that both groups were above the maximum remuneration fee of $2 a barrel
set by the Ministry. Exxon declined the offer to meet the maximum fee but BP accep ted and thus won the contract. The deal included a signature bonus of US $500 million,
which was intended to be a 'soft loan' repayable over five years. 1231
The CNPC percentage of ownership in the consortium appears to have significantly increased between the mid-2009 bid and when the deal was signed in November. A June
2009 press release announced that BP held a 66.67 percent stake and CNPC 33.33 percent of the international component of the bid. 1231 Once the 25 percent involvement of
the South Oil Company (SOC) was taken into account the stakes work out as 50 percent
to BP and 25 percent each to CNPC and the SOC. However official announcements that
followed indicated that the split was 38 percent to BP, 37 percent to CNPC and 25 per cent to the Iraqi state.
The BP-led consortium offered to take production to 2.85 million barrels per day (bpd),
lower than the 3.1 million bpd offered by the ExxonMobil-led consortium. 1231 However
in December 2012 BP was in talks with the government to cut this production target to
between 1.8 million and 2.2 million bpd, on the back of problems provoked by ageing
infrastructure, red tape and a lack of clear oil legislation. 1232
Licensing and Contracts Directorate, 30 June 2009.
1227 'BP seeks contract revamp on Iraq oilfield', Financial Times, 16 December 2012.
1228 'BP, CNPC to drill wells to boost Rumaila output', Bloomberg, 25 April 2010.
1230 'BP in Rumaila', BP, 16 February 2010.
1231 'Petroleum Contracts and Licensing Directorate, Ministry of Oil ', press release June 30, 2009.
1232 'UPDATE 2-BP proposes cuts to Iraq's Rumaila target-sources', Reuters, 13 December 2012.
211
Production and exports
According to a BP press release, the Rumaila Field Operating Organisation (ROO) will
manage the rehabilitation and expansion project at the field. ROO was to be staffed
mainly by employees from the SOC and contain a small number of technical experts
and managers from BP and CNPC.1233
Over the course of 2010 BP and CNPC drilled only 41 out of the 70 wells originally
planned.1234 However the general manager of the ROO stated at a conference in 2011
that the consortium was planning to increase production by around 10 percent, or
130,000 barrels per day (bpd), at Rumalia in 2012. This was hoped to boost output to
around 1.43 million bpd.1235 However by the end of 2012 the field was producing only
around 1.35 million bpd.1232
Through 2011 production at the field suffered a number of setbacks. In September
2011 an explosion occurred, injuring at least 15 people and resulted in a temporary
drop in production which was promptly resumed after repairs. A further explosion hit
Rumaila in October, said to be a bombing targeting pipeline networks. Three days later
another explosion occurred when a pile of mines exploded prematurely while being
disposed of, killing two army officers and four deminers. 1236
Siba Gas Field
1.1 tcf1237
Gas in Production
n/a
Discovered
19681238
Location
Basra governorate, South.
Principal Partners
Kuwait Energy Company (45%)1239
Secondary Partners
TPAO (30%), Maysan Oil Company
(25%)1239
The Siba gas field is situated the southern Basra governorate, some 30 kilometres (km)
south-east of Basra city. The field is approximately 21 km long and 6-13 km wide. 1240
1233 'BP and CNPC to Develop Iraq's Super-Giant Rumaila Field', BP, 3 November 2009.
1234 'Petrofac JV snags Rumaila job', Oil Online, 29 June 2011
1235 'Iraq Aims to Up Rumaila Oilfield Output by 10 Pct', Iraq Energy, 18 November 2011.
1237 'Kuwait Energy, TPAO, KazMunaiGaz Get Iraq Gas Awards', Bloomberg, 20 October 2010.
1238 'Iran-IOM - Siba Gas Field', Energy World, retrieved 12 December 2011.
1239 'Iraq-Siba', Kuwait Energy Company, retrieved 12 December 2011.
1240 'Siba', Iraq Energy, retrieved 12 December 2011.
212
At Iraq's third post-war licensing round in 2010, the Siba contract area attracted a
total of two bids from three companies. The winning bid came from a consortium of
Kuwait Energy Company and Turkish TPAO, who proposed a remuneration fee of $7.50
per barrel of oil equivalent (boe) and a production plateau of 100 million standard cubic feet (MMscf) per day. They outbid an offer from Kazakhstan's KazMunayGas, who
proposed a remuneration fee of $16 per boe. 1241 TPAO told press in June 2011 that the
two partners expected to invest US $1 billion in the field. 1242
Under the terms of the contract, which will last for 20 years, Kuwait Energy will be the
operator at Siba with a 45 percent share in the venture. TPAO holds a 30 percent interest and the remaining 25 percent is held by the state-owned Maysan Oil Company
(MOC).1243 Kuwait Energy Chairman Manssour Aboukhamseen referred to the deal as “a
significant milestone for Kuwait Energy” and the Arab Times described the deal as "as
politically symbolic as it was a business coup."1244
In August 2012 Iraq's Oil Ministry signed a contract with Kuwait Energy to carry out a
seismic survey at the Siba field. 1245 As of December 2012 the Siba field was still awaiting
development.1243
West Qurna Field (Phase 1)
Oil Reserves
Oil Production
400,000 bpd (Oct 2012)1247
Discovered
1973
Location
Basra governorate, South-east.
Principal Partners
ExxonMobil (60%)1248
Secondary Partners
Shell (15%), Oil Exploration Company (25%)1249
1241 'Iraq’s Third Petroleum Licensing RoundSiba Contract Area – Bidding Results', Ministry of Oil
Petroleum Contracts and Licensing Directorate, 20 October 2010.
1242 'UPDATE 1-Iraq to sign Mansuriyah, Siba gas deals June 5', Reuters, 1 June 2011.
1243 'Iraq-Siba', Kuwait Energy Company, retrieved 12 December 2011.
1244 'Future Gas Exports From Iraq Fields Possible: Adviser', Arab Times, retrieved 12 December
2011.
1245 'm', Iraq Business News, retrieved 12 December 2011.
1246 'Exxon ups oil target for Iraq's West Qurna Phase 1', Reuters, 28 November 2010.
1247 'Exxon seeks to quit flagship Iraq oil project', Reuters, 18 October 2012.
1248 'Iraqi Oil Potential and Implications for Global Oil Markets and OPEC Politics', James Baker III
Institute for Public Policy, Rice University, July 2011.
213
The 'super giant' West Qurna oil field in southern Iraq is located in Basra governorate.
The field comprises of two separate license areas, Phase 1 and Phase 2, defined by the
Euphrates river which runs west-east across the centre of the field. 1250
The West Qurna field is located around 50 kilometres (km) north-west of the city of
Basra. Overlapping the northern edge of the Rumaila field, West Qurna can be re garded geologically as a structural extension of North Rumaila, but was designated a
separate field for non-technical reasons. It is considered a separate asset for development.1251
West Qurna Phase 1 was awarded to a consortium led by ExxonMobil in November
2009, several months after the government had declined to award the contract area to
any of the bids received during the first round of competitive bidding. 1252 At the original offering in July 2009 the bids specified a remuneration fee in excess of the maximum
fee of $1.90 set by the Ministry of Oil. The Exxon-led consortium proposed a remuner ation fee of $4, which was then revised to $3.70 as part of an 'additional bid', which
was also turned down.1251
However later in the year an ExxonMobil-led consortium finally entered into a
twenty-year venture to develop the field. Under the deal, the stakes were split as fol lows: ExxonMobil (60 percent), Shell (15 percent) and the Iraqi state (25 percent). 1253
Under the contract, the companies were to be paid a fee of $1.90 a barrel for the oil
they produce at the site. Analyst Samuel Ciszuk commented that the deal was "a big
loss for Lukoil” which did work on West Qurna when Saddam Hussein ruled Iraq and
which had "really been eyeing this field.”1252 The consortium signed the final contract
with the Ministry of Oil on the 25 January 2010.1249
Change in ownership structure
As of December 2012 ExxonMobil was in the process of selling its stake in the field, apparently in response to pressure coming from Baghdad in the wake of the contracts
the company signed with the Kurdistan Regional Government (KRG) in the north. According to Derek Brower of the Petroleum Economist, Russian Lukoil and Chinese CNPC,
both of which have stakes in other fields in the south, were the front-runners in the
competition to take over the asset. Deputy Prime Minister Hussein Shahristani said
that he wanted the deal to be completed by the end of 2012. 1254
1249 'Iraqi Oil Potential and Implications for Global Oil Markets and OPEC Politics', James Baker III
1250 'West Qurna (Phase 2)', Iraq Energy, retrieved 13 December 2010.
1251 'Iraq’s First Petroleum Licensing Round, West Qurna Contract Area – Bidding Results,
Petroleum Contracts and Licensing Directorate, 2 July 2009.
