Al-Ghad

Al-Ghad has promised to publish an English summary of Mr. Dhyaa Al-Murib important study of the current oil problem in Iraq. We are glad to publish a full translation, but in two parts. The following is Part One:

The oil monopolies in feverish efforts to fulfil their long-term strategy

By Dheyaa Al-Murib 23-11-2009

The questioning of the Iraqi oil minister is still going on at different tempos. Although the first rounds were focused on side issues, in terms of the arguments and the orientation, it seems that the questions started to take other directions. The general belief was that the questioning was a continuation of the debate on the oil contracts which The Times of London described as motivated by the quest to share in the commissions paid by the concerned oil companies. In fact the issues raised against the conduct of the minister were the common denominator of all the former ministers without exception. That is because these ministers emanate from the policy which had been laid down by the occupiers since a long time and followed up its implementation with infinite precision through to the ultimate strategic objective, namely, to control the Iraqi oil resources and consequently to tighten the grip of the global domination of the oil monopolies over this important wealth. If it was true that all ex-oil ministers would be summoned to face questioning, then this would be a useful orientation to uncover the hidden aspects of the imperialist policy and thwart its sinister designs. Therefore it is the duty of the ever jealous patriot, and foremost the oil and economics specialists to set forth all the information which they have to help clarifying these matters to public opinion.

It is imperative to underline, before anything else, that everything is connected with the role of the occupiers both before and after the invasion in weakening Iraq and fragmenting its people by various means. That includes genocide to lead them to such a degree of weakness as to accept the fait accompli. The best evidence for this is the outcome of the defunct Baathist regime and the U.S. led occupation as revealed by the official statistics. Al-Malaf press agency reported from Baghdad on 15th November that the Ministry of Planning had issued preliminary statistics about the Iraqi people. The Ministry of Interior also issued statistics about the casualties and missing persons because of military operations or kidnapping from 1980 up to 2008. These figures which largely approximate the UN Statistics give an appalling picture. Namely, 4,200,000 refugees, 4,400,000 orphan children, 2,200,000 people killed, 200,000 widows, 350,000 disabled children, 160,000 missing or abducted and 145,000 divorced women.

If we add to these terrible figures what we have mentioned in past installments about the financial losses incurred on Iraq since the sanctions of 1990 through to the occupation until the present time which amounted to hundreds of billions of dollars & the human losses which were estimated by $8.6 Trillion, we can have a complete picture.

Any fair observer has the right to ask why was Iraq “blessed” with such an American attention. The answer is simple. It is to restore the control over its oil resources which had been wrested from them first by law no. 80 of 1961 and later by the Nationalizations which started on 1 June 1972. This is what we try to prove scientifically in these articles. Before anything, it should be cautioned that the artificial outcry which was raised on a number of issues in the Council of Representatives could be designed to distract the attention from passing these dubious contracts.

Any fair observer has the right to ask why was Iraq “blessed” with such an American attention. The answer is simple. It is to restore the control over its oil resources which had been wrested from them first by law no. 80 of 1961 and later by the Nationalizations which started on 1 June 1972. This is what we try to prove scientifically in these articles. Before anything, it should be cautioned that the artificial outcry which was raised on a number of issues in the Council of Representatives could be designed to distract the attention from passing these dubious contracts.

The Pricing of Iraqi Oil

The Oil Minister claimed that the pricing of Iraqi oil is subject to the OPEC basket of prices and that the Basrah Oil is sold at a higher price than the Arabia medium and that Iraq suffers no injustice in this respect. We discussed these points in former articles and refuted the claim by the financial & banking counselor in the Ministry of Finance that the Iraqi oil is priced below the Dubai/Oman oils by about $8 per barrel because of the location or specific gravity. We quoted the statements of the Minister of Finance which he made in Washington in Sep 2008 that the Iraqi Oil was subjected to an extortion of more than $14 per barrel.

