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Iraq seeks $38b to boost oil output

(Reuters) / 25 November 2005

LONDON — Iraq seeks $38 billion of mainly foreign investment to boost crude output, but talks with oil majors to attract the capital are still in initial stages, the powerful head of the Iraqi Energy Council said yesterday.

Ahmad Chalabi told Reuters the government ideally would like to triple output to six million barrels per day in four years once the investment comes.

"We want the fields to produce as quickly as possible with due regard for reservoir management. But the talks are not advanced at all” Chalabi, also deputy prime minister, said from Baghdad.

“Any contracts that Iraq negotiates will have to be approved by parliament and will be subject to public discussion.” Chalabi acknowledged that a long-term oil strategy would have to be agreed by Iraq’s divided politicians first.

Oil companies have expressed concern that Iraq’ Sunni, Shia and Kurdish sects may not be able to agree on a national strategy, raising the potential for chaos in the sector without a strong central government.

Several companies, including Norway’s Norsk Hydro, are already in negotiations to drill for oil in Iraqi Kurdistan, a de facto autonomous region run by Kurdish leaders.

Chalabi, who had advocated a federal structure for Iraq since he was in exile, said such a system enshrined in a recently passed constitution ensures that oil remains a national resource but managed jointly with the provinces.

To raise stakes in the system across sects, Chalabi has also called for a fund that pays dividends to all Iraqis from oil revenue and investments, similar to one in place in the U.S. state of Alaska since 1982.

“We have studied cases from around the world and are aware of good examples to follow and bad ones to avoid,” said Chalabi

He favours giving priority to U.S. and British oil companies because the two countries removed Saddam Hussein from power.

“No company has been assigned any field and no person has authority to assign anything until the parliament (due to be elected in January) approves it,” he said.

Oil executives, however, say the Iraqi oil ministry has already been in contact with foreign companies about the development the country’s oil fields in the post Saddam era, including the most prized, such as the 12-30 billion barrel Majnoon and the 11-15 billion barrel West Qorna.

Iraq’s oil output remains well below 1990 levels that exceeded three million bpd, due to an embargo that crushed economic activity for 13 years after that. Lawlessness and violence after the 2003 U.S.-led invasion of Iraq also disrupted efforts to rebuild the oil industry.

“Politically every thing is on hold because Iraq has so far had transitional governments since the U.S. invasion. But a lot of data has been exchanged and structures put in place in the oil ministry to negotiate production sharing deals,” an Arab oil executive said.

An international oil executive said although political upheaval is likely to keep actual development work years away, especially for the biggest fields in the south, international companies would still compete to obtain rights for specific fields.

“The issue of oil is highly sensitive and Chalabi is careful not to give away too much. He deserves credit trying to reform the system and preventing Iraq from becoming a banana republic.

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