1252 'Exxon, Shell Win Iraq’s West Qurna Oilfield Contract (Update3)', Bloomberg, 5 November
2009.
1253 'New stability and prospects for Kurdish oil and gas', European Centre for Energy and Resource
Security, 9 December 2011.
214
In November 2010 an Iraqi oil official told Reuters that ExxonMobil and its partners had
raised their production plateau at West Qurna 1 to 2.825 million bpd (from the original
plateau target of 2.325 bpd on signing) after adding new reserves to the area covered
by their original development contract. He noted that under a rehabilitation plan for
the field, the consortium was planning to boost output from the field to around
750,000 bpd by 2013, from 2010 levels of 230,000-240,000 bpd. This would be achieved
by drilling new wells, overhauling existing wells and implementing a series of water
injection projects.1255
As of October 2012 output was at around 400,000 bpd. 1256 However industry analysts
quoted by the Petroleum Economist argued that due to disappointing production levels
and the low remuneration fee of $1.90 per barrel, West Qurna 1 turned into a lossmaker for ExxonMobil. The company's priority was to ramp up production quickly and
cheaply, which did not happen. Furthermore, payments from the Iraqi government for
oil produced were were delayed.1254
West Qurna Field (Phase 2)
Oil Reserves
Oil Production
n/a
Discovered
1973
Location
Basra governorate, South-east.
Principal Partners
Lukoil (56.25%)1258
Secondary Partners
Statoil (18.75%), South Oil Company (25%)1258
West Qurna-2 is the second portion of the 'super giant' West Qurna field made available for licensing.1259 The field was discovered by Soviet geologists in 1973 and as of
2012 was the second biggest undeveloped field in the world with around 13 billion barrels of recoverable oil reserves.1257
Phase 2 of the West Qurna field was put up for bidding at Iraq's second licensing round
of 2009. The field was among the first two fields offered on the second bidding day,
1255 'Exxon ups oil target for Iraq's West Qurna Phase 1', Reuters, 28 November 2010.
1256 'Exxon seeks to quit flagship Iraq oil project', Reuters, 18 October 2012.
1257 'Lukoil to invest $4 bln in West Qurna-2 in 2013', Interfax, 9 October 2012.
1258 'Iraqi Oil Potential and Implications for Global Oil Markets and OPEC Politics', James Baker
1259 'West Qurna (Phase 2)', Iraq Energy, retrieved 13 December 2010.
215
which according to a leaked US diplomatic cable attracted 'stunningly low prices'. The
remuneration fee accepted for the winning bid by a Lukoil-led consortium was $1.15
per barrel and the agreed target production plateau was 1.8 million barrels per day
(bpd). The other consortia which bid for the field were led by Malaysian Petronas and
French Total, proposing remuneration fees of $1.25 and £1.72 respectively. 1260
The remuneration fee would be payable once the contract area achieved a production
level of 120,000 bpd. The plateau production target was to be maintained for 13 years
and a signature bonus of US $150 million was also be payable. 1261 Under the terms of
the contract, Russian Lukoil would lead the consortium with a 56.25 percent stake,
Statoil would hold a an 18.75 percent stake and the Iraqi state-owned South Oil Com pany (SOC) would hold the remaining 25 percent.Error: Reference source not found
As of October 2012 production had not yet begun at West Qurna-2. However Andrei
Kuzyaev, president of Lukoil Overseas, said the company planned to start production
in late 2013 or early 2014 at a level of 150,000 bpd. They hoped to see production reach
400-500,000 bpd by the end of 2014. Lukoil CEO Vagit Alekperov also separately told
local press that the company expects output of 1.7 million bpd by 2017. 1262
Zubair Oil Field
Oil Reserves
Oil Production
270,000 bpd (2012)1264
Discovered
1949
Location
South of Basra.
Principal Partners
Eni (32.81%)
Secondary Partners
Occidental (23.44%), Kogas (18.75%),
Maysan Oil Company (25%)
Zubair lies in the south-east of Iraq, around 20 kilometres (km) south-west of the city
of Basra, and is one of Iraq's largest fields. 1265 The field is though to hold around 4 billion barrels of proven reserves.1266
1260 'Oil Stampede: Iraq,s 2nd Bid Round Results', WikiLeaks, 14 December 2009.
1261 'Iraq's Second Petroleum Licensing Round: West Qurna (Phase 2) Contract Area – Bidding
Results', Petroleum and Licensing Directorate, 12 December 2009.
1262 'Russia's Lukoil to invest $4 bil in Iraqi West Qurna 2 project in 2013', Platts, 10 October 2012.
1263 'Mubadala plans to gain part of Oxy share in Zubair', Upstream Online, 30 October 2009.
1264 'Iraq: the Zubair oilfield', Middle East Confidential, 1 November 2012.
1265 'Zubair', Iraq Energy, retrieved 12 December 2011.
1266 'Iraq's Zubair-Eni deal effective Thursday-official', Reuters, 18 February 2010.
216
Follow Iraq's licensing rounds of 2009, an Eni-led consortium struck a deal with the Ir aqi government for the development of the Zubair field. Under the contract, Eni holds
a 32.81 percent stake, Occidental Petroleum 23.44 percent, Kogas 18.75 percent and
state-owned Maysan Oil Company (MOC) a further 25 percent. 1267 According to the contract, the consortium should boost the field's production by 10 percent from its starting level of around 200,000 barrels per day (bpd), and will then earn $2 for each extra
barrel produced.1268 The consortium initially asked for $4.80 a barrel produced but
later revised its bid to $2 after BP accepted the same amount for the Rumaila field. 1269
The consortium also agreed to pay the Iraqi Oil Ministry US $300 million as a refundable five-year loan, instead of paying a signature bonus.1270
When Eni took over the Zubair field it was producing 195,000 bpd. However according
to Eni's field's expansion programme, production is expected to reach a plateau level
of 1.125 million barrels per day (bpd) by 2017. 1271 According to Eni CEO Paolo Scaroni in
2012, the consortium to date had invested 4-5 billion euros into the project (roughly
US $5.2 - 6.5 billion), but the group expects to invest a total of $18 billion in the project.1264
Fields awarded by KRG
Taq Taq Oil Field
Oil Reserves
647 million barrels1272
Oil Production
105,000 bpd (2012)1273
Location
Kurdistan region
Partners
Genel Energy (55%), Addax Petroleum (45%)
1267 'Eni, Occidental Petroleum and KOGAS sign the technical service contract with Iraq's South
Oil Company and Missan Oil Company to redevelop Zubair field', Eni, 22 January 2010
1268 'Eni Consortium to Redevelop Zubair Field in Iraq', Rigzone, 22 January 2010.
1269 'Eni Consortium Finalizes Deal to Develop Iraq Oil Field', The Wall Street Journal, 25 January
2010.
1270 'Eni S.p.A., Occidental Petroleum Corporation and Korea Gas Corporation Sign Final Deal For
Zubair Oil Field-DJ', Reuters, 22 January 2010.
1271 'Eni awarded the license for the Zubair giant field in Iraq', Eni, 13 October 2009.
217
API Specificity
48
The Taq Taq field, lying in the Zagros basin within the semi-autonomous Kurdistan re gion of Iraq, has gross 2P reserves of 647 million barrels. However Genel Energy believes that the field could potentially hold one billion barrels of oil.
The license area is located 60 kilometres (km) north-east of the Kirkuk oil field and adjacent to the city of Kirkuk, 85 km south-east of the city of Erbil and 120 km northwest of the city of Sulaymaniyah. Its gross area is approximately 951 square km. 1272
Through 2012 wells at the site had to be sporadically shut-down as exports stopped as
a result of export disputes between the Kurdistan Regional Government (KRG) and
Baghdad.1273
In 2005 a production sharing contract (PSC) was signed for the development of the Taq
Taq field between the KRG, Genel Energy and Addax Petroleum (a subsidiary of Sinopec). Genel holds a 55 percent stake in the contract and Addax 45 percent. 1274
The companies operating at Taq Taq began producing oil in 2009 at an initial level of
40,000 barrels per day (bpd).1275
According to Reuters, as of September 2012 the field was pumping 105,000 barrels per
day (bpd), with 55,000 bpd delivered by tanker truck to Khurmala for export via the
government-controlled Kirkuk-Ceyhan pipeline. Of the remainder, around 35,000 bpd
was trucked to the nearby Bazian refinery and the rest stored. Head of operations at
the site, Joe Stein, said exports could be boosted to 70,000 bpd if needed. 1273 However
Genel's official website states the production capacity of the field is 120,000 bpd and
that the company hoped to increase this to 200,000 bpd by 2014.
According to Genel, the main obstacle to increasing the level of production in 2012 was
the infrastructure bottleneck and current truck transportation options, however noting that the KRG was planning a new pipeline to transport produced oil to the Turkish
border.1276
Taq Taq produces what has been dubbed 'champagne quality' crude, due to its very
light API gravity of 48°.1277
1275 'Iraq's Taq Taq oil field to grow as it comes online', Reuters, 31 May 2009.
