[Commentary below]
DUBAI, United Arab Emirates — Hunt Oil Co. has struck a deal to explore for oil in Iraq's semiautonomous Kurdish region, signaling a new willingness by some large Western companies to bypass the fractious government in Baghdad and deal directly with regional authorities in the war-torn country.
The regional government of Kurdistan and Dallas-based Hunt said over the weekend they had agreed to jointly explore for oil in the Kurdish enclave. Hunt, a closely held family concern with a reputation for risk taking, will operate the project, the two sides said.
The deal is a victory for Kurdish officials, who have been trying to attract large, well-known oil companies to the region for years. It bolsters their claim to autonomy in issues such as natural-resource policy, thereby strengthening their hand in sometimes-testy relations with Baghdad.
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New Territory
Hunt Oil struck a deal with officials in the Kurdish region of Iraq to begin exploration there. About the company: |
At the same time, it is a significant blow to the central government in Baghdad. This summer, a draft petroleum law designed to spur foreign investment nationwide languished in Parliament. Iraq's failure to pass the law has hobbled efforts to impose some measure of central control over the country's vast but investment-starved oil industry. As a result, it has also weakened Baghdad's ability to rein in the Kurdish region's ambitions for greater autonomy.
For the global oil industry, the deal is a watershed in the on-again, off-again scramble by Western companies to set up shop in Iraq. Iraq's oil reserves are estimated to be around 115 billion barrels, the third-largest in the world, behind Saudi Arabia and Iran. But because of decades of war, large tracts of land in Iraq remain relatively unexplored.
Giant oil companies like Royal Dutch Shell PLC and BP PLC have shown interest in someday tapping those fields. They have courted Iraqi oil officials by setting up research joint ventures and offering to train Iraqi staff. But so far, Big Oil has remained on the sidelines as smaller companies have sent representatives into Baghdad and Iraq's northern Kurdish region to negotiate deals.
Though the stepped-up presence of U.S. troops has helped to damp violence lately in some other parts of the country, the Kurdish north has emerged as a relatively safe area for foreign investors, attracting real-estate and oil-field developers alike. Kurdish officials have signed a handful of agreements with small companies to explore for oil or develop fields.
Untapped Reserves
The region currently contributes a very small percentage of the country's overall oil production, but Kurdish officials say they believe it holds large stores of untapped reserves. It's impossible to quantify the region's prospects, but many oil companies — big and small — have expressed interest in one day exploring there.
For large multinationals, the lack of security makes any meaningful fieldwork difficult. But more crucially: Since the overthrow of Saddam Hussein during the U.S.-led invasion in 2003, there has been no legal framework for signing deals and ensuring they last beyond the current government.
Hunt operates oil fields around the world, but is small compared with super majors like Exxon Mobil Corp., Shell or BP, which run large-scale refining and other petrochemical businesses in addition to their production operations. Still, it is a well-known name in the American oil patch, and has years of experience in tough business environments — from Yemen to Peru.
"The Hunt deal is different," said Tariq Shafiq, an oil analyst and former Iraqi oil official who helped write the proposed national legislation. "This is Hunt, an important American company. So far, important companies have refrained" from signing deals without a national petroleum law.
The government of Prime Minister Nouri al-Maliki has been under increasing pressure from the Bush administration to push through the national oil law. Washington views it as a critical step in cementing the shaky ties between Iraq's three main sects: Shiite Muslims in the south, Sunni Muslims in the central and western parts of the country, and Kurds in the north.
The legislation was one of several specific benchmarks Washington imposed on Mr. Maliki's government as a measure of political progress in Baghdad. Ryan Crocker, the American ambassador to Baghdad and Gen. David Petraeus, the top U.S. military commander in Iraq, are expected to cite the lack of political progress in Baghdad as a major hindrance to stabilizing the country, during testimony on Capitol Hill this week.
But for much of the year, Iraqi lawmakers balked at moving the legislation along. Frustrated Kurdish officials approved their own version of a regional petroleum law this summer. The Hunt deal is the first signed under that law.
The deal shows the new Kurdish law "has created a supportive and transparent business environment" for international oil companies, said Ashti Hawrami, Kurdish minister for natural resources, in a statement. Mr. Hawrami said that any eventual revenue from the deal will be shared with other Iraqi regions. Financial terms weren't disclosed.
That is consistent with current practices, in which revenue collected from the state-run oil-marketing agency is required to be sent to government coffers in Baghdad, and then incorporated in the federal government's overall accounts. (U.S. and Iraqi officials have alleged widespread smuggling and corruption across the industry.) The concession also keeps the Hunt deal consistent with the draft national legislation, should it be revived. That could help ease concerns of Baghdad officials.
Ray Hunt, chief executive of Hunt and the patriarch of the family's business interests — which span energy, real estate, private investment and ranching — said in a statement that he was pleased to be "participating in the establishment of the petroleum industry in the Kurdistan region of Iraq." He was traveling yesterday and unavailable to comment further, according to a Hunt spokeswoman.
