Reaping the spoils of war
Ousting Saddam could put U.S. oil giants in 'driver's seat'
By Lisa Sanders, CBS.MarketWatch.com
Last Update: 7:15 PM ET Jan. 31, 2003
HOUSTON (CBS.MW) -- Colin Powell says the United States plans to keep Saddam Hussein's
oilfields "in trust" for the people of Iraq if the regime is ousted. But the secretary of state has
yet to elaborate.
That's because the Bush administration
has to distance itself from the unseemly
fact that a successful invasion would
capture oil reserves that are second
only to Saudi Arabia's, unleashing a
black-gold rush for American
companies.
Meantime, U.S. companies are "ready
to hit the ground running," said energy
analyst Peter Zeihan of Stratfor, an
intelligence-consulting group based in
Austin, Texas. "If I was the CEO of one
of the super majors, I would have
contingency plans ready and make sure
the necessary parts are in the region."
Oil giants including ExxonMobil (XOM:
news, chart, profile), ChevronTexaco
(CVX: news, chart, profile), and
ConocoPhillips (COP: news, chart,
profile) are the most likely to lead any
development efforts in a post-war Iraq,
Zeihan said.
Analysts at Stratfor say the Bush
administration has had discussions with
American energy companies and the
Iraqi National Congress, the country's
main opposition group, about how best
to rehabilitate and develop a nation
that's sitting on top of an estimated 200
billion barrels of unexploited crude.
Washington even has a special unit
planning for the post-war phase of
business, according to a trade
publication.
On Friday, Oil Daily reported that the
State Department's "Future of Iraq" oil
and gas working group would meet
Friday and Saturday to discuss
post-war management of the oil sector,
including the possibility of privatizing the
industry. State Department officials
couldn't be reached for comment on the
report.
Zeihan says that Baker Hughes and
Halliburton, two of the world's largest
oilfield service providers, would be at the
head of the line to land contracts during
the key initial phase of replacing
technology and equipment and providing
state-of-the-art engineering services.
Replacing outdated gear
"The first big stage will be
refurbishment, and there have been no
computers installed in the Iraqi oil
industry since 1979," Zeihan said.
Representatives of Baker Hughes (BHI:
news, chart, profile) and Halliburton
(HAL: news, chart, profile), both based
in Houston, denied they've discussed rehabilitation plans. Vice President Dick Cheney was chairman
and chief executive of Halliburton before Bush made him his running mate in the 2000 presidential
campaign.
Though companies in France, Russia and other countries had exploration or production agreements
with Iraq, they've either been voided or were never signed. While the future of the contracts is unclear,
the unwillingness of French and Russian leaders to back a U.S.-led incursion against Saddam is
likely to come back to bite them in a post-war scenario, analysts say.
Despite calls for it to address the oil issue head-on, the White House is instead emphasizing the
need to prevent terrorism and contain weapons of mass destruction. As Presidential spokesman Ari
Fleischer put it on Thursday, "If this was a war for oil, the United States would be the one saying 'lift
the sanctions, that way Iraq could pump oil.' This is about peace, and this is about protecting people
in the region and the American people from Saddam Hussein, who has weapons that kill millions."
Observers say the adminstration has to focus on those issues as it struggles to line up key coalition
partners.
"If the U.S. takes control of the fields, the American government has to be careful not to appear to
seize the oil for their own benefit," said David Malone, president of the International Peace Academy,
based in New York.
With its wells antiquated and its workers dispirited after more than a decade of economic sanctions,
Iraq produces between 1.8 million and 2.5 million barrels of oil a day, compared to Saudi Arabia's 8
million barrels a day. Statfor analyst Zeihan says that just by refurbishing existing fields, Iraq could
easily bring 5 million barrels a day online.
Phil Flynn, senior energy analyst at Alaron.com, said, "One of the main reasons that the Russians
and the French are against (an invasion of Iraq) is that they've been making so much money off Iraqi
oil and Iraqi oil deals," Flynn said. "They have a deep financial interest. And OPEC countries have a
lot to lose on a regime change. If Iraq is pumping as much oil as Saudi Arabia, they could become a
competitor."
Russia's scuttled deal
About two years ago, Iraq agreed to pay Russia's Lukoil $3.7 billion to develop the West Qurna field,
an untapped western desert spot worth an estimated 15 billion barrels. But Baghdad voided the deal
after the United Nations Security Council in November forced a fresh round of weapons inspections.
"Lukoil was happy with that," Zeihan said. "It's a pity they are never going to use it. Western firms
will get first choice, and if Lukoil is smart, they should try to get a minority stake."
Another company that stands to lose prospects is the French company Total Fina Elf (TOT: news,
chart, profile). Before it became part of Total, Elf negotiated a production-sharing contract with Iraq,
which Total inherited.
"The agreements were never signed because the companies were careful to respect U.N. sanctions,"
said James Placke, a senior associate at Cambridge Energy Research Associates.
In addition, the national oil company of India has an exploration contract for the western desert. The
Chinese National Petroleum Corp. negotiated a $700 million deal to develop Al-Ahdab field. "But it's
too soon to forecast what will happen to those agreements," Placke said.
The chance of these companies holding on to their contracts is "directly proportional to their level of
cooperation," Zeihan said. "The companies didn't pay out a cent. And a lot of these countries don't
have the technical capabilities to do a lot of these things. It would take Lukoil years to develop West
Qurna. It would take ExxonMobil six months."
While the issue of who will control the oilfields hasn't been resolved publicly, few would argue about
the necessity of restoring the fragile Iraqi economy. Revenue from crude, the country's most valuable
and plentiful asset, would be instrumental.
Industry experts say that experienced Iraqi managers would probably play a key role. And the U.S. is
set to play the part of lead helper.
"It's not the U.S. practice to go in and steal oil or anything else from these countries," commented
one oil executive who spoke on condition of anonymity. "The loser is better off at the end than at the
beginning because we look out for them and help them rebuild."
For their part, representatives of both ExxonMobil and ChevronTexaco denied they'd had discussions
about oilfield development with the U.S. government. ConocoPhillips officials declined comment.
Slighting supermajors
But Zeihan believes all three oil powerhouses have indeed spoken with the U.S. government. If they
weren't asked to participate, he says, the companies should perceive it as a slight, given their status
as world leaders in the industry.
Robert Ebel, energy program director for the Center for Strategic and International Studies, a
Washington think-tank, said almost all the major oil and gas companies would evaluate Iraq's
potential.
"Everybody knows they have this tremendous reserve potential," he said. "It's good quality oil, easy
to produce, cheap to produce, and has easy access to the growth markets of the East and
Southeast Asia. It doesn't mean they'll all be ready to sign on the dotted line. It's going to take a fair
amount of negotiation."
Zeihan says that the unexplored western desert holds the most promise with enough estimated
reserves to rival Saudi Arabia. There's also expansion potential in the existing fields of Kirkuk and
Ramalia.
"The supermajors would really shine," Zeihan said. "It could be like Saudi Arabia all over again for the
American companies. Long-term, I see America being in the driver's seat."
Lisa Sanders is a Dallas-based reporter for CBS.MarketWatch.com. Reporters William Watts in
Washington and Myra Saefong in San Francisco contributed to this report. |