218
Tawke Oil Field
Oil Reserves
734 million barrels 2P1278
Oil Production
100,000 bpd (2012)1279
Discovered
2006
Location
Kurdistan region
Partners
DNO (55%), Genel Energy (25%)
The Tawke field is located in the semi-autonomous Kurdistan region, close to Iraq's
border with Turkey. The field was discovered in 2006 by Norwegian DNO and has gross
2P reserves of 734 million barrels. The contract area extends over 637 square km. 1278
DNO originally entered into a production sharing contract (PSC) for the Dohuk area in
2004, of which the Tawke field was a part. This original PSC was amended in 2008 and
caused the original license area to be split into two parts, which is how the Tawke li censing area came into being.1278
However in 2010 a PSC was signed between the Kurdistan Regional Government (KRG),
Genel Energy and DNO. Genel holds a 25 percent stake in the contract and DNO the remaining 55 percent. 1280
At the end of 2011 Tawke could count 13 producing wells, and 17 producing wells by
the end of 2012. Genel has a target production capacity of 200,000 barrels per day
(bpd) for Tawke by 2014.1278
In November 2012 DNO officials announced that its production at Tawke had exceeded
100,000 bpd for the first time.1279
Disputed fields
Kirkuk Oil Field
Oil Reserves
1278 'Tawke PSC', Genel Energy, retrieved 14 December 2012.
1279 'DNO production exceeds 100 thousand barrels in Tawke field in Kurdistan', Shafaq News, 15
November 2012.
219
Oil Production
280,000 bpd (2012)1282
Discovered
1927
First Produced
1934
Location
Kirkuk, North.
Kirkuk is an oil field at Baba Gurgur ('St. Blaze' in Kurdish), one of Iraq's oldest producing fields, is located in the governorate of Kirkuk in northern Iraq. It was discovered
in 1927 and brought into use by the Iraq Petroleum Company (IPC) in 1934. It was con sidered the largest oil field in the world for around 20 years until Saudi Arabia's
Ghawar field came online in the 1950s 1283, and forms the basis of northern Iraqi oil production with nearly 9 billion barrels of proven remaining oil reserves as of 2006. 1281
In the absence of deals concluded with international companies, as of December 2012
production at the field was being carried out by the North Oil Company (NOC) on behalf of the Iraqi Ministry of Oil.1284
Following the invasion and occupation of Iraq in 2003, Kirkuk was among the eight
fields on offer in Iraq's first post-war licensing round in 2009. 1285 The government set a
production plateau of 600,000 barrels per day (bpd). A consortium led by Shell offered
a production plateau of 825,000 bpd, however their offer was declined because the Oil
Ministry considered the suggested remuneration fee of $7.89 per barrel to be too high,
compared to their own maximum fee set at $2 per barrel. A senior Iraqi official reported in October 2009 that the Ministry would meet Shell to discuss terms further. 1286 No
deal is known to have resulted from these further contacts.
In 2012 Reuters reported that British major BP was considering a project aimed at reviving declining production at Kirkuk. This would make BP the first foreign company
to develop the Kirkuk deposit. However BP made no comment on the reports. Oil field
service companies Schlumberger and Baker Hughes were also reported to be interested in the re-development project.1282
1281 'Iraq Oil Production Kirkuk Oil Field', Oil and Gas Articles, 21 March 2006.
1282 'Iraq wants BP to revive northern Kirkuk oilfield', Reuters, 17 April 2012.
1283 'The Kurdish battle for Kirkuk', International Resource Journal 2009
1284 'Iraq - Extractive Industries', Revenue Watch, retrieved 14 December 2012.
1285 'Shell Renegotiates with Iraq for Kirkuk Field Right's, Rigzone 16 October 2009.
1286 'Iraq readies to meet Shell over Kirkuk', Zawya, 18 October 2009
220
By 2012 production at the field had slumped to 280,000 bpd, from a level of 900,000 bpd
in 2001 prior to the 2003 invasion. Iraqi officials in 2012 were looking to invite an international oil company (IOC) to boost production at the field, in order to raise capacity to 600,000 bpd by 2017.1282
Once oil is extracted from the ground at Kirkuk, it is sent via the Kirkuk-Ceyhan Oil
Pipeline to the Turkish port city of Ceyhan, from where it is shipped around the
world.1287
Dispute over ownership
The Kirkuk field lies near the city of Kirkuk, a city long disputed between the central
government in Baghdad and the Kurdish Regional Government (KRG) based in Erbil.
Historically this area of Iraq was populated by Shi'ite Kurds, who originally occupied a
large part of the Ottoman Empire. Since the fall of Saddam Hussein, many Kurds feel
that Kirkuk should be returned to them.1287 In June 2008 there was a brief armed standoff between the forces of the KRG and Iraq's central government over one of the areas
of Kirkuk field, the Khurmala Dome. Oil Minister Hussein Shahristani said the Baghdad
government secured the area after Kurdish peshmerga briefly stopped the Oil Ministry
from producing out of the field, at the time yielding about 30,000 bpd. 1288
KRG officials claim their right to manage the Khurmala Dome on the grounds that it
falls within Erbil governorate, which is an undisputed part of the KRG. Iraq's central
government bases its own claim on the fact that the 2005 Constitution grants the right
to manage fields which are already in production to the federal level of government.1288
Quality of crude at Kirkuk
Kirkuk normally produces crude with an API gravity of 35°, with 1.97 percent sulphur
content. However both the API Gravity and sulphur content reportedly deteriorated
sharply in the months just preceding the war in 2003. Kirkuk's gravity, for instance,
declined to around 32°-33° API, while sulphur content rose above 2 percent.
Some analysts believe that poor reservoir management practices during the Saddam
Hussein years (including reinjection of excess fuel oil, refinery residue and gasstripped oil) may have seriously, even permanently, damaged Kirkuk. Among other
problems, fuel oil reinjection has increased oil viscosity at Kirkuk, making it more difficult and expensive to get oil out of the ground.1289
1287 'Kirkuk Oil Field- A History of Conflict', Commodities Universe, 28 October 2011.
1288 'Future of Kirkuk Field Unknown', Energy Daily, 17 June 2008
1289 'Iraq Oil Production Kirkuk Oil Field', Oil and Gas Articles, 21 March 2006.
221
222
Resource Transparency
Opportunities
Transparency of Contracts
The drawing up of contracts is necessary in the extractive industries in order to give
precise detail and legal specificity to the obligations of a state and company or consortium of companies involved in a project. Many contracts establish important tax, environment and investment provisions with major implications for a producing country.1290
The 2009 'Contracts Confidential' report from Revenue Watch Institute (RWI) notes
that in recent years there has been a growing movement calling for greater contract
transparency, within and beyond the extractives sector. International jurisprudence
on the right to information, which increasingly supports the disclosure of agreements,
as well as domestic freedom of information (FOI) laws across the world, are trends
which offer important tools of argument and procedure in breaking the barrier to disclosure while balancing other legitimate interests.1290
Benefits
According to Ingilab Ahmadov of the Public Finance Monitoring Center in Azerbaijan,
it is widely known that a transparent 'company-state' relationship is a key factor for
resource-rich countries seeking efficient management of their natural resources to benefit current and future generations. He argues that contract transparency is necessary because an outside observer who wishes to compare similar contracts across or
within countries needs a way to determine the extent to which it takes society's in terests into account. To judge the fairness of these contracts, one must first have ac cess to them.1291
Proponents of contract transparency argue that the publishing and scrutiny of contracts allows governments to be held accountable for all contracts they enter into. In
their report on the issue, Revenue Watch argue that "contract transparency is critical
to addressing better resource management and bringing contract stability to an industry that sees its contracts renegotiated more than any other."1290
1290 'Contracts Confidential: Ending Secret Deals in the Extractives Industries', Revenue Watch,
2009.
1291 'Why is oil contract transparency necessary?' ,Public Finance Monitoring Centre, retrieved 15
March 2012.
