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Small firms best for Iraqi oil development, Petrel manager says

By BEN LANDO, UPI Energy Editor   |   Sept. 26, 2008 at 4:09 PM   |   Comments

Iraqi oil and gas deals aren't just for Big Oil as smaller firms already active in the country are better placed, the head of Petrel Resources said in a statement in which he said the Irish firm has settled payment disputes over a field it is helping develop.

"Fears that super-majors would have preferential access to super-giant fields on the basis of no-bid contracts are groundless," said Petrel Managing Director David Horgan. "There are at least 80 major fields in Iraq, and the advantage is with those players who are knowledgeable and ready to work immediately."

Petrel in 2005 signed a $197 million contract for design, materials and other services to assist the Iraq State Co. for Oil Projects in developing the Subba and Luhais fields in southern Iraq. Aside from an outstanding bill of $46 million, Petrel faced pressure to let go its partner in the project, the Iraqi Kurd-owned firm Makman Oil & Gas.

Iraq's Oil Ministry had been negotiating development deals with the world's largest oil firms, including Shell, BP, ExxonMobil, Chevron and Total. The two-year deals would have the companies boost oil production on a handful of Iraq's largest oil fields by conducting training out of the country and sending in new technology and equipment.

Those negotiations were stopped last month, reportedly because the companies wanted to be paid with oil instead of cash.

"Iraqi officials tire of vague undertakings from diffident oil majors and are now focusing on practical steps with committed players for early progress on the ground," Horgan said, echoing sentiments that smaller companies -- both active and wanting work in Iraq -- have expressed: that smaller companies can move more quickly than the giants.

The ministry continues to bring in smaller oil and services companies to fix and upgrade fields and infrastructure, and is exploring joint ventures to enhance capabilities.

The next broad step by the Oil Ministry is for approved companies to enter a bidding process to develop oil and gas fields, the details of which are to be outlined Oct. 13 in a private meeting in London. Petrel is not one of the 41 companies, though the ministry has said there are more fields to be up for bid in the future and the prequalified list will expand.

The exact terms of such international investment are not known, heightened by the fact that the Iraqi public is wary of turning away from a once-successful nationalized oil sector. And they fear a return of the outright control the global oil industry once had on Iraq's oil reserves, the third largest in the world.

Nearly every large and medium-sized oil firm has expressed interest in investing in Iraq -- especially for the lucrative exploration and production contracts like the controversial deals signed by Iraq's semiautonomous Kurdish region.

The largest have said they want clarity on the legal structure and a reduction in violence before they'll put people and equipment on the ground, which insiders have told United Press International could result in delays in investment even after a contract is signed.

As Iraq evolved since the 2003 invasion, the oil firms have provided free training to workers and ministry officials, as well as studies of oil and gas fields and infrastructure, with the hopes of payback down the road in the form of a contract.

This week Iraq's Oil Ministry and Shell signed an agreement to take steps toward forming a joint venture to capture and utilize all the natural gas being flared in Basra province. UPI understands it's a modified section of a countrywide gas master plan Shell has submitted to the ministry.

Horgan said Petrel broached the topic of gas capture at Subba and Luhais to ministry officials in 2004.

"Over the past year Petrel has had discussions with an international gas major and regional sovereign wealth fund about such a project," he said. "If progress continues and circumstances warrant, we will make a similar proposal."

The friction between the central and Kurdistan region governments may have played a role in pressure Petrel came under to ditch Makman. According to a January 2006 Petrel news release, "Makman will provide security, local transport as well as construction and engineering support. Petrel will continue to provide overall project management." Petrel now is the sole contractor on the Subba & Luhais project.

KAR Group, to which Makman belongs, was awarded a $136 million contract in December 2004 to provide engineering and equipment for developing Khurmala Dome, part of the Kirkuk oil reserve structure. Baghdad and the Kurdistan Regional Government have disputed the rights to develop Khurmala Dome.

Petrel apparently has reached an agreement with the Oil Ministry to direct payment for its work to a bank outside Iraq, as the banking system still suffers from corruption and low institutional capacity.

--

(e-mail: blando@upi.com)

Topics: David Horgan
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