Iraq South Oil Head Calls for Revival of National Oil Co

BASRA, Iraq (Dow Jones Newswires), Feb. 3, 2009

Plans to revive the Iraqi National Oil Company more than a decade after it was scrapped by Saddam Hussein would give a big boost to the flagging oil sector, South Oil chief Kifah Numan said.

The reinstated national group would act as the parent of South Oil, Iraq's largest petroleum company, and the country's other two major oil operators, Numan told AFP in an interview at company headquarters in Basra.

"The National Oil company will get more flexibility and have better understanding and planning for the operation of the companies so they can act within the authority of their board of directors," said Numan, a 36-year veteran of the firm.

Iraqi output is still below pre-2003 levels but could climb "dramatically" if plans for the industry are fully implemented, he said.

Legislation on the national company and an overall hydrocarbons law has been long delayed by a bitter dispute among the assembly's Shiite, Sunni and Kurdish factions over the sharing of Iraqi's oil wealth.

But Numan said once results are announced from the weekend provincial elections, lawmakers could take another crack at the controversial bill to get the conflict-battered production schedule back on track.

"We are hoping to receive quite a few decisions in the beginning of February," said Numan, who was installed last year as head of South Oil after Prime Minister Nouri al-Maliki had Abdeljabbar al-Luaybi removed.

"We are hoping to get more authority to be able to act away from the centralization that is taking place now within in the Oil Ministry and the government," he said.

Iraq sits atop the world's third largest proven crude reserves after Saudi Arabia and Iran, but is desperate for oil revenue to rebuild its war-shattered economy, especially with global prices sharply down.

The pre-U.S. invasion export ceiling was about three million barrels a day, but it now produces only 2.18 million barrels a day, of which 1.6 million is for export, according to figures on the Organization of Petroleum Exporting Countries' Web site.

Crucial to improving its broken infrastructure and returning production to pre-2003 levels are security guarantees that major international oil firms will not be disrupted by sectarian power struggles, said Numan.

Local politicians in oil-rich Basra are fighting for a greater share of oil revenues being funneled directly to Baghdad, an issue that has triggered sabotage and other security problems.

"Until now it has been the security problem that has stopped these companies from moving the security situation is rather good but we hope it is going to be better," Numan said.

Basra is considered the country's financial hub. More than 70% of Iraq's oil is produced in the region and its port - the only one in Iraq - is used for 80% of crude exports.

Numan said that within four to five years South Oil could raise production to 3.5 million barrels a day, but to meet such targets Iraq needs foreign expertise.

Iraq last year launched its first international tender for development of nearly 20 oil and gas fields in a bid to ramp up its output ratio compared to its massive estimated reserves of 115 billion barrels.

More than 35 foreign companies have taken part in the first round of bidding, although hopes of a lucrative equity stake in Iraqi fields were dashed when the Oil Ministry only proffered service contracts.

"There will be no production sharing agreements. All these licensing rounds are based on service type contracts," Numan said, adding privatization of upstream activities is unlikely to ever happen.

The current tenders will move to a second round of bidding in June and September, while the Oil Ministry is expected to announce further international tenders this month.

Numan said he hoped to increase production by 300,000-400,000 barrels a day this year by squeezing current operations.

"We are hoping to implement quick solutions whereby a minimum amount of drilling will be required," he said.

In 2010, Numan wants to drill up to 400 wells with the help of foreign firms. As tender offers turn into actual contracts, Iraq's output could climb much higher than current production targets.

"As we finalize these awards of the licenses these figures are likely to change dramatically."  

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