223
Opposition and counter-arguments
One of the most commonly aired arguments against transparency of contracts is that
this openness impairs a company's commercial interests and weakens its competitive
position. Confidentiality clauses are a common and legitimate feature in contracts
between private parties and are used to prevent information from coming into the
hands of public groups.1292
This assertion is contradicted by proponents of transparency such as Ingilab Ahmadov, who argues that industry specialists in any case are aware of all or almost all
contracts. Given the high level of information technology and close cooperation on
joint projects in today's oil industry, it is unrealistic to maintain 'trade secrets' as they
existed in the 1980s and 1990s. According to Ahmadov, practice has shown that the
commercial interests of parties involved in oil and gas contracts do not suffer negat ively from the exposure, but on the contrary are able to benefit from a badly needed
enhancement of their public image.1293
Susan Maples, in her report for RWI, suggests that one reason why companies are not
eager to embrace contract transparency is that the information asymmetry between
different parties resulting from secrecy arrangements allows certain companies an advantage, enabling them to negotiate more favourable commercial deals. Maples admits
that the arguments in support of contract secrecy are not negligible arguments, but
they overlook the special obligations of governments and the democratic right to information.1292
The EITI and contract transparency
As of 2011, the Extractive Industries Transparency Initiative (EITI) did not make demands on participating countries regarding contract transparency. There have been
calls from transparency activists for the initiative to widen its remit to include contract transparency. However EITI representatives argue that it is important that the
EITI retains precisely this tight focus in order to foster wider change and provoke de bate on broader governance issues.1294
Natural Resource Charter (NRC)
The Natural Resource Charter, as part of the resource transparency movement, is a set
of principles to guide governments' and societies' use of natural resources so these
economic opportunities result in maximum and sustained returns for a country's citizens. It outlines tools and policy options designed to avoid the mismanagement of di1292 'Contracts Confidential: Ending Secret Deals in the Extractives Industries' Revenue Watch
Institute, 2009.
1293 'Why is oil contract transparency necessary?' Public Finance Monitoring Centre, retrieved 15
March 2012.
1294 'What needs to change for the EITI remains relevant?' EITI, 2 October 2009.
224
minishing natural riches, and ensure their ongoing benefits. 1295
Foundation
The charter was conceived by economist Paul Collier, as he worked on his book
'Plundered Planet'. Recognising the precedent set by the Extractive Industries Transparency Initiative (EITI), the charter is an attempt to extend the principles of good
governance across every area of natural resource management. A draft of the charter
was announced in February 2009. 1296 As well as Collier, the charter was sponsored by a
number of academics and the Revenue Watch Institute (RWI). 1295
Collier's idea is that natural resources are key to the development of many countries,
particularly in Africa. But the reason so many countries have suffered from the 'resource curse' is a series of breaks in a crucial chain of decisions required to ensure effective exploitation of resources: the lack of sufficient investment in the discovery
process, failure to impose adequate taxation, shortage of domestic investment of revenue, and the need to ‘invest in investments’ by building civil service capacity to manage investment portfolios.1297
Precepts
The charter is made up of a number of precepts, or basic principles. These are thought
to be universally applicable to all natural resource producing countries, in the same
way as the Universal Declaration of Human Rights. Each of the principles has a detailed explanation and an accompanying document on ways to achieve it on the
charter's website.1298
Overarching issues
• Precept 1: The development of natural resources should be designed to secure
maximum benefit for the citizens of the host country.
• Precept 2: Extractive resources are public assets and decisions around their exploitation should be transparent and subject to informed public oversight.
Upstream issues
• Precept 3: Competition is a critical mechanism to secure value and integrity.
• Precept 4: Fiscal terms must be robust to changing circumstances and ensure the
country gets the full value from its resources.
1295 'Natural Resource Charter', Revenue Watch Institute, retrieved 15 January 2013.
1296 'New Charter to help oil-rich poor countries - launched today', Natural Resource Charter,
retrieved 24 October 2011.
1297 Collier, Paul ' The Plundered Planet: Why We Must--and How We Can--Manage Nature for
Global Prosperity', Oxford University Press, 2010.
1298 'Natural Resource Charter – Precepts', Natural Resource Charter, retrieved 24 October 2011.
225
• Precept 5: National resource companies should be competitive and commercial operations. They should avoid conducting regulatory functions or other activities.
• Precept 6: Resource projects may have serious environmental and social effects
which must be accounted for and mitigated at all stages of the project cycle.
• Precept 7: Resource revenues should be used primarily to promote sustained economic growth through enabling and maintaining high levels of domestic investment.
Downstream issues
• Precept 8: Effective utilisation of resource revenues requires that domestic expenditure be built up and gradually smoothed to take account of revenue volatility.
• Precept 9: Government should use resource wealth as an opportunity to secure effective public expenditure and to increase the efficiency of public spending.
• Precept 10: Government policy should facilitate private sector investments in response to new opportunities and structural changes associated with resource
wealth.
Global responsibility
• Precept 11: The home governments of extractive companies and international capital centers should require and enforce best practice.
• Precept 12: All extraction companies should follow best practice in contracting,
operations and payments.
Institution
The charter is at present a draft put together by a group of leading international
scholars. In March 2010, the charter announced that it had an advisory board which
includes former president of Mexico Ernest Zedillo and African businessman Mo
Ibrahim.1299
Extractive Industries Transparency
Initiative (EITI)
EITI compliance
Countries seeking to achieve EITI Candidate status must meet five sign-up require1299 'The Twelve Precepts', Natural Resource Charter, retrieved 15 January 2013.
226
ments, and for a country to achieve EITI compliance, it has two and a half years to be
validated as a Compliant country. Once a country is Compliant, the country must undergo Validation at least every five years, or upon the request from the EITI International Board.1300
As of January 2013, 18 countries were 'EITI compliant', namely: Azerbaijan, Ghana,
Iraq, Kyrgyz Republic, Mauritania, Mozambique, Nigeria, Peru, Timor-Leste, Zambia,
Central African Republic, Liberia, Mali, Mongolia, Niger, Norway, Tanzania and Yemen.
There were a further 18 'Candidate Countries': Afghanistan, Cameroon, Chad, the
Democratice Republic of Congo, Guineau, Sao Tome and Principe, the Solomon Islands,
Trinidad and Tobago, Albania, Burkhina Faso, Cote d'Ivoire, Gabon, Guatemala, Indonesia, Kazakhstan, Congo, Sierra Leone and Togo. Madagascar was temporarily suspended at the time.1301
Validation requirements
Sign-Up
The EITI rules state that a country applying for Candidate status must meet the following sign-up requirements:
1. The government is required to issue an unequivocal public statement of its intention to
implement the EITI.
2. The government is required to commit to work with civil society and companies on the
implementation of the EITI.
3. The government is required to appoint a senior individual to lead on the
4. The government is required to establish a multi-stakeholder group to oversee the
5. The multi-stakeholder group, in consultation with key EITI stakeholders, should agree
and publish a fully costed work plan, containing measurable targets, and a timetable for
implementation and incorporating an assessment of capacity constraints.1302
Preparation
The government is required to: ensure the engagement of civil society in the process;
engage companies; and remove legal and regulatory obstacles to the implementation of
the EITI. The multi-stakeholder group is required to agree a definition of materiality and
the reporting templates, which define what revenue streams are included in company and
government disclosures. The organisation appointed to produce the EITI reconciliation
report must be perceived as credible, trustworthy and technically competent. The
government is then required to ensure that all relevant companies and government
1300 'EITI Implementation', EITI, retrieved 27 October 2011.
1301 'EITI Countries', EITI, retrieved 15 January 2013.
1302 'Sign Up', EITI, retrieved 27 October 2011.
227
entities report and that both company and government reports are based on accounts
audited to international standards.1303
Disclosure
Companies must comprehensively disclose all material payments in accordance with the
agreed reporting templates, and government agencies must comprehensively disclose all
material revenues. The multi-stakeholder group must also be content that the
organisation contracted to reconcile the company and government figures did so
satisfactorily, and the reconciler must ensure that that the EITI Report is comprehensive,
identifies all discrepancies, where possible explains those discrepancies, and where
necessary makes recommendations for remedial actions to be taken.1303
Dissemination
The government and multi-stakeholder group must ensure that the EITI Report is
comprehensible and publicly accessible to encourage that its findings contribute to public
debate.1282
Review and Validation
Oil, gas and mining companies must support EITI implementation, and the government
and multi-stakeholder group are encouraged to take steps to act on lessons learned,
address discrepancies and ensure that EITI implementation is sustainable. Implementing
countries are required to submit Validation reports in accordance with the deadlines
established by the Board.1282
Retaining Compliant Status
Compliant countries must maintain adherence to all the requirements listed above in
order to retain Compliant status.1282
EITI criteria
1. Publication: Regular publication of all material oil, gas and mining payments by
companies to governments ('payments') and all material revenues received by
governments from oil, gas and mining companies ('revenues') to a wide audience in a
publicly accessible, comprehensive and comprehensible manner.
2. Audit: Where such audits do not already exist, payments and revenues are the subject of
a credible, independent audit, applying international auditing standards.
3. Reconciliation: Payments and revenues are reconciled by a credible, independent
administrator, applying international auditing standards and with publication of the
administrator’s opinion regarding that reconciliation including discrepancies, should any
be identified.
1303 'EITI Rules', EITI, retrieved 27 October 2011.
228
4. Scope: This approach is extended to all companies including state-owned enterprises.
5. Civil Society: Civil society is actively engaged as a participant in the design, monitoring
and evaluation of this process and contributes towards public debate.