I am prepared to give documentary proofs taken from the statistics of the IMF, the Ministry of Oil, the International Advisory and Monitoring Board for Iraq (IAMB) which supervises the Development Fund for Iraq (DFI) where the oil exports are deposited, and other sources proving that the Iraqi oil encounters extortion regarding the pricing. This is in addition to the leaking of substantial quantities of the produced oil to unknown destinations which cannot be anything but ultimate smuggling. I had established some of these facts in an article which was published on two installments in Al-Ta’akhi Daily on 10 & 12 June 2005 under the title of “The Harvest”. At the end of last year, I wrote an article commenting on the report issued by the Government Accountability Office (GAO) in the U.S. on 16-9-2008 under the title “Securing, Stabilizing and rebuilding Iraq – A testimony by Mr Joseph Kristoff Director of International Affairs and Trade at GAO before Congress” . I quoted the following paragraphs from that article:

“According to the data of the Iraqi Central Bank, the Iraqi crude oil for the period Jan – June 2008 was priced at $96.88 per barrel, whereas the average WTI & Brent crude for the same period was $110.95 & $109.17 respectively for the same period.” - GAO

The GAO testimony disclosed that the Iraqi oil is priced below the international reference prices by $12.29 to $14.07 per barrel which is surprising. It is well known that the price differential because of specific gravity and the Sulfur content do not equal this big a figure. If we look at the [Iraqi weekly status report] issued by the State Dept. on 19-7-2008, we find the following:

The International Oil Prices closed at:

Basrah light	133.01
WTI/Cushing	142.46
Oklahoma
Brent	142.65
Oman/Dubai	138.41

We note from these figures that the price difference between WTI/Brent and Basrah Light is about $9.45 per barrel which constitutes 6.6% for the State Dept’s tables whereas GAO puts the differential at 12.1% and 14.5% which is very big calculating this is an absolute figure and in terms of the country’s oil revenues we find:

The discount imposed on the Iraqi oil between the two estimates ranges between (6.1-8)%. Assuming the oil prices is as posted in the GAO report to be $96.88, the revenues, assuming the exports at 2.01 MBD, would be 2.01×96.88=$194.729 million per day. And consequently the difference would be $15,578 million per day. This is not a small amount because it adds up to $5.685 billion per year. (Some may object that the prices were not always at this level). Therefore we calculate the differences on the revenues achieved according to GAO figures:

Total Revenues 2003-2007	$96 Billion
Estimated 2008	$79.85 Billion
Total:	$175.85 Billion

Thus the discount is around $14 Billion

These are conservative estimates about Iraq’s losses. We calculated them according to the statistics of the occupation authorities which grossly underestimate Iraq’s losses and magnify the U.S. expenditures. If we make precise calculations it will be clear that Iraq’s losses are many times that figure.

Iraq was subjected to humiliating terms by the World Bank and the IMF for the sake of a loan less than $4 Billion. The government of Iraq was at a loss on how to fund the contracts to supply power generators which were signed in 2008 after the drop of the oil prices and revenues. There are many more examples and yet it shows no concern about the billions which are craved off the Iraqi people and even it does not admit them.

False “Heroism”

At the end of the first round of bids held last June which resulted with one contract with BP & CNPC, the local and outside propaganda trumpets set out to talk about the “stiff Iraqi position” and the “low” rewards offered by Iraq of $2 for every additional barrel of oil produced. They talked about how the internationals have been squeezed by the this unjust Iraqi position. The truth is that the whole case was part of the multi act play whose script & scenario were prepared by big oil companies. This was proved by the fact that after two or three months those companies retracted their original offers & accepted the “rigid” Iraqi terms without giving any explanation for this sudden change.

Accordingly west Qurna Field was awarded to U.S. Exxon & Dutch Shell, Zubair was awarded to a consortium led by ENI of Italy. That is in addition to Nassiriya Field negotiated with Nippon of Japan, and Al-Ahdab field which the Chinese company has already started to develop. It is necessary to give a brief summary of the press reports about these changes so that we can understand what is going on behind the scenes. IT should be accomplished that we firmly believe that the contracts in question are not purely “Technical service contracts” . There are secret provisions which will be uncovered in the not too distant future as was the case with the oil deals scandals in Kurdistan region and the former U.S. Ambassador Galbraith.