The spokeswoman said Hunt determined that conditions were right to sign the deal, after the regional law was passed. "They have a new petroleum law which is transparent and which calls for immediate work in the region," she said in response to emailed questions. The Kurdish regional government "provided all of the necessary processes to begin work and we were ready to go."
Hunt's Foothold
It's unclear whether other big Western firms will feel as comfortable moving into Kurdistan. As a privately held company, Hunt doesn't have to answer to public shareholders and is nimbler than its larger competitors in the industry. But its foothold in Iraq may make other deals with big companies more likely, especially if officials in Baghdad's central government don't raise too much of a fuss about being bypassed this time around.
A Shell spokeswoman said her company would only consider working in Iraq when living and working conditions in the country improve. A BP spokesman said the company would consider it only when the security and political situation stabilizes.
Iraq's Oil Ministry has criticized a series of previous deals that Kurdish officials have signed with much smaller oil companies in recent years. But the ministry has stopped short of moving aggressively to force Kurdish officials to annul them. The government also has its hands full with more pressing concerns, including the establishment of basic security across the country.
A spokesman for the Oil Ministry in Baghdad said exploration contracts with foreign companies should be signed only after the adoption of a new national oil law. Without referring specifically to the Hunt contract, the spokesman characterized all deals concluded before the passage of the national law as lacking legitimacy.
An oil official close to Iraqi Oil Minister Hussain Al-Shahristani was more blunt: "Any contract signed by the Kurdistan regional government isn't valid until it is approved by the central government in Baghdad," adding that the government in Baghdad can't approve any contract until Parliament passes the oil law.
Mr. Maliki's government approved a draft national oil law earlier this year, and forwarded it to Parliament with great fanfare. At the time, the Bush administration touted the deal as a sign of political progress. But American officials have long underestimated the nationalistic fervor tied up with oil issues in Iraq. Many national politicians, Oil Ministry technocrats, labor unions and regional officials opposed the draft from the start. Kurdish officials, in particular, objected to provisions that limited their ability to cut deals on certain fields or prospects on their own and without oversight.
A spokeswoman for the White House declined to comment on the deal.
Kurdish officials and Hunt said a local subsidiary of the Texas company will begin geological survey and seismic work by the end of the year and plans to drill its first exploration well next year.
For Hunt, the deal means a long-term presence in Kurdistan exploring a virgin tract of land. But it doesn't mean quick new oil for either the company or thirsty global markets. First, Hunt has to find oil. Then, if initial tests and drilling show promise it could need to spend hundred of millions, if not billions, to build the infrastructure necessary to develop the field, a process that can take years — even for small discoveries.
In addition, past legal wrangling in Kurdistan has delayed promising projects by much smaller companies. DNO ASA, a Norwegian concern operating in Kurdistan, has drilled wells and pumped oil there, but it has so far failed to win an export license to sell its oil to world markets.
—Philip Shishkin in Baghdad and Hassan Hafidh in Amman, Jordan, contributed to this article.
source: p.A1 10sep2007
Earlier this month, the Kurdish Regional Government (KRG) in Iraq announced that it had signed a production-sharing deal with Texas-based Hunt Oil. The move is an indication that Western oil companies, frustrated over the delay in the passage of a national oil law by the Iraqi government, are moving to make deals with regional bodies to get access to Iraq’s vast oil reserves.
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Ray L Hunt |
As significant as the deal itself is the identity of the company involved. Ray Hunt, the CEO and president of privately held Hunt Oil, is a close confidant of President Bush and a prominent figure in the US political and intelligence establishment.
To what extent the policy of the Bush administration is motivating the deal—and to what extent it is motivated by purely profit interests—cannot be determined with precision. However, the announcement comes at a time of growing strains between the Iraqi national government, led by Prime Minister Nouri al-Maliki, and the Bush administration. Many commentators have noted that the moves by Kurdish authorities to establish autonomy in the control of the region’s oil resources could contribute to a fracturing of the Iraqi state along sectarian lines.
Husasain al-Shahristani, the Iraqi oil minister in the Maliki cabinet, denounced the agreement, saying, “Any oil deal has no standing as far as the government of Iraq is concerned. All these contracts have to be approved by the Federal Authority before they are legal. This [contract] was not presented for approval. It has no standing.”
The Wall Street Journal [above], in an article published on September 10, noted that the move by Hunt represents “a new willingness by some large Western companies to bypass the fractious government in Baghdad and deal directly with regional authorities in the war-torn country.”
The Journal went on to note that the contract with Hunt “is a watershed in the on-again, off-again scramble by Western companies to set up shop in Iraq.... Since the overthrow of Saddam Hussein ... there has been no legal framework for signing deals and ensuring they last beyond the current government.”
The passage of an oil law that would open up Iraq to US and other foreign oil companies has been one of the key aims of the US occupation and a principal “benchmark” set by the Bush administration and the US Congress for the Maliki government. All sections of the US political establishment are united in the demand that this law be passed.