6. Work Plan: A public, financially sustainable work plan for all the above is developed by
the host government, with assistance from the international financial institutions where
required, including measurable targets, a timetable for implementation, and an assessment
of potential capacity constraints.1304
EITI in Iraq
Iraq signed up to EITI in February 2010 and issued a draft of its first reconciliation report at the start of 20121305
Iraq first announced its intent to implement the EITI in 2008 and Deputy Minister Mr
Barham Salih met with EITI Chairman Peter Eigen in Baghdad in October 2008 1306. The
Iraq EITI (IEITI) Launch Conference took place on 9-10 January 2010, when Prime Minister Nouri al-Maliki announced Iraq's formal candidacy 1307. The first IEITI Stakeholder
Council meeting was held on 22-23 September 2010. Civil society was represented by
several organisations, and in 2011 formed a coalition grouping more than 40 organisations around the EITI initiative.
On the 12 December 2012 Iraq was declared a 'compliant country' by the EITI Board on
the basis of a final validation report released in August 2012. According to the official
EITI website, protracted and difficult negotiations took place between the IEITI and
the Kurdistan Regional Government (KRG), but the 2010 reportwill cover Kurdistan's
oil and gas production and revenues, which will be reflected in a separate chapter. 1308
Despite Iraq's history of collaboration with the EITI, Revenue Watch Institute (RWI)
highlights a lack of awareness among civil society, particularly in the northern Kurdish region, as an obstacle.1309
First Reconciliation Report: December 2011
The first reconciliation report was issued by Iraq's EITI Secretariat on the 23 December
2011. It tallied some US $41.3 billion of receipts by the State Oil Marketing Organisation (SOMO) in sales of Iraqi oil to international buyers. It initially showed a discrepancy of $1.09 billion between figures reported by SOMO and those of the buying companies but these were all subsequently explained in follow-up consultations, said the
report, prepared by Price Waterhouse Cooper.
1304 'EITI Rules', EITI, retrieved 27 October 2011.
1305 'English IEITI Report', EITI, retrieved 11 January 2012.
1306 'EITI Secretariat's Iraq page', EITI, retrieved 11 January 2012.
1307 'Iraq Joins Global Transparency Effort', PWYP, retrieved 11 January 2012.
1308 'Iraq EITI', EITI', retrieved 15 January 2013.
1309 'Raising EITI Awareness Among CSOs in Iraq’s Northern Kurdish Area', Revenue Watch,
retrieved 15 January 2013.
229
The report also reconciled the physical quantities of oil sent from Iraq's two main producing companies, rthe North Oil Company (NOC) and the South Oil Company (SOC), to
SOMO.
The report used a disaggregated system, listing 34 companies which had bought oil
from SOMO during 2009 and further breaking up the figures into regional markets.
The top three buying companies were the Indian Oil and Gas company, with over four
billion dollars worth, ExxonMobil with over three billion dollars, Total with just under
three billion dollars, and BP with over two billion dollars.
Company Name
SOMO
Buyer
Variance
INDIAN OIL CORPORATION LIMITED - INDIA
4,695,576,254
4,500,744,731
-194,831,522
CHEVRON PRODUCTS
COMPANY
3,425,398,382
3,047,447,462
-377,950,919
EXXONMOBIL SALES
AND SUPPLY LLC.
U.S.A
3,177,291,327
3,157,920,626
-19,370,701
TOTAL INTERNATIONAL LIMITED – FRANCE
2,965,904,327
2,817,337,283
-148,567,044
CONOCOPHILLIPS INTERNATIONAL TRADING PTE. LTD.
2,737,804,011
2,740,504,520
2,700,509
SINOCHEM INTERNATIONAL OIL (LONDON)
CO. LTD
2,392,402,310
2,175,822,577
-216,579,733
BP OIL INTERNATIONAL LIMITED – LONDON
2,300,671,969
2,300,671,969
0
VALERO SUPPLY AND
MARKETING COMPANY
1,860,376,364
1,915,077,038
54,700,674
ENI COMPANY
1,780,734,981
1,780,734,981
0
SHELL INTERNATIONAL EASTERN TRADING
COMPANY LIMITED
1,775,848,179
1,920,093,763
144,245,584
SK ENERGY EUROPE
LIMITED
1,448,268,927
1,300,298,708
-147,970,220
REPSOL YPF TRADING
Y TRANSPORT S.A.
1,402,819,238
1,402,819,238
0
KOCH SUPPLY AND
952,568,079
1,027,146,001
74,577,923
230
TRADING L.P
CHINA ZHENHUA OIL
CO. LTD.
926,379,176
926,379,176
0
PETROLIO BRASILERIO
S.A. – PETROBRAS
812,143,771
812,143,771
0
TURKISH PETROLIUM
REFINERIES CORP.
(TUPRAS) – TURKEY
809,676,034
809,676,034
0
MITSUBISHI CORPORATION
714,224,287
574,119,369
-140,104,919
COMPANIA ESPANOLA
DE PETROLEOS, S.A.
(CEPSA)
662,332,305
662,332,305
0
MOTOROIL (HELLAS)
633,929,317
633,929,317
0
UNIPEC ASIA CO. LTD.
606,305,113
606,305,113
0
SOCIETE ANONYME
MAROCAINE DE L'INDUSTRIE DU
RAFFINAGE (SAMIR)
582,498,450
582,498,450
HINDUSTAN PETROLEUM CORPORATION
LTD. – INDIA
525,835,196
538,947,117
13,111,921
JX NIPPON OIL & ENERGY CORPORATION
523,078,003
375,129,376
-147,948,627
CHINA NATIONAL
UNITED OIL CORPORATION
469,046,369
504,679,862
35,633,493
APIOIL LIMITED
464,853,991
464,853,991
0
PETROVIETNAM OIL
CORPORATION (PV
OIL)
432,557,987
432,557,987
0
ERG REFFINERIES
MEDITERRANEE S.P.A.
- GENOA / OTALY
431,827,678
407,768,337
-22,059,341
LUKOIL INTERNATIONAL TRADING AND SUPPLY COMPANY
335,587,059
335,587,059
0
0
231
PETRONAS TRADING
CORPORATION SDN
BHD (PETCO)
300,835,328
300,835,328
0
IPLOM SPA
,REFFINERY IN BUSALLA - GENOA – ITALY
289,776,698
289,776,698
0
TOYOTA TSUSHO CORPORATION
277,730,650
277,730,650
0
SARAS S.P.A. – ITALY
239,062,332
239,062,332
0
PETROGAL S.A. LISBON
– PORTUGAL
176,425,620
176,425,620
0
BHARAT PETROLEUM
CORPORATION LTD.
119,912,746
119,912,746
0
The report also noted that Price Waterhouse Cooper was supposed to receive confirm ation that the sums reported by SOMO were actually deposited in the Federal Reserve
Bank of New York, under the arrangement put in place by the UN Security Council
(UNSC), but that the bank had not supplied this confirmation. The report listed some
14 separate discrepancies in reports between SOMO and the buying companies. 1310
Criticism
Energy consultancy OpenOil has criticised the nature of Iraq's path towards EITI compliance, noting that submissions from buying companies were not always signed off by
the CEO or CFO as stipulated by EITI rules, and that the Central Bank of Iraq (CBI) was
unable to obtain statements for the Development Fund for Iraqi oil revenues from the
Federal Reserve Bank of New York, despite multiple requests over a three-month period. Therefore there was no confirmation that the money received by the Iraqi government ultimately corresponded to the invoices sent out by SOMO. The author also
called for a wider scope of implementation before Iraq was granted compliant
status.1311
EITI official website: www.eiti.org
Iraq EITI official website: www.ieiti.org.iq
Publish What You Pay (PWYP)
Publish What You Pay (PWYP) is a global network of civil society organisations calling
for oil, gas and mining revenues to form the basis for development and improve the
lives of ordinary citizens in resource-rich countries.
1310 'Reconciliation of cash inflows from the petroleum industry in Iraq in 2009', IEITI, retrieved
11 January 2012.
1311 'Iraq's First Reconciliation Report: Executive Summary', OpenOil, January 2012.
232
From a few, mostly UK-based groups at the time of its launch, as of early 2013, PWYP
had created a global network made up of more than 650 member organisations across
the world, including human rights, development, environmental and faith-based organisations. In more than 35 countries, network members joined to create national coalitions. Many also collaborate on a regional level.1312
According to Jonas Moberg of the Extractive Industries Transparency Initiative (EITI),
PWYP has created a 'light touch global network". 1313 PWYP has often been seen to be
the flagbearer of a strategy which says transparency efforts should be led by legal and
regulatory requirement, and made obligatory for companies, in contrast to the approach adopted by the EITI, which is consensual.1314
History
The call to 'publish what you pay' first appeared in a 1999 report by Global Witness on
the oil and banking industries in Angola.
