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Occidental Petroleum and partners to develop massive Iraqi oil field
22/01/2010
January 23, 2010|By Ronald D. WhiteOccidental Petroleum Corp. said Friday that it and two major partners -- Italian energy conglomerate Eni and Korea Gas Corp. -- had signed a technical service contract to develop the massive 4-billion-barrel Zubair oil field in Iraq.

Analysts offered differing opinions on the significance of the deal for Occidental, Iraq and the overall price of oil on the world market. There was agreement only on the sense that this was a good deal for Westwood-based Occidental, strengthening its status as a Middle East player with terms that seemed to limit its exposure to potential problems.

The investment group will spend about $20 billion over the life of the 20-year contract and will earn about $2 a barrel once production is in full swing, the companies said.

"It's a great agreement for Occidental, with the caution that no one should be betting on smooth sailing in Iraq. There will be quite a few bumps in the road," said James Di Georgia, publisher of the Gold and Energy Advisor investment newsletter and author of "The Global War for Oil."

Phil Weiss, senior analyst for Argus Research, said, "The way the deal is structured is good. They will get paid in oil for their investment. This will also give them a chance to assess future possibilities."

This deal and others that will be signed by the end the month represent a major step for Iraq. The contract signings on the Zubair field and on several other oil finds are the first auctions of new development contracts for the country since 2003.

The Zubair consortium is led by Eni, which has a 32.8% share, followed by Occidental with 23.44%, and Kogas of South Korea with 18.75%. Other partners include Iraq's state-owned South Oil Co. and Missan Oil Co.

"Occidental is a very active and cooperative partner in many successful projects across the Middle East, and we expect similar success in Iraq," Ray R. Irani, the company's chairman and chief executive, said in a statement.

The consortium plans to ramp up the Zubair field's production to 1.2 million barrels a day within six years from current production of about 200,000 barrels a day.

"Iraq's oil fields have been neglected for years going back to when Saddam Hussein was in power," Weiss said.

The Zubair field, near Basra, is one of several huge fields the country hopes to develop. A contract for the colossal Majnoon field, which holds oil reserves of 12.8 billion barrels, has been awarded to a consortium of Royal Dutch Shell and Malaysia's Petronas.

Formal agreement on a deal for West Qurna Phase 2, which holds reserves of 12.9 billion barrels, is expected to be signed by the end of the month by a consortium involving Russia's OAO Lukoil and Norway's Statoil.

Next week, a contract is also expected to be signed to develop the Halfaya field, which has 4 billion barrel in reserves.

Iraq is counting on these deals to bring its oil production to 11 million barrels a day. That would be nearly five times its current production and could rival Saudi Arabia, the largest member of the Organization of the Petroleum Exporting Countries.

But some analysts warned that even if things go very well for Iraq it does not necessarily mean that world production levels would see a big increase that would lower oil prices.

DiGeorgia warned that two producers that are very important to the U.S. -- Venezuela and Nigeria -- are showing new signs of worsening instability. DiGeorgia said the Venezuelan economy continues to slide and that violence in Nigeria left hundreds dead this week.

"The best-case scenario for Iraq might still result in no net increase in world production, and that is kind of scary," DiGeorgia said.

Occidental's shares closed at $76.10, up 9 cents.

Crude for March delivery lost $1.54 on Friday to settle at $74.54 a barrel on the New York Mercantile Exchange.

Occidental Petroleum and partners to develop massive Iraqi oil field -  Source


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