Gulf Oil and Gas

Key points of BP-CNCP deal for Iraq’s Rumaila Field (source Reuters):

Production Target:

• BP and CNCP must improve the production rate of crude oil and natural gas liquids from Rumaila by 10 percent compared to the initial production rate as soon as possible.
• The initial production rate is to be agreed by the companies and Iraq on the day the contract is ratified or before and will be calculated as the average rate over a 30 day period.
• The firms must aim for sustained output or “Plateau Production Target” for a period of seven years of 2.85 MBD of crude and natural gas liquids.
• The minimum BP and CNPC must do include:
• Conduct 3D Seismic and geographical surveys
• Drill 20 new production and 10 new injection wells
• Rehabilitate 130 wells
• Design and build two water re-injection plants
• Refurbish or construct field gathering and processing facilities.
• Expenses include:
• Contractors must spend a minimum of $300 million implementing their minimum work obligations.
• Within 30 days of the deal being finalized the contractors must pay a signature bonus of $500. The money is recoverable over 20 quarterly payments, payable from the ninth quarter following the quarter in which the deal is ratified.
• BP & CNCP must allocate a minimum of $5 million for a fund for training Iraqis.
• The remuneration will be taxed up to 35%.

Getting Paid:

• BP & CNCP’s bid for the Rumaila contract was for remuneration of $2 per barrel
• They may receive only a fraction of that depending on their performance in boosting output.
• The value of the contract to BP & CNCP and the speed they can recover costs depends on how much they can boost production.
• A formula for assessing performance measures output against a projection of what output would have been without the BP & CNPC investment. That formula assumes an annual decline in output of 5 percent per year would have taken place.
• BP & CNPC may be paid in oil or cash. Iraq can choose to reimburse the companies’ supplementary costs in oil or cash, but the firms can decide how their service fees are paid.
• Recoverable supplementary costs incurred by BP & CNPC bear an interest of 1 percent over the London interbank offered rate (Libor) until they are paid.

Timeline

• The Rumaila oilfield service contract lasts for 20 years, but it can extended.
• BP & CNPC must submit a rehabilitation plan within six months of ratifying the contract.
• The contractors must establish in Iraq a “normal presence”- personnel and equipment necessary to support field operation- within six months of the rehabilitation plan being approved or the contract could be terminated.
• The companies must submit an enhanced redevelopment plan, based on knowledge gained from the field’s initial rehabilitation within three years of the contract’s ratification.

Further Deal Opportunities

• Discovered but undeveloped oil reservoir at Rumaila maybe produced under the contract but will be subject to a separately agreed remuneration fee.
• BP & CNPC will for six years from the date the contract is ratified have the exclusive right to negotiate an agreement to explore for and develop undiscovered potential reservoirs in Rumaila

Regarding the subsequent offers & accords

From The Wall Street Journal on 4th November 2009:

Several oil companies that rejected tough terms in the country’s first auction for oilfield rights this summer have dropped their demands for higher payouts, said Oil Minister Hussein Al-Shahristani at a news conference. … Mr. Shahristani said that companies such as Exxon Mobil Corp., Russia’s Lukoil and ENI of Italy have withdrawn their earlier resistance to what the industry saw as increasingly low payments for helping Iraq develop some of its existing fields. …

Exxon Mobile and the Lukoil constrtium have now accepted the $1.90-a-barrel fee that Iraq had initially proposed to that field, Mr. Shahristani told reporters. …

Mr. Shahristani also said a consortium led by ENI has accepted the Iraqi Oil Ministry’s proposed $2-a-barrel payment for the Zubair field. ENI had originally proposed a $4.80-a-barrel for the field. …

An ENI spokeswoman declined to comment on discussions over the field in detail, but she said the company accepted the $2-a-barrel fee because some other conditions had changed making the lower price more acceptable. The original 20-year contract which includes occidental petroleum Co. and Korea Gas Corp., could be extended to 25 years.