On the back of this, in June 2002 Global Witness, along with fellow founding members
CAFOD, Open Society Institute (OSI), Oxfam GB, Save the Children UK and Transparency International UK, launched the worldwide PWYP campaign. The small founding
coalition of NGOs was soon joined by others such as Catholic Relief Services, Human
Rights Watch, Partnership Africa Canada, Pax Christi Netherlands and Secours Catholique/CARITAS France, along with an increasing number of groups from developing
countries.1312
Activities
PWYP undertakes public campaigns and policy advocacy to achieve disclosure of information about extractive industry revenues and contracts.1312
The organisation's call for companies to 'publish what you pay' and for governments
to 'publish what you earn' form the basis of their activities. However the coalition also
calls for transparency and accountable management and expenditure of public funds,
as well as the public disclosure of extractive industry contracts and for licensing procedures to be carried out transparently and in line with best international practice. 1312
PWYP's activities consist primarily of advocacy efforts and capacity building of civil
society groups. The growing desire to monitor the payments, revenues and expenditures within the extractives sector has also generated an increasing need for technical
training around issues such; contracting and taxation regimes; auditing and accounting processes; EITI processes, rules and policies. PWYP collaborates with local and international actors to organise training workshops, conferences and seminars to help
meet these needs.1312
1312 'About Us', Publish What You Pay retrieved 15 January 2013.
1313 'Without PWYP, no EITI', EITI Blog, 16 September 2012.
1314 'Extractive Industries Transparency Initiative (EITI)', PWYP, retrieved 15 January 2013.
233
Governance
In 2006 a Strategic Advisory Group (SAG) was established to oversee strategic planning. The SAG is comprised of 12 representatives from a broad spectrum of PWYP
members from around the world.
PWYP has an International Coordinator (IC) based in London as well as one full-time
regional coordinator for Africa, and coordinators for all national affiliated coalitions.
These coordinators are supported and overseen by management committees.
Representatives from the entire coalition meet every two years for an international
strategy meeting.1315
Official Website: www.publishwhatyoupay.org
Revenue Watch Institute (RWI)
RWI was first launched in 2002 as the Revenue Watch Programme of the Open Society
Institute (OSI) and spun off into an independent organisation in June 2006. According
to their official site, the Revenue Watch Institute is the only organisation dedicated
exclusively to addressing the special problems of oil, gas and mining-dependent countries— “countries where poverty, conflict and corruption too often converge”. 1316
Activities
RWI characterises its work as mainly with civil society, helping them oversee extract ive industries across the entire value chain, from wellhead to international markets.
The organisation also makes many small grants to partner institutions in developing
countries.1316
RWI was a key founding member of the EITI in 2002 and has sat on its International
Advisory Board. The institute defines its projects as supporting the EITI process in
many countries around the world.1317
RWI also carries out analysis of data found in EITI reports for participating countries.
As part of this process they review the quality of recent reports and extract key pieces
of revenue data, then rank the various reports according to a set of pre-determined indicators.1318
Official Website: www.revenuewatch.org
EITI Data Analysis: www.data.revenuewatch.org/eiti
1315 'How We Are Governed', Publish What You Pay, retrieved 14 December 2011.
1316 'About Us', Revenue Watch Institute, retrieved 26 March 2012.
1317 'RWI and the EITI', Revenue Watch Institute, retrieved 26 March 2012.
1318 'EITI Reports: Results and Analysis', Revenue Watch Institute, retrieved 26 March 2012.
234
Revenue Watch Institute in Iraq
The Revenue Watch Institute (RWI) has been active in Iraq since shortly after the 2003
war. In April 2006, RWI held a seminar in Beirut gathering over 50 specialists and experts in the oil industry1319
Projects
In 2011, RWI supported three projects in Iraq; two to strengthen parliamentary oversight of Iraq's oil and gas sector and one to raise awareness of the Extractive Industries
Transparency Initiative (EITI) among civil society organisations (CSOs) in Iraq's Kurdish north.13201321
RWI sponsored a US $115,958 grant in 2011 for the Arab Region Parliamentarians
Against Corruption (ARPAC) to build the capacity of Iraqi parliamentarians, key ministry staff and civil society representatives to improve oil and gas revenue management. The grant involved ARPAC holding a series of three-day workshops to train participants to obtain, analyze and act on oil and gas sector-related information, including public policy issues, standard industry oversight practices, revenue management
and transparency, contracting basics, analyzing oil and gas contracts and the EITI. 1320
Global Witness
Global Witness is a non-profit organisation headquartered in London which describes
itself as exposing "the corrupt exploitation of natural resources and international
trade systems, to drive campaigns that end impunity, resource-linked conflict, and human rights and environmental abuses". 1322
Founded in 1993, Global Witness has been a key player in many of the major international mechanisms and initiatives that have been established to address these issues;
including the Kimberley Process governing production of diamonds and precious
stones, and the Extractive Industries Transparency Initiative (EITI).
1319 'Seminar report: Managing Iraq's Petroleum', Revenue Watch Institute, April 2006
1320 'Strengthening the Oversight Role of Iraqi Parliamentarians in the Oil and Gas Sectors',
Revenue Watch Institute, retrieved 6 January 2012.
1321 'Raising EITI Awareness Among CSOs in Iraq’s Northern Kurdish Area', Revenue Watch
Institute, retrieved 6 January 2012.
1322' Global Witness, About Us' Global Witness, retrieved 24 October 2010.
235
Investigations and results
Global Witness claims their investigations have had direct and major impacts, such as
the International Monetary Fund (IMF) withdrawal from Cambodia in 1996 over corruption in the logging industry, 1323 the imposition of timber sanctions on Charles
Taylor's Liberia in 2003,1324 and the precedent-setting arrest of timber baron Gus
Kouwenhoven in the Netherlands in 2005. 1325
Oil and Gas
Global Witness started producing reports on the oil and gas industry in 2004 when its
report Time for Transparency detailed abuse of natural resources in Kazakhstan, Congo
Brazzaville, Angola, Equatorial Guinea and Nauru. 1326 Reports on Russia's gas trade
with the countries of Eastern Europe and the EU followed. 1327
In September 2009 Global Witness produced a report which provided details of the
lack of transparency in the way Sudan distributes oil revenues between the government in Khartoum and the autonomous government of South Sudan. 1328
Conflict minerals
Global Witness' work on conflict minerals focuses on the Democratic Republic of
Congo (DRC) where fighting is fuelled by the trade in valuable minerals such as cassiterite, coltan, wolframite and gold. 1329
It was also one of the first organisations to bring the world's attention to the problems
of conflict diamonds in countries such as Liberia, Sierra Leone, Angola, the DRC, and
Cote d'Ivoire. The organisation is an official observer of the Kimberley Process and
continues to campaign for the strengthening and effective implementation of its rules.
However in December 2011 Global Witness made the decision to leave the process, due
to concerns that the mechanism was no longer proving effective in achieving its objective.1330
Official website: www.globalwitness.org
1323' Our History' Global Witness, retrieved 24 October 2010.
1324' Liberia breaches UN Sanctions - whilst its logging industry funds arms imports and RUF
rebels' Global Witness, 6 September 2001.
1325' Arms dealer and timber trader Guus Kouwenhoven found guilty of breaking a UN arms
embargo' Global Witness, 7 June 2006.
1326' Time for Transparency' Global Witness, retrieved 26 October 2011.
1327' It's a gas - funny business in the Turkmen-Ukraine oil trade' Global Witness, retrieved 26
October 2011.
1328' Fuelling mistrust - The need for transparency in Sudan's oil industry' Global Witness,
retrieved 26 October 2011.
1329' Conflict Minerals' Global Witness, retrieved 30 November 2011.
1330' Why we are leaving the Kimberley Process - A message from Global Witness Founding
Director Charmian Gooch' Global Witness, 5 December 2011.
236
Transparency International (TI) is the world's largest civil society organisation working on issues of corruption and transparency. It was founded in 1993 by Peter Eigen, a
former regional director in Africa from the World Bank.
Eigen explained that in his 25 years at the World Bank, bad projects often got funded
because they had the support of leading officials, backed by corruption. The purpose
of TI was to put the issue of corruption on the agenda of the World Bank, large donor
countries, and the development process.1331
Major Programs
The project for which TI is most known is its Corruption Perceptions Index, an annual
report issued since 1995. In it, business people are asked for their perceptions of the
influence of corruption in their country.1332
As well as the index, TI also publishes a range of reports and position papers on vari ous issues related to transparency.1333
Oil and Gas
In March 2011, TI issued a report about the status of transparency among global oil
companies. It follows a 2008 report that was built on a 2005 study by the charity Save
the Children into the same issue, but the methodology was adapted. 1334
Official Website: www.transparency.org
Transparency of Global Oil Companies
In March 2011, Transparency International (TI) issued a report on the transparency of
information provided by 42 major oil and gas companies around the world. 1331
Findings
The report summarised its analysis into several main findings:
• Oil and gas companies are increasingly adopting and making publicly available anti-corruption programmes, but there are many companies that still do not publish
their anti-corruption codes, policies or measures.
