OPEC Official Looks West for Investment

LONDON, Jun 06, 2007 (From The Wall Street Journal via Dow Jones Newswires)

In an unusual admission, OPEC's new secretary-general said oil-producing countries may have to attract more foreign investment to meet world oil needs. But his call is at odds with the rising barriers faced by Western oil companies hoping to tap the cartel's vast reserves.

Abdalla el-Badri said in an interview that members of the Organization of Petroleum Exporting Countries, which supplies about 40% of global petroleum output, need to invest as much as $500 billion by 2020 to satisfy rising global demand for crude. He acknowledged some of that must come from foreign sources, like Western oil majors, and not just from state-run national oil producers.

"I'd like to see further cooperation between national oil companies and international oil companies, particularly in exploration and enhanced oil recovery," said Mr. Badri, a former Libyan oil minister who took over the senior position at OPEC in January.

Such cooperation could run into toughened barriers between many cartel members and the West's oil giants, despite the latter group's keen interest in developing new reserves.

Many barriers are longstanding. Oil-production assets within the borders of many OPEC members, especially big Persian Gulf producers such as Saudi Arabia, have been off-limits to foreign companies for years. OPEC nations that actively encourage foreign investment, such as Angola and Nigeria, are in the minority.

But even those that have traditionally put out the welcome mat for Western oil majors have toughened terms recently as high world prices for crude triggered a rise in resource nationalism. In February, Western companies were forced to hand over operating control of major projects in Venezuela to state oil monopoly Petroleos de Venezuela SA, known as PDVSA. Algeria, meanwhile, imposed a tax on what it considers excess profits and restricted the role of foreign oil companies in production projects.

As an example of cooperation, Mr. Badri cited a $900 million natural-gas exploration deal struck last month between the Libyan government of Col. Moammar Gadhafi and British energy giant BP PLC. Libya has seen a sharp uptick in interest from Western oil companies since 2003, when it abandoned its weapons of mass destruction programs, prompting the U.S. and Europe to ease sanctions.

But in some of its licensing rounds, Libya has imposed terms that are so tough that some private companies have wondered how they could ever make a profit.

Mr. Badri heads the OPEC secretariat, an administrative and research body. Supply decisions are made by oil ministers of member nations who periodically meet at the OPEC conference, which coordinates the group's policies.

For decades, oil-rich nations were incapable of fully exploiting their resources without Western help. But with oil prices so high, state oil companies no longer have to rely on foreign capital and are making massive investments to boost production.

However, not all of them have the technology to find and develop new reserves, and many lack the expertise of Western oil majors in unconventional techniques, such as enhanced oil recovery and deep drilling.

Meanwhile, some national oil companies have been criticized for low levels of exploration and investment. Iran has seen its production capacity fall in recent years -- a result, analysts say, of underinvestment in new upstream projects.

Mr. Badri said OPEC would need investment of between $230 billion and $500 billion by 2020 to achieve a target of nine million barrels per day of additional production. OPEC currently produces a little more than 30 million barrels a day, the equivalent of 40% of global output.

He said international oil companies have the "technology, the know-how, [and] the financial back-up to expedite any discovery they find, to bring that discovery to market as fast as possible."

Copyright (c) 2007 Dow Jones & Company, Inc.


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