Iraq: It’s Still about Oil

Provocative suggestion: Obama’s increasingly desperate efforts to abrogate Bush’s Dec 31 withdrawal deadline and continue the military occupation may reflect, among other considerations, the need to protect the US drilling companies’ business.

. . . American drilling companies stand to make tens of billions of dollars from the new petroleum activity in Iraq long before any of the oil producers start seeing any returns on their investments.

Lukoil and many of the other international oil companies that won fields in the auction are now subcontracting mostly with the four largely American oil services companies that are global leaders in their field: Halliburton, Baker Hughes, Weatherford International and Schlumberger.  Those four have won the largest portion of the subcontracts to drill for oil, build wells and refurbish old equipment.

Mr. [Alex] Munton [a Middle East analyst for Wood Mackenzie] estimated that about half of the $150 billion the international majors are expected to invest at Iraqi oil fields over the next decade would go to drilling subcontractors — most of it to the big four operators, which all have ties to the Texas oil industry.

The American oil services companies, which have been in Iraq for years on contract with the United States occupation authorities and military, are expanding their presence even as the American military prepares to pull out.

For example, Halliburton, once led by former Vice President Dick Cheney, has 600 employees in Iraq today and said in a statement that it intended to hire several hundred more before the end of the year.  “We continue to win significant contracts in Iraq, and are investing heavily in our infrastructure,” Halliburton said.

While Baker and its American peers are poised to make significant profits from such work in Iraq, wafer-thin margins seem to await Lukoil and the other international oil producers — which include BP of Britain, CNPC of China, ENI of Italy and the Anglo-Dutch company Shell.

Lukoil’s contract, for example, is typical in paying a flat fee of $1.15 for each barrel produced, regardless of oil’s price.

That means even if Lukoil ramps up West Qurna 2 production from almost nothing now to 1.8 million barrels a day by 2017, as specified in the contract, it will require more than a decade of subsequent production just to recoup capital costs of about $13 billion.  A good portion of those costs, meanwhile, will have gone to its drilling contractors.  Lukoil says it intends to drill more than 500 wells over six years.

Source: Andrew E. Kramer, “In Rebuilding Iraq’s Oil Industry, U.S. Subcontractors Hold Sway,” New York Times, 16 June 2011

Michael Munk is the author of The Portland Red Guide: Sites and Stories From Our Radical Past.  Visit his Web site: <>.  See, also, Red and Black Cafe, “Interview with Michael Munk, Author of The Portland Red Guide” (MRZine, 13 May 2011).

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