1331 'Peter Eigen', Africa Progress Panel, retrieved 15 January 2013.
1332 '2011 Corruption Perception Index, Transparency International, retrieved 5 January 2012.
1333 'Policy Research, Transparency International, retrieved 5 January 2012.
1334 'Promoting Revenue Transparency: 2011 Report on Oil and Gas Companies', Transparency
International, retrieved 25 October 2011.
237
• Public disclosure of partnerships and subsidiaries, including their countries of incorporation, are key elements of organisational disclosure and the average results
in this section were relatively high. Many national oil companies have a good level
of disclosure. However, disclosure of equity or field partners in upstream operations remains infrequent, despite the fact that equity minority partnerships often
present corruption risks.
• Country-level disclosure on international operations has improved since the 2008
PRT report, and reporting on production levels has become a broadly accepted
standard and there are examples of good disclosure for financial data and reserves. But country-level disclosure on international operations remains weak;
many companies do not disclose any financial data on a disaggregated country-level. The host country environment itself cannot be exclusively blamed for
poor disclosure. In the same host countries, often described as ‘difficult environments’, some companies disclose extensive information, while the others disclose
little or none at all.
Key Policy Recommendations
For Companies
• Detailed anti-corruption programmes should be publicly available
• Companies should undertake voluntary independent assurance of anti-corruption
programmes
• Companies should publish details of their subsidiaries and fields of operations
• Oil and gas companies should increase their reporting on a country-by-country
basis
• Companies should join the Extractive Industries Transparency Initiative
• Companies should create and maintain up-to-date corporate websites
For National Oil Companies (NOCs)
• All NOCs should introduce internationally or generally accepted accounting standards, as well as publish independently audited accounts
• The relationships between home governments and NOCs should be clear and publicly disclosed
For Public Bodies
• The European Union should amend relevant legislation to require EU-registered
companies to report on their operations on a country-by-country basis
• All governments that are home to oil and gas producers should require companies
to report on their operations on a country-by-country basis
238
• Stock exchanges should enforce regulations providing for country-level reporting
For the Investor Community
• International rating agencies and risk analysts should include anti-corruption
measures in their risk evaluation models where relevant
• The International Accounting Standards Board should require companies to report
key information on a country-by-country basis
• Corporate responsibility indices should include reporting on anti-corruption programmes, organisational disclosure and country-level disclosure
Report on Global Oil Companies in Iraq
Companies in the Transparency International's March 2011 report 1335 were graded on
three criteria: their implementation and promotion of sound anti-corruption programmes to prevent individuals from misappropriating revenues; their disclosure of
the financial relationships they have with their partners and their operating subsidiaries; and their publishing of precise information about how much revenue goes to
state budgets and how much is retained by companies.
Aggregating the results of these criteria compiled by Transparency International, with
100 percent representing the highest level of transparency and 41 percent representing the aggregate mean, international oil companies (IOCs) operating in Iraq placed as
follows.
Above average performance transparency:
• Statoil: 75%
• Shell: 58%
• BP: 64%
• ExxonMobil: 54%
• Marathon: 63%
• Talisman Energy: 52%
• Eni: 62%
• Total: 47%
Below average performance transparency:
• Gazprom: 27%
• CNOOC: 19%
• Petronas: 23%
• CNPC: 12%
Seven companies operating in Iraq (Kogas, Kuwait Energy Company, TPAO, Hunt,
Genel Energy, DNO and Heritage), were not fully covered in the report.
1335' Promoting Revenue Transparency: 2011 Report on Oil and Gas Companies' Transparency
International website Retrieved 25 October 2011.
239
Directories
Iraq Directory of Contacts
Below please find a list of contact details for individuals, organisations and institutions
who may be contacted for further detail on the issues covered in the OpenOil Iraq Oil
Guide, along with website listings for access to further resources.
Civil Society and Media Organisations
EITI
Website: www.eiti.org
IEITI Website: www.ieiti.org.iq
Eddie Rich
Deputy Head and Regional Director (Southern and Eastern Africa and the Middle East)
EITI International Secretariat
E-mail: [email protected]
Telephone: +44 207 613 4698
Alaa Mohie El-Deen
Head of Iraq EITI Secretariat
Telephone: +964 780 196 4606
Global Witness
Website: www.globalwitness.org
Brendan O'Donnell
Senior Campaigner
Telephone: +44 207 492 5898 / +447970 379 387
240
Iraq Oil Report
Website: www.iraqoilreport.com
Ben Lando
Director and Iraq Bureau Chief
Telephone: 07903244469
Journalistic Freedoms Observatory
Website: www.jfoiraq.org
Ziad Khalaf al-Ajili
Director
Bashar Al-Mandalawy
Project Manager
Telephone: +964 514862 7901 / +964 966750 7901
Publish What You Pay
Website: www.publishwhatyoupay.org
Sophia Harding
Programme Officer
Telephone: +44 20 7031 1716
Reporters Without Borders
Website: www.rsf.org
Soazig Dollet
North Africa & Middle-East Desk
47 rue Vivienne F - 75002 Paris
Telephone: + 33 1 44 83 84 78
241
Fax : +33 1 45 23 11 51
E-mail : [email protected] / [email protected]
Revenue Watch Institute
Website: www.revenuewatch.org
Patricia Karam
Middle East and North Africa Regional Coordinator
Website: www.transparency.org
Stephanie Twigg
Middle East and North Africa Department Alt Moabit 96 D-10559 Berlin
Telephone: +49 30 343820418
Fax: +49 30 34703912
Iraqi State Entities
Baghdad Oil Training Institute
www.boti.gov.iq
PO Box: 46038, Al-Mustansiria, Baghdad
Tel: +964-1-4250363
Iraq Exploration Company
www.iraqioec.com
Ministry of oil Box: 5694
Tel.: +964 1 8177000 / +964 1 8177014
242
Kirkuk Oil Training Institute
www.kirkukoti.net
Kurdistan Regional Government
www.krg.org/krg
Maysan Oil Company
www.moc.oil.gov.iq
Republic of Iraq Missan Province Amarah City
Tel: +96443313470 / +96443313472
North Gas Company
P.Box (16) Kirkuk
North Oil Company
www.noc.gov.iq
Kirkuk
Tel: +964 50 250000
North Refineries Company
www.nrc.oil.gov.iq
Iraq, Baghdad, Karada, P.O box: 3267
Tel: +964 1-543-0298
Petroleum and Contracts Licensing Directorate
www.pcld-iraq.com
Ministry of Oil Port Said Street Baghdad, Iraq
243
Petroleum Research and Development Centre
www.prdc.gov.iq
South Gas Company
www.sgciraq.com
Basra province - Khor Al-Zubair Al-Ashar mailbox: 1201
Tel: 040/642346 / 040/642346
South Oil Company
www.soc-basrah.com
Basrah
South Refineries Company
www.src.gov.iq
Basrah
Tel: +964-40-617712 / +964-40-614713
State Oil Marketing Company
www.somooil.gov.iq
AL- Hay AL-Mou'tasim - District 724 - Street 17 AL-Muthana street , Adjacent to ALResafa fun fai P.O.Box 5118
Iraq Oil Industry Listings
Oilfield Service Companies
The following is a list of oilfield services companies with operations in Iraq. Please
note that the list is not exhaustive.
244
Alkhair Oil Services
Iraq Office 52 Technology University St, Baghdad 10066 IRAQ.
Tel.: +9647704615368 Fax.: +96265711388
Website: www.alkhairoil.com
Services: land and marine transportation; drilling & scouting; training.
Al Qabas Group
Baghdad Office Al-Mansour, 14 Rammadhan St. Building No. 4, M. 609, Z. 22,
Tel: +964 1 5420954 Mobile: +964 7901906291 Fax: +964 1 5412779
Email: [email protected]
Website: www.alqabasgroup.com
Services: infrastructure; waste water; irrigation; machinery and materials.
Baker Hughes
Regional Office P.O. Box 47513 Dhafir Tower, 4th Floor Corner of Najda / Electra Street
Abu Dhabi
Tel: +971.2.4109100 Fax: +971.2.4109111
Website: www.bakerhughes.com
Services: reservoir development; drilling; integrated operations; evaluation; completions; production; pressure pumping; tubular services; process and pipeline services;
chemicals; education services.
Basrah East Company
Iraq Office P.O. Box: 2141, Basrah, Iraq
Tel: +964 40 640691 Fax: +964 40 623919
Mobile: +964 780 1390180 (Atheer) +964 790 2751871 (Iraqna) +971 50 5869337 (International)
Website: www.basraheast.com
Services: refineries; pumping and receiving stations; gas production, liquefaction and
distribution plants; pipelines; power generation plants; transmission networks.
