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Iraqis agree to a post-war role for big oil producers

A Kuwaiti firefighter stands near a burning oil well in Iraq's vast southern Rumaila oilfields last Wdnesday. US engineers moved through the oilfields, shutting down wellheads in an operation that could take months to complete. PHOTO: REUTERS

Iraqi exiles and senior US officials agree that international oil companies should take a leading post-war role in reviving Iraq's oil industry, delegates to a policy meeting said.

Talks in London between Iraqi experts under the auspices of the US State Department also recommended Baghdad stay in OPEC, though without limits on production, the Iraqis said.

Although early work will focus on the rehabilitation of existing facilities, talks with foreign oil majors on long-term projects could start quickly, said Iraqi delegates.

"It is in Iraqis' interest for an interim period of government to be as short as possible," said Dara Attar, an oil consultant representing some opposition groups.

Foreign investment deals, most likely production-sharing contracts, with a fully fledged Iraqi government could come in between six months and two years time, he said.

"Yes, that is the idea because there is no doubt the oil companies are needed," said attendee Fadhil al-Chalabi, a former under-secretary at the Iraqi oil ministry.

The guidance will go to a US-run interim authority and a subsequent transitional government.

The recommendations came from the fourth meeting of the oil and energy working group of the State Department's Future of Iraq project run by Thomas S. Warrick, Special Advisor to the US Assistant of State for near eastern affairs.

A statement afterwards called for Iraqi oil and natural gas to be exploited for the benefit of the Iraqi people.

It added: "The country should establish a conducive business environment to attract investment of oil and gas resources."

US officials at the meeting declined to elaborate.

"This is a highly-sensitive issue and we do not want any publicity," said one. "This is guidance by Iraqis for Iraqis facilitated by the US," said another.

But briefing papers to the meeting, obtained by Reuters, showed a clear consensus among expert opinion favouring production-sharing agreements (PSAs) to attract the oil majors.

"The PSA is certainly a favourite after short-term rehabilitation," said Attar. "Everybody keeps coming back to PSAs."

That is likely to thrill oil companies harbouring hopes of lucrative contracts to develop Iraqi reserves that rank second only in size worldwide to Saudi Arabia's.

Some had thought post-war nationalism would prevent early access to oilfields that, apart from those in Saudi Arabia and Mexico, are the only significant reserves not yet open to commercial capital.

Production-sharing is the type of deal favoured by the oil industry because it guarantees companies a healthy profit margin, even at low world oil prices. Alternative royalty schemes are weighted towards government revenues and can penalize investors at low prices.

Under PSAs Iraq would retain control over mineral ownership.

Short-term rehabilitation of southern Iraqi oilfields already is underway, with oil well fires being extinguished by US contractor Kellogg Brown and Root, a subsidiary of Halliburtoon .

Long-term contracts are expected to see US companies ExxonMobil, ChevronTexaco and ConocoPhillips compete with Anglo-Dutch Shell, Britain's BP, TotalFinaElf of France, Russia's LUKOIL and Chinese state companies.

Expert advice to the London meeting estimated US$5 billion was needed for rehabilitation for output of 3.5 million barrels a day, nearly a million barrels daily more than existing capacity.

Legal preparations for long-term contracts with international oil firms should "be started concomitantly" with the repair work, one briefing said.

It estimated US$30 billion to US$35 billion will be needed to add another about another 4 million to 4.5 million barrels a day of production over a period of about 9 years.

"Such a task will require the technological and managerial know-how of the international oil companies," it said. "Given Iraq's present lack of investment capital and technical talent, production-sharing contracts might be the most feasible relationship."
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