Earlier this year, representatives of the different factions of the Iraqi elite—Shiite, Sunni, and Kurd—reached a temporary compromise. In July, Maliki’s cabinet agreed to a draft law that was sent to the Iraqi parliament.
While the bill is universally portrayed in the American media as a means of reconciling the different Iraqi factions, the main purpose of the legislation is to end the state monopoly on the development of oilfields and abrogate preexisting contracts with Chinese, Russian and French oil companies. The draft was drawn up under the close supervision of American advisors.
The compromise was hailed with much fanfare when it was reached, but it has not been passed in parliament, foundering on conflicts over the division of the spoils. The Kurds, in particular, have favored more regional control over oil, while the Sunni elite and sections of the Shiites want more centralized control. Most of Iraq’s oil is concentrated in the largely Kurdish north and the largely Shiite south.
In his televised speech on Thursday, Bush issued another warning to the Maliki government that it must pass the oil law. “The government has not met its own legislative benchmarks,” Bush said, “and in my meetings with Iraqi leaders, I have made it clear that they must.”
In August, the KRG moved ahead by passing its own oil law that accords with the interests of the Kurdish elite. It then signed the deal with Hunt Oil in early September. An article published in the New York Times on Thursday reported that the draft oil law had “collapsed,” in part due to the Hunt deal.
Prior to Hunt, the KRG had signed contracts with other companies, including DNO of Norway, Genel Ernerji of Turkey, Dana Gas of the UAE, and Western Oil Sands of Canada.
The large energy conglomerates have thus far remained on the sidelines, waiting for the passage of a national law that will secure their investments and provide a legal cover for their operations. While Hunt is not the equivalent of oil giants such as Exxon or British Petroleum, the deal is a qualitative development over the earlier, smaller agreements. It is the first of the sort since the KRG passed its own oil law.
The move clearly strengthens the hand of the Kurdish authorities in their ongoing dispute with the central government. In addition to the oil law, conflicts are escalating over a referendum that is supposed to be held later this year to determine whether the oil-rich city of Kirkuk will be incorporated into the KRG. The national government has so far stalled on preparing for the referendum.
In the eyes of Kurdish elite, control over Kirkuk, combined with access to a larger share of oil revenues, will provide the foundation for a future Kurdish state. The US has been hesitant to back these aspirations. While the Kurdish nationalist parties and militias have been important collaborators in the US occupation, a separate Kurdish state could well provoke a military intervention by US ally Turkey, which fears Kurdish separatist tendencies within its own borders.
Given Hunt’s connections, however, there is reason to believe that the deal was encouraged by the Bush administration—either as a means of pressuring the Maliki government or as a step toward supporting regionalism over the national government.
In an op-ed piece published Friday, New York Times columnist Paul Krugman reported that Ray Hunt “is a close political ally of Mr. Bush.” He continued, “More than that, Mr. Hunt is a member of the president’s Foreign Intelligence Advisory Board, a key oversight body.”
Krugman went on to note, “By putting his money into a deal with the Kurds, despite Baghdad’s disapproval, he’s essentially betting that the Iraqi government—which hasn’t met a single one of the major benchmarks Mr. Bush laid out in January—won’t get its act together.”
Hunt is also on the board of directors of Halliburton, the company formerly run by Vice President Dick Cheney. In 2000, Hunt was one of 241 Bush “pioneers”—meaning he raised more than $100,000 for the Bush presidential campaign. He was finance chairman for the Republican National Committee’s Victory 2000 Committee.
A report on the web site HalliburtonWatch.org from August 2004 notes that Hunt “serves as chairman of the board for the Federal Reserve Bank of Dallas and is a member of the National Petroleum Council, an industry trade group that advises the president on energy policy. Vice President Cheney also served as a member of the Council during his tenure as CEO for Halliburton.”
Hunt’s position on the Foreign Intelligence Advisory Board places him in close contact with the intelligence establishment in the US. In 2005, along with Hunt, Bush appointed 11 other members, including Lee Hamilton, vice chairman of the 9/11 Commission and former Democratic congressman; William DeWitt, a close Bush supporter who helped Bush make his millions in his dealings with Harken Energy and the Texas Rangers; Donald Evans, long-time Texas oil man, Bush supporter and former secretary of commerce; and Martin Faga, former director of the National Reconnaissance Office, which operates US spy satellites.
Another factor behind the Hunt deal is concern within the administration over the growing interest in Kurdish oil expressed by other foreign powers—including China and Iran. A January 2007 report by the BBC noted “an increasing foreign interest in the future of Kurdistan’s oil.” The article cited Jerry Kisler, a US oil expert who was advising the KRG, who said Iran’s activity had been particularly notable.
According to Kisler, “They [the Iranians] have their eyes on lots of cross-border fields. It’s a reality that’s hard for Americans to swallow.”
source: 6sep2007
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