Prior to the toppling of Iraq's Ba'athist regime, Iraq reportedly had negotiated several multi-billion dollar deals with foreign oil companies mainly from China, France, and Russia. Deutsche Bank estimated that $38 billion worth of contracts were signed on new fields -- "greenfield" development -- with potential production capacity of 4.7 million bbl/d if all the deals came to fruition (which Deutsche Bank believed was highly unlikely).

 

Now, the legal status of these agreements is up in the air, increasing the uncertainty level for companies interested in doing business with Iraq. Besides legal/constitutional issues, companies are also looking for a relatively stable security situation, a functioning government, and other conditions to be in place before they move heavily into the country. In early June 2005, Iraq Oil Minister al-Uloum announced the formation of an inter-ministerial committee to review oil contracts signed under the Saddam Hussein government.

Reportedly, dozens of companies have signed MOUs (memoranda of understanding) with Iraq, mainly on EPC (engineering, procurement and construction). The MOUs generally cover the training of Iraqi staff (often for free), consulting work, and reservoir studies (also often for free).

 

The MOUs generally are considered to be a way for oil companies to show their interest in future Iraq work, gather technical data, and to demonstrate their capabilities. In addition, the MOUs could help companies establish relationships that could be useful in the future, when Iraq is ready to start awarding major oil and gas development projects.

 

Russia, which is owed billions of dollars by Iraq for past arms deliveries, has a strong interest in Iraqi oil development. This includes a $3.7 billion, 23-year deal to rehabilitate Iraqi oilfields, particularly the 11-15 billion barrel West Qurna field (located west of Basra near the Rumaila field). West Qurna is believed to have production potential of 800,000-1 million bbl/d, but is currently producing only 180,000 bbl/d. In mid-December 2002, the Iraqi Oil Ministry had announced that it was severing its contract with the Lukoil consortium on West Qurna due to "fail[ure] to comply" with contract stipulations. Specifically, the Iraqis had cited Lukoil's failure to invest a required $200 million over three years.

 

During the summer of 2004, Lukoil began training Iraqi oil specialists at facilities in western Siberia, an initiative reportedly aimed at saving Lukoil's West Qurna contract. In addition to Lukoil, Russia's Soyuzneftegaz reportedly has been talking to several other companies about developing the 100,000-bbl/d Rafidain field. Soyuzneftegaz was awarded the contract in January 2003.

In January 2005, Iraq awarded contracts to several companies (Anadarko, Dome, and Vitol) to evaluate the 2-billion-barrel Suba-Luhais in southern Iraq. In September 2005, a $200 million development contract was signed with Ireland’s Petrel, with the goal of increasing Suba-Luhais production by 100,000 bbl/d by the end of 2006. Petrel also signed a deal to conduct a technical study of the Merjan block in western Iraq.

In January 2005, Iraq's State Company for Oil Projects (SCOP) awarded a $150 million contract -- the first post-Saddam era upstream deal -- to Turkey's Avrasya Technology Engineering, for development of the Khurmala dome. Khurmala development is aimed at increasing production at the field from 35,000 bbl/d to 100,000 bbl/d, helping to compensate for declines in output at the mature Kirkuk field.

In addition to Khurmala, SCOP reportedly granted a $180 million contract to Canada's OGI Group in March 2005 to help develop the Hamrin field, located southwest of Kirkuk. Hamrin has estimated production potential of 60,000 bbl/d or higher. Work is scheduled to take 18 months to complete.

Another large oilfield slated for development is Majnoon, discovered by Braspetro of Brazil in 1975, and containing reserves of 11-30 billion barrels of 28o-35o API oil. Majnoon is located 30 miles north of Basra on the Iranian border. In the 1990s, French company Elf Aquitaine (now merged with Total) negotiated on a possible $4 billion deal with Iraq on development rights for Majnoon. In 1999, however, TotalFinaElf declined to sign a 23-year production sharing agreement (PSA) with Iraq on Majnoon. Following this, the field reportedly was brought onstream (under a "national effort" program begun in 1999) in late 2003 at 50,000 bbl/d. Future development on Majnoon ultimately could lead to production of 600,000 bbl/d or more at an estimated (according to Deutsche Bank) cost of $4 billion. In the short term, there is work underway to increase Majnoon production capacity to 100,000 bbl/d. Prior to the 2003 war, Majnoon reportedly had production capacity of 350,000 bbl/d.

In early June 2003, China's National Petroleum Company (CNPC) refuted a comment by Thamir Ghadban that CNPC's contract on the 90,000-bbl/d al-Ahdab development was now "void by mutual agreement." CNPC agreed in 1997 to spend $1.3 billion on Al-Ahdab, located in southern Iraq, but no progress was made while sanctions remained in place.

The 4.5-billion-barrel Halfaya field is the final large development in southern Iraq. Prior to the war, several companies (BHP, CNPC, Agip/ENI) reportedly had shown interest in Halfaya, which ultimately could yield 200,000-300,000 bbl/d in output at a possible cost of $2 billion. In January 2005, a consortium of Shell, BHP Billiton, and Tigris Petroleum signed a deal with Iraq's oil ministry to increase output from the Missan area, which included Halfayah. Smaller fields with under 2 billion barrels in reserves also have received interest from foreign oil companies. These fields included Nasiriya (Eni, Repsol), Tuba (Japan’s AOC signed an MoU on the fiel din June 2005), Ratawi (Shell, Petronas, CanOxy), Gharaf (TPAO, Japex), Amara (PetroVietnam), and Noor (Syria).

In May 2003, Thamir Ghadban stated that three exploration agreements for blocks in Iraq's Western Desert were still valid. These included Indonesia's Pertamina on Block 3, Russia's Stroitransgas on Block 4, and Indian's Oil and Natural Gas Corp. for Block 8. In January 2003, Stroitransgas signed a $33.5 million contract for exploration on Block 4, and in July 2003, it indicated its interest in winning post-war business in Iraq. In September 2003, Pertamina announced that it planned to begin oil and gas exploration in Block 3, investing around $24 million over the next three years. The small Irish company, Petrel Resources, also has expressed interest in exploring and developing oil resources in western Iraq. In May 2004, Pertamina suspended its exploration activities in the Western Desert region due to security concerns.

On December 1, 2005, the Kurdistan Regional Government announced that Norway’s DNO was drilling for oil at the Tawke well in the Kurdish region, near the Turkish border. According to Middle East Oil and Gas Monitor, the Kurds believe they were authorized to sign the deal (a Production Sharing Agreement, or PSA) without the central government’s permission “[b]ased on a disputed clause in the constitution.” This is controversial, and raises the question about ultimate control over Iraqi oil resources. In addition to DNO, the Kurds reportedly have signed separate deals with Heritage Oil (Canada), Al-Aabar Petroleum (UAE), and PetroPrime (Turkey). There are fears that Shi’ites in the South could do the same.

Aside from the issue of control over oil resources, the DNO deal with the Kurds was significant in that it was a PSA Reportedly, the Iraqi Oil Ministry would like to proceed with PSAs as rapidly as possible on undeveloped fields. PSAs have been controversial in other countries, with some analysts (e.g, a recent report, by a group of non-governmental organizations, called “Crude Designs – The Rip-off of Iraq’s Oil Wealth”) believing that they are too favorable to oil companies and that they give up too much control by the country’s government.