Chevron Reportedly in Talks to Tap Iraq's Oil

By David R. Baker
The San Francisco Chronicle

Tuesday 25 March 2008

Chevron Corp. and other international oil companies are negotiating with the Iraq Ministry of Oil to begin tapping into some of the country's largest oil fields, according to published reports.

Specifically, the companies are negotiating for two-year contracts that would help Iraq boost production at existing oil fields.

For years, the companies have had their eyes on long-term contracts to find and develop new oil fields in Iraq, which is believed to hold the world's third-largest oil reserves. The contracts under discussion are far more limited than that, but they represent an important step in opening Iraq's oil industry to foreign involvement after years of state control.

San Ramon's Chevron already has held discussions with the Iraqi Oil Ministry about one of the short-term contracts, according to reports in the Associated Press, Dow Jones, Reuters and United Press International news services. BP, Exxon Mobil, Shell and Total also are pursuing the contracts.

Chevron won't confirm or deny those reports, a company spokesman said Monday. But Chevron has repeatedly expressed an interest in Iraq. The company has provided free technical training to Iraqi oil engineers in the five years since the U.S.-led invasion ousted Saddam Hussein.

"Generally, Chevron is interested in helping Iraq develop its industry, and we'd very much like to partner with them to help fulfill the government's production objectives," said spokesman Kurt Glaubitz.

The country's state-run oil industry has struggled with aging machinery and insurgent attacks on oil facilities since the invasion. Production averaged 2.4 million barrels per day in February, according to the Platts energy information service. Before the invasion, production averaged 2.5 million barrels per day.

But efforts to increase production and develop new fields have been stymied by Iraqi politics, as well as the widespread belief among Iraqis that the United States toppled Hussein to gain control of the country's oil.

Most of Iraq's known oil fields lie in the Kurdish north or the Shiite south. As a result, Sunnis who live in central Iraq worry that they could be cut out of any future oil boom. For several years, legislators from the three groups have argued over a proposed law that would divide oil revenue among the country's regions and set ground rules for foreign oil companies that want to work in Iraq.

The short-term contracts, called technical support agreements, may be an attempt by the Oil Ministry to make an end-run around legislators. The Iraqi Cabinet reportedly approved the move.

"It was a way to get things going without calling it a production agreement," said Frank Verrastro, director of the energy program at the Center for Strategic and International Studies. "They've been sitting in abeyance for two years while oil prices have gone up. I think there's a growing realization (in the Iraqi government) that, 'Had we done this sooner, we'd be a lot better off today.'"

Under the technical support agreements, the oil companies would be providing studies, analysis, equipment and expertise at existing fields - not hunting for new ones. Exploring and developing new oil fields would require passage of the long-stalled oil law.

Chevron reportedly is negotiating for an agreement to help expand production at the West al-Qurna oil field, near Basra in southern Iraq. The ministry also wants to sign technical support agreements for the Rumaila and Zubair fields nearby, as well as the Kirkuk oil field in the north. And in what could be an effort to appease Sunnis, the ministry also said last weekend that it wants to develop the Akkas natural gas field in a Sunni-dominated corner of western Iraq.

The proposed oil law has often come under criticism from anti-war activists, who fear that the Iraqi government will be pressured into handing over too much control of its oil. The short-term agreements may not assuage those fears.

"My concern with these agreements is that they appear to be more than anything else a foot in the door, an opening for the oil companies while debate rages on over the long-term contracts," said Antonia Juhasz, author of "The Bush Agenda: Invading the World One Economy at a Time."

"It's for the Iraqis to decide the appropriate role of U.S. oil corporations in Iraq," she said. "The only time to be able to have this kind of negotiation is when there's no longer an occupation."

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