Oil contracts underpin Iraq's fledgling govt

As Iraq’s political factions move closer to forming a new government, the world’s oil leaders are dusting off their Baghdad contact books with an eye toward lucrative production agreements.

Efforts to form the nation’s first elected government for over half a century are making the prospect of major contracts more tantalisingly real, even if it could still be at least a year away.

The Shiite alliance that won a slim majority in January’s Iraqi election was holding talks yesterday with Kurdish parties, with both sides saying a deal was close. The new parliament is set to convene for the first time Wednesday.

Oil’s top three – BP PLC, Exxon Mobil Corp. and the Royal Dutch/Shell Group of Cos. – recently struck cooperation or training deals with Iraq. France’s Total SA regularly invites Iraqi engineers to Paris for training.

Iraq’s crude is badly needed, both to fund the country’s reconstruction and to feed global demand – as the past year’s soaring oil prices testify.

With proven reserves of 112 billion barrels, but current production of just 2 million per day, Iraq has more oil fields that have been discovered but not developed than any other country in the world.

If rapid improvements are made to Iraq’s damaged oil infrastructure, the potential to triple output to 6 million barrels per day could be realised within about five years.

Britain’s BP agreed last month to analyse Iraqi oil ministry data on the Rumailah oil field near the southern city of Basra, in the zone patrolled by British forces. Such studies are vital when preparing to launch new drilling operations.

Exxon Mobil has an agreement covering technical assistance, training and possible studies, while Royal Dutch/Shell won a contract in January to carry out study work on Kirkuk, a major oil field in the north.

Total, which negotiated production contracts for two Iraqi oil fields in the early 1990s but never signed them, argues that its 80 years of experience in Iraq could be crucial.

Most oil companies concede that regular attacks by Iraqi insurgents could keep them out. Total sent officials to Iraq soon after the US-led invasion, but has stopped as killings and kidnappings gathered pace, de Margerie said. ConocoPhillips and BP also acknowledged concerns.

Royal Dutch/Shell, which currently has no employees in Iraq, said the company “would have concerns” about sending them there unless the security situation improves.