Iraq Opens Up to Foreign Oil Majors
Western producers like BP, Exxon Mobil, and Shell are enjoying their best access to Iraq's southern oil fields since 1972, but a weaker government could be on the way

By Anthony DiPaola and Daniel Williams




(Bloomberg) -- BP Plc and Exxon Mobil Corp. took the best deal they could get in Iraq last year when they won the largest oil contracts since addam Hussein was toppled in 2003. Oil companies may wait a long time to get a better one.

Parliamentary elections may produce a weak or unstable government incapable of tendering new oil contracts, said Samuel Ciszuk, a London-based analyst at IHS Global Insight. He said he does expect the 10 technical-services contracts won by Exxon, BP and 20 other companies to be honored.

"One thing that's fairly certain is there won't be a strong coalition, so it may take time for the next government to get its act together," Ciszuk said in a telephone interview.

"Bottlenecks could hold up production increases" if no government forms by June.

Western producers haven't had access to oil fields in southern Iraq since 1972, when the country nationalized production including concessions owned by the companies now known as BP, Royal Dutch Shell Plc and Exxon.

The contracts awarded in two auctions, which pay a per-barrel fee for development work rather than granting a share in the production itself, will cost the companies a total of about $100 billion to develop deposits, Oil Minister Hussain al-Shahristani said in December. Iraq, with the world's third-largest oil reserves, will earn about $200 billion a year.
Service Fees

A group led by BP, which vies with Shell as Europe's largest oil company, will receive $2 billion per year in fees to develop the Rumaila field. A Shell-led group will get $913 million and a group led by Exxon, the largest U.S. oil company, will receive $1.6 billion per year. Each calculation is based on the agreed-to per-barrel fee times the maximum production level.

"We see this as the beginning of a long-term relationship with Iraq and will continue to look for further opportunities," Andy Inglis, BP's chief executive for exploration and production, said on a conference call March 2.

Prime Minister Nouri al-Maliki, whose government signed last year's oil contracts, is running against an array of opponents. Sunni Muslim, Shiite Muslim and Kurdish factions, along with a pan-sectarian party, all are in the race with Al-Maliki's Shiite-based Rule of Law coalition.

The sectarian blocs are also divided one against another, making it unlikely any one group can win a majority.

"This is the most wide-open election in Iraq's history," said Faleh Abdul-Jabar, director of the Beirut-based Iraq Institute for Strategic Studies, in a telephone interview. ...