Iraqi Oil Coming Back in a Big Way

03/20/2013 7:00 am EST

Focus: COMMODITIES

In a short time, Iraq has lured the world's biggest oil companies to redevelop its fields, topped its pre-war peak pumping levels, and become the second-strongest producer in OPEC, writes April Yee of The National.

With plans to spend $130 billion on the country's upstream sector over the next five years, Iraq's oil industry could be seen as a shining success.

In a relatively short time, it has lured the world's biggest oil companies to redevelop its fields, topped its pre-war peak pumping levels, and become the second-top producer in OPEC.

Yesterday, the country's oil minister, Abdul Kareem Al Luaibi, pledged to allocate $18 billion to raise natural gas output and $25 billion to expand refinery capacity. And by the end of this year, just a decade after the US-led invasion, it expects to be pumping 3.7 million barrels a day.

Analysts predict areas curtailed during decades of sanctions and war will deliver significant capacity increases in the future. But inadequate infrastructure and a policy of shutting out companies involved in the semiautonomous Kurdistan region threaten development. The future of one of the country's biggest fields hangs in the balance.

ExxonMobil (XOM), which has a service contract at West Qurnafield in the south, signed an exploration deal in late 2011 with the semiautonomous Kurdish government in the north—a contract Baghdad says automatically disqualifies any international company from participating in its giant southern fields.

Since then, the Kurdistan government and the capital have been locked in discussions to resolve the dispute. Among the solutions ExxonMobil is exploring is selling off all or part of its West Qurna stake to China National Petroleum Corporation (CEO) or Indonesia's Pertamina.

Analysts say Iraq needs to revisit its commercial model to make its fields more attractive to supermajors in the long-term. "I don't think that companies interfering in internal politics will have enough room to play," said Ahmed Mousa Jiyad, the former chief economist of Iraq National Petroleum Company.

"This is a very complicated issue, and this is why both sides—ExxonMobil and the government—are keeping quiet about it. But there is absolutely no chance that Exxon will continue with a majority interest."

Read more from The National here...

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