Oil
companies active in the south of Iraq
have beefed up security to deal with fears over the security implications of
the U.S.
troop withdrawal, but they say the pullout hasn't caused them to change plans
to significantly ramp up production.
"We have to wait and see.... If the security situation deteriorates that
means we will hire more security personnel to protect us," said an
executive of one of the oil majors.
The challenge was highlighted when executives from BP PLC , Royal Dutch Shell
PLC , Exxon Mobil Corp., Eni SpA and Lukoil Holdings withdrew from an industry
conference in the southern oil hub of Basra
starting on Nov. 25, after bombings at a busy market the previous day killed 25
people, including the deputy police chief.
Security contractors working for the companies warned the executives not to travel
from their heavily-protected compounds to the city center, where the exhibition
and conference were held.
Despite a sharp drop in violence from the height of sectarian strife in
2006-07, bombings and killings are still a daily occurrence in Iraq.
"On a personal human level, everybody's got concerns, no one knows what
will happen," said Branko Pecar, vice president and general manager of St.
Louis-based Emerson, an oil services company operating in Iraq.
BP PLC, ExxonMobil and Eni are critical to the future of the Iraqi oil industry
due to their roles in developing Iraq's
massive southern oil fields of Rumaila, West Qurna
and Zubair, which hold proven reserves of more than eight billion barrels.
The three fields are expected to be the nation's largest producers within six
years, with a combined output of 6.8 million barrels a day, according to deals
signed by the companies two years ago that involve total investment of about
$100 billion.
That compares with output from the fields of 1.6 million barrels a day during
the era of former Iraqi President Saddam Hussein.
The development work on the three fields is part of wider plans by Iraq's
oil ministry to ramp up total Iraqi output to as much as 12 million barrels a day
by 2017 from three million. Saudi
Arabia, the world's top oil exporter, pumps
about 10 million barrels a day.
The oil companies active in the south already contend with bombing campaigns
against their infrastructure, which the government blames on al Qaeda in Iraq
and loyalists to Saddam Hussein. On Tuesday, BP said it temporarily halted
output from the southern half of the Rumaila field after a bomb blast hit
pipelines in the area, the second such attack in the Basra region in two months.
Iraq's
army and police, as well as Western security contractors hired by foreign oil
firms, are responsible for security in these areas. Executives travel in
convoys of armored four-wheel-drive vehicles and armed security personnel armed
with guns.
"We will do everything we can to ensure the safety and security of our
staff," said Toby Odone, a spokesman for BP.
The smaller oil service companies are most vulnerable to any deterioration in
security because they have fewer resources to pay for extra protection, say
security consultants AKE Group.
"Many firms, particularly some of the smaller service companies, may
decide to pull out completely if conditions worsen considerably," said
John Drake, a risk expert at AKE -- adding that it is too early to say whether
this will in fact happen.
Iraqi Prime Minister Nouri al-Maliki has vowed to protect oil companies after
the U.S.
troops withdraw. "Thank God nothing has happened to them so far, and we
are guaranteeing their safety, whether through security companies or by
assigning police and army to protect them," he said in an interview last
week.
One telling sign of security concerns is the growing interest in much smaller
oil fields in the semiautonomous Kurdistan
region in the north of the country.
Better security in the north and more favorable development terms have been a
draw. While the south's large fields and familiar geology have attracted oil
majors, recent large discoveries by wildcat explorers have changed the way they
view the north, says Manouchehr Takin, an analyst at the London-based Centre for
Global Energy Studies.
The opportunity in the north to sign production-sharing contracts rather than
the technical-services contracts employed in the south are also an incentive,
Takin said.
But the central government in Baghdad and Kurdistan have been at loggerheads for years over who
should be authorized to sign oil deals.
After Exxon Mobil signed an exploration deal last month with the Kurdistan
Regional Government, Iraqi Deputy Prime Minister for Energy Hussein
al-Shahristani threatened to terminate the deal. Shahristani has strongly
opposed Kurdistan's moves to develop oil
resources.
Maliki dialed back the threats in last week's interview, saying the contract
wouldn't be terminated and suggesting that negotiations are possible.
A number of smaller foreign companies already produce oil in Iraq's
Kurdish region, but Exxon Mobil was the first of the majors to reach such an
agreement. Exxon Mobil declined to comment on the Kurdistan
deal.
The Exxon Mobil deal highlights a lingering problem: the lack of comprehensive
legislation for the energy sector. Politicians in Baghdad have squabbled for years over the
drafting of an oil-and-gas law that stipulates how different regions and ethnic
factions will share the revenue.
Draft legislation first surfaced in 2007, but was derailed by disputes between
the central government and the government of Kurdistan.