Iraq: sweet crude

On Monday, the Iraqi government is set to announce the names of the foreign oil majors that have been awarded six oil field deals.

The contracts are small but symbolic, marking the return of Western firms to Iraq's upstream.  They are called technical service agreements (TSAs), and only run for a year or two.  They are designed to add a total of 500,000 barrels per day (b/d) to Iraq's current 2.5 million b/d output by attracting sophisticated technology and expertise to oil fields in desperate need of them. 

For the companies, which include Shell, BP, ExxonMobil, Chevron and Total, the contracts give them a foothold in a potentially lucrative market and an advantage in future bidding for full-scale upstream development.  For Iraq, the TSAs are a bridging contract designed to fast-track foreign involvement while a federal hydrocarbons law remains stalled by inter-factional differences in government and parliament.  Iraqi fields could eventually yield as much 6 million b/d.  Yet that day is a long way off.  In the meantime, the Kurdistan Regional Government has signed its own oil development contracts with foreign firms.  Eventually, a legal framework will be needed; if the parties still disagree, they may resort to Saddam-era laws.

A more immediate concern for the companies is security.  Despite the recent improvement in the climate, the companies will all operate remotely, using Iraqi subcontractors who may still be vulnerable to insurgent attacks. On a brighter note, the extra half-million barrels will be a welcome addition to exceptionally tight global supply.