Gauging Promise of Iraqi Oil

Maybe it’s a coincidence, but American and British oil companies would be long-term beneficiaries of a successful military offensive led by the United States and Britain to remove Iraqi President Saddam Hussein.

Industry officials say Hussein’s ouster would help level the playing field for U.S. and British firms that have been shut out of Iraq as Baghdad has negotiated with rivals from other countries -- notably France, Russia and China, three leading opponents of war.

A post-Hussein Iraq also would be a bonanza for the U.S.-dominated oil-services industry, which is in the business of rehabilitating damaged infrastructure, reversing declining output from aging fields and providing essential support work to drillers and explorers. A leader in that industry is Halliburton Co., where Dick Cheney was chief executive before becoming vice president.

The confluence of foreign policy objectives and commercial interests is fueling suspicions that U.S. and British war plans are motivated in part by a thirst for Iraqi oil. Those concerns would be magnified, experts caution, if Washington winds up calling the shots in a postwar Baghdad.

“All over the world, people will be watching very carefully,” said Issam Al-Chalabi, who ran Iraqi National Oil Co. for four years and served as Hussein’s oil minister for three.

“Even if they give only 10% of the work to Americans, people will say the Americans are being favored if there is supervision by the United States,” said Al-Chalabi, now a consultant in Amman, Jordan. “But let the Iraqis decide, and no one can say they’ve been under pressure, even if they give 50% to American companies.”

Experts say it would make sense for U.S. and British firms to get a significant share of any repair and development jobs in Iraq, because they are such major players in the global industry with arguably the best technology and professional expertise. That would be recognized, analysts say, even if the United States left all postwar decision-making to Iraqis.

And with the door open to companies such as Exxon Mobil Corp. of Irving, Texas, and Royal Dutch/Shell Group of London, the losers could be the French, Russian and Chinese oil companies that have either signed contracts or negotiated preliminary agreements to drill in Iraq.

That the three countries wield veto power in the U.N. Security Council is widely believed by industry experts and U.S. officials to be one reason their companies received favorable treatment in Baghdad, although Hussein’s government also has negotiated with companies from at least two dozen other countries.

The company with perhaps the most at stake is Paris-based TotalFinaElf, which in recent years negotiated, but never signed, agreements to develop two of Iraq’s largest oil fields, Majnoon and Nahr Bin Omar. The contracts, valued at $7 billion, could ultimately double Total’s oil reserves and boost its production by 400,000 barrels a day.

Total CEO Thierry Desmarest declared last month that he was not about to cede the field to U.S. and British rivals. Desmarest acknowledged that France’s opposition to a likely war could make Total’s standing in Iraq “more complicated,” but he expressed confidence the company could land new contracts if allowed to engage in good-faith negotiations.

“We have shown in the past that we are able to defend ourselves on an equal footing with our peers even in some areas where there was a reputation of significant American influence,” Desmarest said.

The French, among the original members of the international consortium formed in 1928 to develop Iraq’s reserves, continued to enjoy favored treatment in Baghdad after Iraq nationalized its oil industry in 1972. Russia’s oil industry also had special access after Iraq tilted toward the Soviet Union during the Cold War.

After the 1991 Persian Gulf War, the U.S. government prohibited American firms from engaging in any commercial activities or business negotiations with the Iraqi government. United Nations sanctions barred foreign companies from investing in Iraq’s oil sector, though they were allowed to negotiate deals for the future. One reason Total’s contracts were never consummated was that the company wanted to include language making the work contingent on the lifting of sanctions, and Hussein’s government refused.

Major oil companies might not be the only commercial casualties of war.

Petrel Resources, a tiny oil firm in Dublin, Ireland, has been negotiating with Hussein’s government since 1978 for exploration rights in Iraq’s western desert, and recently signed a contract. It’s unclear whether the contract would be recognized by a new regime. And if U.S. and British companies also are in the game, Petrel could be out of luck.

“We’ve done some very good work, but we can’t compete with the multinationals,” said Petrel Chairman John Teeling. “They’ll crunch us and jump on us as much as they can.”

The reason: Only Saudi Arabia has more oil than Iraq. Iraq’s proven reserves total about 112 billion barrels, and industry experts figure as many as 250 billion more await discovery. To develop the proven reserves to their full potential over the next 10 years or so will cost as much as $40 billion, according to think tanks and petroleum consultants.

Presuming a U.S.-led military victory, industry officials and experts expect the postwar work to proceed in two phases.

For the first year or two, companies that provide repair, rehabilitation, engineering and construction services -- including Halliburton, Schlumberger Ltd., Baker Hughes Inc. and BJ Services Co. -- would receive an estimated $3 billion to $5 billion in contracts from an interim government.

As part of that first phase, engineering and construction project specialists such as Aliso Viejo-based Fluor Corp. could be in the running for contracts to repair and upgrade Iraqi oil facilities.

Fluor spokesman Jerry Holloway declined to discuss the company’s possible involvement in any postwar oil and gas projects. But he confirmed that Fluor submitted a bid, at the U.S. government’s request, for possible work through the U.S. Agency for International Development -- work that is said to focus on humanitarian projects such as repairing roads, sanitation systems and hospitals.

The second phase would begin after the installation of the new government, according to U.S. officials. That’s when multinational exploration and production companies would be invited to negotiate long-term exploration and development deals.

So far, most multinationals are circumspect in their public comments about their plans -- though not necessarily about Iraq’s potential.

“We know where the best reserves are in the world. We covet the opportunity to go get those someday,” said Archie Dunham, chairman of ConocoPhillips in Houston.

Britain’s BP said it would be interested in Iraq, but only if the circumstances were right.

“If there is a change of governments and if sanctions are lifted and if the government in Iraq wants foreign investment, then BP would obviously consider the opportunities that were available,” said spokesman Toby Odone.

Royal Dutch/Shell said it discussed opportunities with Hussein’s government in the mid-1990s -- and was ready to resume the dialogue if a new government is installed.

“We’re not doing any business in Iraq at the moment,” said spokesman Justin Everard in London. “But we’re interested in doing business in countries that have large reserves of oil, and Iraq is one of those.”

At Halliburton, spokeswoman Wendy Hall declined to discuss the possibilities for the company in Iraq. But the opportunities are more than theoretical: Last week, the Pentagon announced it intended to use a plan developed by Halliburton’s Kellogg Brown & Root unit to control oil well fires that might accompany a military offensive.

As soon as the smoke clears in Iraq, some in the industry say, the jockeying will begin in earnest. Teeling, the Petrel Resources chairman, predicts “a Wild West, frontier rush” for reserves that are plentiful and relatively easy to access compared with offshore fields where so many of the major oil companies are focused.

“In the last three or four years, most of the world’s oil companies have either visited Iraq or opened offices or had representatives there,” he said. “They have no choice. It’s the world’s cheapest oil. They have to be there.”

Teeling saw it firsthand during one of his initial trips to Baghdad in 1998. Standing in line in the lobby of the Al-Rashid Hotel, he said, he spotted what he assumed to be another European waiting to check in.

“I peeked over his shoulder. He had an American passport. It turns out he was representing an American oil company,” Teeling said, declining to identify the firm.

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Vieth reported from Washington and Douglass from Los Angeles.