From AFP (5 October 2009):

Exxon Mobile wins Iraq’s west Qurna1 Oil contract

The Exxon-led consortium, which has an 80% share and includes the Anglo-Dutch firm Shell, has proposed to boost the field’s production to 2.1 MBD.

West Qurna 1 currently produces about 279,000 bpd and has reserves of around 8.5 billion barrels, according to oil ministry figures.

On Tuesday, Baghdad signed a deal with Britain’s BP and China’s CNPC to almost triple production at the giant Rumaila oilfield, also in the south of the country.

“The two companies will invest 50 billion dollars in the project,” Oil Minister Hussein al-Shahristani said.

From Energy Business Review 13th October 2009:

Eni S.p.A (Eni) has been awarded the license for the development of the Zubair giant field in Iraq, following a successful first round bid. The license has been awarded to an Eni-led consortium (with Eni as operator), consisting of the Occidental Petroleum Corporation and Korea Gaz Corporation.

The Zubair field currently produces 195,000 barrels of oil per day. In the next seven years, under the field’s expansion programme, production is expected to reach a plateau level of 1.125 million barrels of oil per day.

Moreover, the project includes the drilling of more than 200 wells, the construction of treatment facilities and the required collection network, as well as the refurbishment of the existing plants.

From Reuters 12th October 2009:

Oil Minister Hussain Al Shahristani said that foreign firms’ investment in West Qurna phase 1, Zubair and Rumaila would bring Iraq $100bn, according to an Oil Ministry spokesman. The minister also forecast that three fields’ combined output would reach 7 million barrels a day in six years, the spokesman said.

From Iraq Oil Report 3 Oct, 2009:

Beyond beginning a bidding process for a handful of key oil & gas fields, the [Iraq Oil] Ministry will outline a second group of oil and gas fields up for grabs by international oil companies, petroleum intelligence weekly reports. The two rounds account for 94 Billion barrels of Iraq’s 115 Billion of barrels of proven reserves.

PIW also has MOR including:

• Service contracts will allow companies to book reserves. …
• Development will mandate a joint venture with a state-owned company, though what the state sill get out of that, and what control it will have is still unknown.

We conclude, from all the above, the following facts:

1. The contracts give the companies the right to book the production & reserves, which from the legal point of view means that the reserves have become their property. In case of a dispute it is impossible for the Iraqi Government to prove the opposite. The companies would be entitled to apprehend the Iraqi oil shipments in the high seas, the more so since the UN immunity which has granted to Iraq since the occupation will have to come to an end.
2. The decision-making regarding the policies of production, export, employment and other issues will be in the hands of the companies so long as they hold 75% or more of the shares of the joint venture, whereas the Iraq National Oil Co (INOC) owns only 20-25%. This is a relinquishment of National Sovereignty which had been offered by the most friendly state to the companies, VIZ. Nigeria where the National Oil Company retains 55%. This rate rises in some states up to 85%. Why is this sacrifice of the national rights? And why is the total submission when it is the companies which badly need Iraq?
3. The statement of the Oil Minister concerning the $100 Billion is vague. The minister cannot mean the revenues resulting from the increased production because this is equal to 6MBD which will yield annual revenues of $164.25 Billion (on the assumption of a price of $75 per barrel).Therefore, his meaning is that the companies will invest $100 Billion in their development projects. With all respect to the Minister this sum is grossly exaggerated, but the problem is who will monitor the spending when all decision-making is in the hands of the companies themselves, as we have already remarked? However, we have more to say about this point later on.
4. The total reserves which will be given back to the companies is 94 Billion barrels out of a total of 115 Billion barrels of the proven Iraqi reserves. This means that the struggle and sacrifices of the Iraqi people since 1961 have been disregarded by these contractors. The companies have thus taken their revenge after inflicting on the Iraqi people these tremendous human & material losses which we quoted at the beginning of this article. In spite of all that things are put false and loathsome national guises. History will never forgive this betrayal of the people’s interests and destinies.
5. The last item of (key points) of the Rumaila field show that the two companies which won the contract are entitled to:
   1. Seize the discovered but unexploited reservoirs.
   2. The exclusive right to negotiate on the undiscovered potential reservoirs and develop them.

