FINANCIAL TIMES: Oil majors take a back seat as the minnows pursue Iraq deals: “Royal Dutch/Shell has a chairman for Iraq, Wolfgang Ströbl, who has not set foot in the country since 2002.” (ShellNews.net) 14 April 05

By James Boxell

Published: April 14 2005

David Horgan, managing director of Petrel Resources, says his pursuit of oil deals in Iraq is not about money. It is about glory.

While the world's biggest listed oil groups bide their time and hope for the political and security situation in Iraq to stabilise, small companies such as Ireland-based Petrel are looking to take advantage of their hesitation.

"If you are John Browne [chief executive of BP], it is very hard to take the risk of going in," Mr Horgan says. "It would be a huge liability for them if something bad happened, and bad things can happen in Iraq."

Royal Dutch/Shell has a chairman for Iraq, Wolfgang Ströbl, who has not set foot in the country since 2002.

BP and Shell are helping out on technical studies on the large Rumaila and Kirkuk fields for Iraq's oil ministry but neither has any people on the ground.

All the big international oil companies do want access to Iraq's 115bn barrels of proved reserves - with some estimating that twice that is waiting to be developed.

But despite conspiracy theories coming out of the Gulf last year - that Iraq had already been carved up between BP and Exxon-Mobil, with ChevronTexaco picking up the scraps - the "supermajors" are sitting tight.

Austrian-born Mr Ströbl, based in Dubai, says: "In the longer term, we want a material and enduring relationship with Iraq. But some key issues need to be resolved, such as a fully sovereign government and the ability for our staff to operate securely and safely."

This opens the door for "entrepreneurs and all their animal spirit", according to Mr Horgan, at Petrel. "We are prepared to do irrational things. We want to be in the next edition of The Prize [Dan Yergin's influential history of the global oil industry]."

Smaller companies may be prepared to risk working in Iraq to steal a march on the industry behemoths. But the question of whether they can strike deals - or whether the deals will be binding - is yet to be answered, especially at a time when Iraq is between oil ministers.

John Dorrier, chief executive of Gulfsands Petroleum, the Houston-based oil group that raised £30m through a London flotation last week, has signed a memorandum of understanding with the oil ministry to explore a deal to capture flared gas on a southern Iraqi oil field.

The company employs three or four Iraqis on the ground on an as-needed basis and an Iraqi-born board member is regularly in the country.

But while Mr Dorrier says the ministry is eager to engage international companies, striking commercial terms is "difficult in a conventional sense. There is no fixed contract model, fixed tenders or schedules".

He says the company hopes to get protection if it strikes a deal on its potential $760m project by securing backing from the US government and project financing from international credit agencies such as the Export-Import Bank and the Overseas Private Investment Corporation.

Mr Horgan also bemoans the fact that the bidding process on recent oil services tenders for improving production in Iraq has been somewhat opaque.

Petrel has lost out on two bids: for the Khurmala Dome field in the north of Iraq to a Kurdish-led group and the Himrin field, also in northern Iraq, to a group led by OGI of Canada.

It is still in the running for the Subba and Lohais fields, close to the Kuwait border, and has already conducted a $350,000 feasibility study on the two fields.

But Mr Horgan says the process has been "confused" and he is yet to be notified that he has lost out on the first two bids.

"We do not know whether they do not like us because of the bid, the price or whatever," said Mr Horgan. "It is not ideal that there is no formal notification but this is a war zone."

Another executive with Iraqi interests says: "The procurement guy may just be checking price or there may be corruption . . .You can be sure that someone will open up and look at your bid. And there are always political shenanigans in the shadows."

But companies working in Iraq insist there is a great willingness to do business.

Mahdi Sajjad, the Iraqi-born international business development director for Gulfsands, says: "To do things and cut through bureaucracies is relatively easy. People are not trying to be obstructive but there is no real experience in how to deal with international companies."

Mr Sajjad believes the security situation is improving in Iraq, as shown on his flight to Baghdad this week, on which at least 30 to 40 per cent of the passengers were western business people.

But as Mr Ströbl says: "Many risks will remain, not just political and security-related but commercial, economic and technical."

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