Burj Al Rumila Company
Iraq Office Baghdad - Karrada - Kahramana Sq.
245
Tel: +964-770-3739543
Services: reservoirs; pipelines.
Crescent Petroleum
Country Office Tel: + 964 (1) 719 4321 Fax: + 964 (1) 718 7243 E-mail: [email protected]
Website: www.crescent.ae
Services: oil and gas exploration; production; transport.
HiTech Fluid Systems
Country Office 245/5/543 Shmony Street Ankawa, Erbil, Kurdistan, Iraq
Phone: 403.547.2906 Fax:: 403.547.3129 Email: moc.diulfhcetih@ofni
Website: www.hitechfluid.com
Services: drilling fluid systems; workover and completions; fluid additives.
Huawei
Country Office House No.24, Lane NO.27, Shorish Quater 101, Sulaimaniyah, Iraq
Tel: 00964-1-7744593 Fax: 00964-1-7744593
Website: www.huawei.com
Services: ICT Solutions.
IAG International Armoured Group
Regional Office P.O. Box 50060 Khor Khwair Industrial Park RAK Free Trade Zone Ras Al
Khaimah, United Arab Emirates
Tel: + 971 7 266 0028 Fax: + 971 7 266 8969 E-mail: [email protected]
Website: www.interarmored.com
Services: security services; risk management consultancy; security training; mine action.
Jawar Al Khaleej Shipping
Country Office PO Box 13372 Basrah, Iraq
Tel +964 780 1023988 / +964 781 2359556 E-mail: [email protected]
Website: www.jawaralkhaleej.com
Services: shipping services.
Mott MacDonald
246
Regional Office P.O. Box 47094, Al Hashmi Tower, Airport Road Abu Dhabi - Al Hashmi
Tel: +971 (0)2 445 7470 Fax: +971 (0)2 445 7490
Website: www.mottmac.com
Services: management, engineering and development consultancy.
OilServ
Regional Office 15th floor, One Business Bay Building, P.O.Box 117648, Dubai
Website: www.oilserv.com
Services: drilling, completion and production services.
Olive Group
Country Office
Tel: +971 (0)4 360 0831 E-mail: [email protected]
Website: www.olivegroup.com
Services: security, risk mitigation and specialist support services.
Petronasr
Iraq Office Near New City, 60 M, Erbil
Tel: +964 750 483 8593 / +964 770 197 4444 Satellite phone: + 88216 6660 9966
Email : [email protected]
Website: www.petronasr.com
Services: power stations; refineries; pipelines; infrastructure.
Schlumberger
Regional Office Schlumberger Technical Services, Inc. Dubai World Trade Center, 9th
Floor PO Box 9261 Dubai, UAE
Telephone: +971 4 306 7777 Fax: +971 4 306 7199
Website: www.slb.com
Services: seismic services; drilling; characterization; completions; production; well intervention.
Shammery
Iraq Office Sabah Al-Shammery & Partners Co. 50300 Al-Ma’amoon, Al-Mansoor AlAmeerat St., District No. 609, St. No. 1, House No. 21 Baghdad, IRAQ
Tel: +964 1 5412787 / +964 1 5413516 Fax: +964 1 1 5418155
247
E-Mail: [email protected]
Website: www.shammery.com
Services: exploration and drilling supplies; technology and communications; medical
supplies; chemicals; automobile equipment.
SKA
Baghdad Office BIAP Post Office Box 23009 Baghdad International Airport Baghdad, Iraq
Tel: +964 7901 103 556 Tel: +964 7901 909 819 Email: [email protected]
Basrah Office SKA Complex Basrah International Airport Basrah, Iraq
Tel: +964 7901 909 871 VoIP: +1 703 673 3977 Email: [email protected]
Erbil Office SKA Complex Erbil International Airport Erbil / Kurdistan, Iraq
Tel: +964 7703 668 919 Tel: +964 750 445 6415 Tel: +971 50 9195431 Email: [email protected]
Website: www.ska-arabia.com
Services: aviation Services; ground logistics; life support; fuel supply chain management; camp construction; security services.
Technology Partners
Country Office Al Mansoor
Tel: +964 7901 946381 Tel: +964 7901 943660 Fax: +9714 390 8070
Website: www.tpfz.com
Services: ICT infrastructure and services integration.
TUOSSCO
Iraq Office Al-Mansur, Baghdad, Iraq
Tel: +964-1-5411424 Fax: +964-1-5415498
Website: www.tuossco.com
Services: instrumentation and control systems; power and generation; water treatment; mechanical; engineering; safety and environment; lab equipment.
Weatherford International
Country Office Tigris St. Behind Amara Kindergarten Amara (Missan) Iraq
Tel.: +917 284 9271 Fax.: +971-4-449 520
Website: www.weatherford.com
Services: drilling; evaluation; completion; production; intervention; training.
248
Trading and Marketing Companies
The companies listed below all bought oil from state-owned SOMO in 2009. 1336
BP Oil International Limited
20 Canada Square Canary Wharf London, E14 5NJ United Kingdom
Telephone: +44 20 7496 4000
ConocoPhillips International Trading PTE
1 Temasek Avenue, Millenia Tower, Singapore 039192
ExxonMobil Sales and Supply LLC
ExxonMobil Sales & Supply LLC One Alhambra Plaza Suite 900 Coral Gables, Florida
FL33134, USA
Telephone (outside USA): +1 305 459 6358
Indian Oil Corporation Limited
36, Indian Oil Centre, Bhulabhai Desai Road, Cumballa Hill, Mumbai, Maharashtra
400026, India
Telephone: +91 22 2554 1679
Koch Supply and Trading L.P
Fountain House, 6th Floor, 130 Fenchurch Street, London EC3M 5DJ, United Kingdom
Telephone: +44 (0) 207 648 6300
Shell International Eastern Trading Company Limited (SIETCO)
Shell House, UE Square, 83 Clemenceau Ave, 239920, Singapore
Sinochem International Oil (London) Co. Ltd
Westminster Tower 3 Albert Embankment London SE1 7SP ‎
SK Energy Europe Limited
3rd Floor 11-12 Hanover Street, London W1S 1YQ United Kingdom
Telephone: +44-(0)20-7495-0956
Total International Limited
Tour Coupole - La Défense 6 2 place Jean Millier 92078 - PARIS LA DEFENSE CEDEX
France
1336' Reconciliation of cash inflows from the petroleum industry in Iraq in 2009' IEITI Retrieved
11 January 2012.
249
Valero Supply and Marketing Company
One Valero Way
Regional offices of IOCs operating in Iraq
BP
BP Iraq NV C/o BP Group Chertsey Road Sunbury-on-Thames Middlesex TW16 7LN
United Kingdom
Telephone: +44 (0)1932 762 000 E-mail: [email protected]
DNO
DNO Middle East Office 3902, 39th Floor Shatha Tower, P.O. Box 502503 Dubai Media City
Dubai - UAE
Telephone: +971-4-3642620 Fax: +971-4-3688447
Eni
SAIPEM S.P.A. IRAQ (Eni subsidiary) c/o Orient Trnsport Co. W11 Shmeisani Al-Hamra
Building 4th Floor AMMAN
Telephone: +962 6 5664128 - 5682546
Fax: +962 6 5682541
Gazprom
Gazprom zarubezhneftegaz
4A Novodanilovskaya Emb. 117105, Moscow
Telephone: (+7 495) 544-48-93
Kogas
Kogas Iraq B.V.
200 Prins Bernhardplein, AMSTERDAM, 1097JB Netherlands
Kuwait Energy Company
Baghdad Office Al Wahda district 902, St 10, Building 5, Apartment 12, Baghdad, Iraq
Telephone: (+9641)7191861
Basrah Office Istiklal Street, near Noor Hospital Basra - Iraq
Telephone: (+964) 40 622002 Mobile: (+964) 7801321010
250
Petronas
PETRONAS Carigali Iraq Holding B.V. Office No.1, Level 4, Gate Precinct Building 2, Dubai
International Financial Centre, P.O Box 506594, Dubai, UAE
Telephone: +971 603 2331 5000
Shell
Shell Upstream International Ltd P.O. Box 11677 Dubai UAE
Telephone: +9714 4054400
Total
Total E&P Iraq
Hay Al-Wahda Mahalat 906, Zukak 8 House N°21 P.O. Box 2301 Alwiyah Baghdad
Telephone: +964 1 719 2908
TPAO
TPOC Iraq Office
Al-Wazereyah 301 Section 5th St. No: 6 Baghdad – IRAK
Telephone: + 90 312 207 20 00 – 18 58 – 18 59
251

Iraq Oil Almanac

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The Secret Language of The Iraqi Dinar Decoded

How Iran operates in Iraq

Just Thinking - #150 (graphic image warning)

The Secret Language of The Iraqi Dinar Decoded

3-4 CAV - SCO`s DISPATCH 08 MAY 09