December 2009 Archives

BAGHDAD - What was once considered a pipe-dream could become reality: after decades of dictatorship, war and international sanctions, Iraq's massive oil reserves are set to be tapped proper and the country once known for two overflowing rivers could be crowned oil king.

If the seven oil projects awarded to foreign oil companies this weekend, and the three from an auction earlier this year, develop as planned, within eight years, Iraq will see its oil production capacity leap to more than 12 million barrels per day (bpd).
"We think it is a big victory for Iraq to be able to be a leader in the world," Iraqi Oil Minister, Hussain al-Shahristani, said after the auction.

Saudi Arabia, the world's largest producer at 8.18 million bpd, has a capacity of just over 11 million bpd today, after slower demand growth halted plans to expand to 12.5 million bpd by the end of this year.

Iraq - behind Saudi Arabia and Iran - has the world's third largest proven oil reserves, with potentially more remaining to be found. Currently, however, its 115 billion barrels below ground pump at just 2.4 million bpd, with production hampered by political, structural and security problems that could moot the enthusiasm from this weekend's auction.

Out of the 10 oil projects on offer during the two-day auction, seven were awarded to a dozen companies. Three fields up for grabs in a June 30 auction were awarded, with one deal already finalized. And there are more than 60 fields discovered but not yet developed. These include two that the ministry is negotiating directly with foreign companies outside of an auction process.

Currently, Iraq relies on oil revenue for 95 percent of its revenue. This will increase if the fields develop as planned. Only after, however, Iraq reimburses companies for their investment and pays them a relatively small fee per barrel of increased output.

But this is Iraq, where, aside from this weekend's bidding round, it seems nothing goes according to schedule.

Since late 2006, a new oil law to replace current oil governance - an often vague and conflicting mix of the 2005 Constitution and laws left from previous eras - has been delayed by political squabbles. Laws reestablishing the national oil company, reorganizing the oil ministry and formalizing revenue redistribution, are also languishing.

Iraq's Kurds, who favor heavy decentralization, and nationalist Arabs, who want strong state control, have both questioned Shahristani's oil deals. Some have called them illegal.

In press conferences and speeches before the auction, both Prime Minister Nouri al-Maliki and Oil Minister Shahristani, reiterated the government's pledge that the deals would remain valid - no matter what happens in the March 7 national election.

Argentina signed an agreement with the Bahamas Thursday to share banking information as the country tries to tighten the noose on Argentines with cash hidden in overseas tax havens. Similar agreements were recently signed with Costa Rica, Andorra and Monaco. The deals are designed to stop tax evasion and fraud by exchanging tax information, lifting banking secrecy and allowing agents to conduct investigations overseas.

Continue reading: Argentina, Bahamas Sign Banking Information Agreement

Bermuda Signs Tax Agreement with Belgium

Bermuda has reached an agreement with Belgium to exchange information about criminal and civil tax matters. Benefits for the island from this tax information exchange agreement (TIEA) is a commitment by Belgium to conclude a series of mini double taxation agreements.

Continue reading: Bermuda Signs Tax Agreement with Belgium

As multinational military forces have left Iraq, international petroleum companies have eagerly descended - seduced by the long-term potential of vast oil reserves off-limits to foreigners for decades. Yet lingering violence, legal questions and political uncertainty make doing business in this country a gamble.

In the first international oil auction held last June, widely seen as a failure, the Iraqi government awarded a firm contract to only a consortium of British Petroleum and the China National Petroleum Co. to further develop the Rumaila field over 20 years. Iraq recently forged an initial agreement with a group comprising Exxon Mobil and Royal Dutch Shell to develop the West Qurna field, and one with an ENI-led consortium of Occidental Petroleum and Korea Gas for the Zubair oil field.

Under ratified deals, firms stand to gain a mere $2 profit on each barrel added to production because the Iraqi government wants to convey "they're not going to let the oil companies take over," said Robert Ebel, a senior adviser in the energy and national security program at the Center for Strategic and International Studies (CSIS), a Washington-based think tank.

The operator of each 20-year service contract, which may be extended for five years, "will still make a rate of return in the double digits," said Ruba Husari, founder and editor of the Web site Iraqoilforum.com, via e-mail from Baghdad. The country's proven oil reserves were last estimated at 115 billion barrels. These massive reservoirs, and the low costs linked to such an uncomplicated operation, essentially make it "easy oil" for firms, Husari said.

Iraq will boast some six million to 10 million barrels a day over the next several years, analysts tell Oilprice.com. This scenario illustrates why oil companies perhaps are now more willing than last summer to gain an initial foothold in the industry on the government's strict terms and thus build a long-lasting relationship that may lead to a production-sharing contract "for some discovered-but-yet-undeveloped oil field," Ebel said. "It's a hopeful assumption; I don't know how realistic it is."

Yet as companies salivate over Iraq's potential, legal and political issues are still problematic to doing business. The war-ravaged country's "weak and ill-defined legal structures," and uncertain moves by the next government slated to be elected in January, may result in canceled service contracts, warned David Bender, an analyst in the Middle East practice of the Eurasia Group's Washington office.