US Companies Join Race on Iraqi Oil Bonanza

Published on
by
The New York Times

US Companies Join Race on Iraqi Oil Bonanza

by
Timothy Williams

Iraqi workers in an oil field in Amara. Many American companies are pursuing contracts worth billions of dollars to rebuild and expand Iraq's oil industry. (Essam al-Sudani/Agence France-Presse — Getty Images)

BAGHDAD - A wave of American companies have been arriving in Iraq in recent months to pursue what is expected to be a multibillion-dollar bonanza of projects to revive the country's stagnant petroleum industry, as Iraq seeks to establish itself as a rival to Saudi Arabia as the world's top oil producer.

Since the 2003 American-led invasion, nearly all of the biggest reconstruction projects in Iraq have been controlled by the United States. But many rebuilding contracts are expected to be awarded as soon as this month for drilling hundreds of new wells, repairing thousands of miles of pipeline and building several giant floating oil terminals in the Persian Gulf, and possibly a new port.

The contracts will be administered either directly by the Iraqi government or as part of Baghdad's oversight of international oil companies that have signed agreements during the past few months to develop the country's most promising oil fields.

There are misgivings, however, about Iraq's ability to adequately monitor contracts that could total $10 billion over the next five years. The concerns have been heightened by the prominent role expected to be played by American companies that have been criticized in the past by United States government auditors and inspectors for overcharging by hundreds of millions of dollars, performing shoddy work and failing to finish hundreds of crucial projects while under contract in Iraq.

Among the companies that have started sending workers and equipment to the country or have plans to are Halliburton, Baker Hughes, Weatherford International and Schlumberger, all Houston-based oil-services companies, and several construction and engineering giants, including KBR, Bechtel, Parsons, Fluor and Foster Wheeler.

Halliburton and its former subsidiary KBR, as well as Bechtel and Parsons, have been singled out for criticism by the Special Inspector General for Iraq Reconstruction for their previous work in Iraq.

The new contracts will put the companies into direct contact with an Iraqi government that has frequently acknowledged its own challenges in dealing with corruption and cronyism, and that has a lack of experienced managers, adequate enforcement and efficient auditing systems.

The companies deny intentional wrongdoing in their dealings in Iraq and say that their experience there and in other oil-producing countries in Central Asia gives them an advantage.

"KBR has historic experience on previous oil and gas production projects ranging from Azerbaijan to Kazakhstan," Heather Browne, KBR's director of corporate communications, wrote in an e-mail response to questions. "Our pursuit of additional contracts in the region is based on this experience in addition to KBR's work on Project RIO (Restore Iraq Oil)."

During a conference call with industry analysts in October, David J. Lesar, Halliburton's chief executive, said that he had visited Iraq and that the company was already doing a limited amount of work on oil wells there.

"I think you see everybody trying to establish a base there, and we're no exception," Mr. Lesar said. "Clearly, a great future there and one we will participate in - in a big way."

But others questioned the Iraqi government's capacity to police the companies. "These are for-profit concerns and they are trying to make as much money as they can," said Pratap Chatterjee, former executive director of an anticorruption group, CorpWatch, and author of a recent book about Halliburton. "What the Iraq government needs is a good system of transparency and accountability, and for someone who knows what they're doing to oversee the work. Otherwise, they are going to be taken for a ride."

During the past several months, Iraq has signed 10 production contracts with international oil companies as it tries to increase its oil output from a relatively static 2.4 million barrels a day to as much as 12 million barrels a day within six years. Officials said they hoped to drill at least 430 oil wells during the next two years.

The planned work will require new pipelines, including as many as three undersea lines, floating terminals, water treatment facilities, pump stations, oil storage tanks, power plants and possibly a new Persian Gulf port that might be needed to handle the increased oil exports.

There will also be a need for new housing, roads and schools, and workers will need to remove unexploded ordnance from oil fields and shipping lanes, transport massive oil rigs and use extraordinary amounts of concrete and steel to reinforce the wells.

While American oil companies have enjoyed only modest success in winning oil development deals in Iraq, the numerous contracts signed in recent months have created an enormous backlog of work that leaves Baghdad with limited alternatives to Halliburton and the other American companies that dominate the oil industry services sector.

"Iraq has little choice," said Joost R. Hiltermann, deputy program director for the Middle East and North Africa with the International Crisis Group, a nonprofit organization that aims to prevent deadly conflicts. "It is desperate to increase its revenues, almost all of which derive from the sale of oil. But the government has little capacity to monitor the many companies that will be involved in rehabilitating its ailing oil industry, or indeed its own operations. This is a recipe for massive corruption, but for Iraqi policy makers the cost will be worth it, given the expected massive returns."

Government officials maintain, however, that Iraq's system of checks and balances will help it avoid the mistakes made by the United States.

"There are procedures where if a company breaches a contract or makes errors, they will be blacklisted from working in Iraq," said Dr. Sabah A. Shibeeb al-Saidi, chief of the Ministry of Oil's legal and commercial department in the petroleum contracts and licensing directorate. "But if they are not blacklisted we will deal with them. We expect oil services companies to do many things in Iraq."

Neither Halliburton nor KBR is on the Iraqi government blacklist, and Mr. Saidi and other senior Iraqi government officials interviewed said they had never heard of either those companies or of other American ones that have become household names in the United States because of their work in Iraq.

Halliburton's former subsidiary, KBR, which was once run by former Vice President Dick Cheney, has won contracts worth more than $24 billion since the start of the war, giving it vast responsibility for reinvigorating Iraq's oil sector. Among many other criticisms of the company's performance in Iraq, Pentagon auditors found that KBR had overcharged the government by more than $200 million.

Duraid Adnan contributed reporting.

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