IRAQ - Part 1 - The Prospects.

By far the biggest oil province in the world for foreign investors, Iraq is offering oil companies equity in its huge hydrocarbon reserves, with a plan to raise its oil production capacity to more than 6 million b/d to be activated as soon as the UN oil embargo has been lifted. Offers taken up already include some of the largest oilfields in the world.

Saudi Arabia is the biggest oil province in the world. But its oil is reserved for the state-owned company, Saudi Aramco, and there is no way that the current regime in Riyadh would offer foreign firms any upstream investment opportunity other than its reserves of natural gas. Kuwait and Iran are only offering buy-back arrangements for a further development of their fields. Opportunities on offer in other Middle East countries involve relatively small fields, with new E&P prospects not likely to result in giants comparable to those of Iraq.

The geological prospects in Iraq are excellent, in some areas unique in the world. Highly prospective blocks are on offer for foreign companies to explore and exploit discoveries under production sharing accords (see Gas Market Trends).

Economic conditions in the country have deteriorated dangerously, however, due to crippling UN sanctions and negative behaviour by a regime isolated from the world since Iraq invaded Kuwait in August 1990. A UN aid deal with Baghdad, which allows Iraq to export up to $5.256 billion worth of oil every six months, has not done much help (see Downstream Trends).

Baghdad is negotiating production sharing agreements (PSAs) with an increasing number of foreign companies. It has already reserved the best oilfields to firms from France, Russia and China - three of the five permanent members of the UN Security Council, the other two being the US and Britain - and to companies from states which might become Iraq's allies in the future.

Current negotiations and PSAs already signed involve more than 30 foreign companies. They are to develop ten fields, including giants, in which they should eventually invest $18.9 bn to produce almost 2.9 m b/d. The government will invest its own money for another 1m b/d so that Iraq's oil production capacity exceeds 6.35m b/d (see Part 2).

Iraq's oil production capacity now is 2.6m b/d, following extensive reconstruction work since March 1991. Iraq's export capacity is officially put at 3.5m b/d, with the pipeline from Kirkuk to the Turkish terminal of Ceyhan able to pump 1.1m b/d and the country's Gulf terminals said to be capable of handling the rest. Current exports total about 2.05m b/d of crude oil and refined products. A big part of the crude oil exports is going to the US, with Iraq having become the fifth largest oil supplier to the American market (see Part 3).

The Iraqi negotiators are among the most professional experts in OPEC. Iraq is a founding member of OPEC, created in Baghdad in 1960. Most of the negotiators will survive any regime in Iraq (see who's who in Part 4).