TSG IntelBrief: Boom Time in Oil Rich Iraq?
August 1, 2011
Iraq is establishing itself as a country that may finally be on the point of delivering huge returns on strategic investments. Although major international oil companies (IOC) have been working in the giant fields in the south and also in the fields in Kurdistan, progress has been slow. This has been for three main reasons:
1. A dilapidated infrastructure which slows the delivery of crude oil to market.
2. The failure to pass an oil law, known in its current draft as the hydrocarbons framework law, which would regulate the oil and gas sector has also impeded progress and created political friction between Baghdad and Irbil.
3. The status of the contracts signed between IOC and Irbil has been the subject of much contention, with Baghdad maintaining the contracts are illegal (although in the last two months we have detected a softening of the hard-line towards this issue).
The absence of a legislative framework has also made IOCs nervous as to the Iraqi government’s intentions, although Baghdad has been at pains to reassure them of the integrity of their contracts. The Ministry of Oil has recently ridden roughshod over calls by some Parliamentarians, specifically the hard-line anti-West Sadrists, to cancel the oil and gas contracts with IOCs.
However, there are clear signs that a political accommodation may be in the cards, and, if that is the case, then Kurdistan and the south of Iraq will become booming business regions of genuine strategic business relevance where significant returns on investment can be made.
The major oil service companies, in particular Nabors, Halliburton, and Schlumberger, are heralding a change in operational emphasis towards exploration, reflecting a generally increasing sense of optimism within the oil and gas sectors. Major oil service companies have made statements and released results that indicate the oil and gas sector in Iraq is poised for significant growth, both in the South and the North of the country. This report examines the growth potential.
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