Rumaila field may prove to be greater than the Saudi Ghawwar field if exploration and prospecting’s of up-to-date technologies are thoroughly carried out. This field alone is equivalent to the reserves of an entire state. Thus to have access to it under the guise of a service contract represents an incomparable historical opportunity.

All this and the “Cavaliers” of the bids do not want anyone to get acquainted with the deals which they engineer according to Saddam’s laws and under the umbrella of the U.S. democracy.

The Ministry of Oil is pursuing a selective course in dealing with these issues. When the constitution is on its side, it sticks to it as if it were the holy writ, and not the product of the occupiers who formulated its articles to server their own interests. So much so that it was full of contradictions (the famous American strategist Anthony Cordsman had often complained of this fact). The best proof of this are the scandals of the former U.S. Ambassador Galbraith who helped in shaping the articles related to the Kurdistan region in their favor in return for getting later privileges in the region’s oil from which he profited $100 million. When the ministry does not find any drop in the constitution, it resorts to the laws of the Defunct Tyrant even if they were contrary to the most elementary human rights and the democratic rights which were guaranteed by the constitution. The most striking example was the Ministry’s attitude towards the trade unions. For it resorted to the notorious law which converted the workers into “civil servants” thereby annulling the existence of the workers. With this mentality had the officials in charge fought the labour trade unions. Likewise the Ministry justifies its signing the contracts without a hydrocarbon resources law, by leaning on another law inherited from the Tyrant’s era. We have only to hear one day the activation of the leader’s dictum and all his dictums had the force of the law. That “All Iraqis are Baathists even they are not members of the party!!”

The attitudes of the information section of the Oil Ministry were characterized by the belittling the importance of the Iraqi fields and harping on the oil glut & similar themes. A senior official termed the Rumaila field as “Ageing” and “Decrepit” whereas it is the second if not the greatest field in the world.

In order to prove the false hoops of such claims, we take the reader to a tour round the world needs for oil and the availability and accessibility of the necessary supplies to meet these demands on the basis of the most authentic international sources.

The annual energy outlook (AEO) issued by the U.S. department of energy/EIA stated the following:

Despite the recent economic downturn, growing demand for energy- particularly in China, India and other developing counties to limit access to oil resources in their territories that are relatively easy to develop are expected to lead to rising real oil prices over the longer terms. In the AEO 2009 (issued on 20-7-1009) reference case, world oil prices rise to $130/bbl (Real 2007 Dollars) in 2030. However there is significant uncertainty in the projection, and 2030 oil prices range from $50 to $200/bbl in alternative oil price cases. The low price case represents an environment in which many of the major oil-producing countries expand output more rapidly than in the reference case, increasing their share of contrast the high price case represents an environment where the opposite would occur: High control over access to their resources and develop them more slowly.

In another section the AEO adds:

The high price case depicts a future world oil market in which conventional production is restricted by political decisions as well as by resource availability, as major producing countries use quotas, fiscal regimes, and various degrees of nationalizations to increase their national revenues from oil production and consuming countries turn to high-cost production of unconventional liquids to satisfy demand.. Although OPEC nations are not expected to change current investment restrictions significantly, the organization is expected to increase production in order to achieve an approximate 50% of total world production (119 MBD) in 2030.

In the meantime, Dr. Fatih Birol, the chief economist at the International Energy «gency (IEA) which is charged with the task of assessing future energy supplies by OECD countries issued gloomy warnings in this respect. This expert made exclusive statements to The Independent which it published on its front page on 3-8-2009 under a banner headline: Warning: Oil supplies are running out fast. The article can be read here.

To be continued…