By David Bogoslaw
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The potential for Iraq to export as many as 4.3 million barrels of oil a day could upset the world oil market, but it's likely to be 18 months before the conditions are in place for that to occur, analysts at Banc of America Securities said Friday.
With the war in Iraq winding down, Banc of America held a conference call with clients to discuss prospects for Iraq's oil industry.
How large Iraq's production will be down the road will depend largely on the Organization of Petroleum Exporting Countries, or OPEC, which Iraq is expected to re-join once a viable government is in power. Before the war, Iraq's daily production was about 2.8 million barrels. But it's unlikely to strictly adhere to OPEC-set production quotas.
At an emergency meeting Thursday, OPEC ministers agreed to cut 2 million barrels a day from current output levels, but also opted to raise the output ceiling to 25.4 million b/d from 24.5 million b/d. OPEC said the production cuts are needed to ensure the price of oil stays between $22 and $28 a barrel. OPEC's basket price Thursday was $23.97.
Saudi Arabia, the dominant member of OPEC, currently needs to earn $27 a barrel to break even on its production. But with Saddam Hussein out of the picture, it might be able to trim its defense and security budget by as much as $10 billion, enabling it reduce its break-even price to $22, Banc of America said. With the Saudi budget already set for this year, the kingdom is likely to watch for signs of stability in Iraq and gradually pare its defense budget starting next year.
Banc of America estimates it will take an investment of $10 billion to get Iraq's production up to 3 million barrels a day.
Until security is re-established in the region, it's difficult to tell how long it will take for companies to feel comfortable making that kind of investment.
For the integrated oil companies, size and scale, balance sheet strength and technological and operational expertise are among the things that will determine which ones are able to gain access to the fledging industry, said integrated oil analyst Tyler Dann.
Dann sees Exxon Mobil Corp. (XOM) as having the most access, with BP PLC (BP) ranking second, and ChevronTexaco Corp. (CVX) and Royal Dutch/Shell Co. lining up behind them.
Much will also depend on what kind of fiscal structure is established for international companies, with the production sharing agreement or buyback structure most likely to be adopted, he added.
A portion of Iraq's internal refining capacity will probably recover much more quickly than export business, possibly even within the next three weeks, to produce kerosene and other products needed by the Iraqi people.
The U.S. Army Corps of Engineers is already providing portable electricity generators to get refineries ready to receive oil for processing, Banc of America said.
The need for basic mechanical repairs on infrastructure that's been inactive for 12 years will benefit companies like Halliburton Co. (HAL), Baker Hughes Inc. (BHI) and Weatherford International Ltd. (WFT), all of which have mechanical expertise, said oilfield services analyst Jim Wicklund.
Despite its larger market capitalization, Schlumberger Ltd. (SLB) is a less likely participant due to its focus on more advanced technologies, he explained.
Among the secondary integrated oil players, Repsol-YPF SA, ConocoPhillips (COP), Occidental Petroleum Corp. (OXY) and a number of the Russian oil firms might have a role to play in Iraq.
As for the independent producers, they are likely to benefit from Iraq to the extent that the major integrated companies will expedite selling their noncore assets to the independents in order to focus on Iraq, said Bob Morris, senior exploration and production analyst.
-By David Bogoslaw, Dow Jones Newswires; 201-938-5289; david.bogoslaw@dowjones.com
(END) Dow Jones Newswires |
