Oil exploration in Iraq still a pipe dream for Western companies 
	By Brad Foss, Associated Press, 4/30/2003 16:42

	Now that Iraqi oil wells are pumping again and the industry 
is being rehabilitated after years of decay, there is little doubt 
the country's production will approach its peak of about 3.5 
million barrels a day in just three years. 
	While this will give an important lift to the Iraqi economy 
and supplement world supplies, international petroleum companies 
are more interested in what happens after that. Iraq has the 
potential to produce as much as 6 million barrels of oil a day, 
experts say, but reaching that level will require tens of billions 
of dollars and the most sophisticated drilling technology. That is 
where Exxon Mobil, Royal Dutch/Shell, ChevronTexaco and others 
hope to step in. 
''The undeveloped oil fields are really outside the limelight, but 
this is where the money is,'' said Fadel Gheit, an analyst at 
Fahnestock & Co. in New York. 
However, many political, legal and economic uncertainties stand 
between foreign oil giants and the world's second-largest proven 
reserves. 
	For example: Who will rule Iraq after the interim authority 
is gone, and how open will those leaders be to outside investors? 
Also, how will Iraq react to pressure from OPEC members fearful of 
losing market share and profits to Iraq? 
	Given these knotty issues and others, industry experts do 
not expect outsiders to secure oil-drilling contracts in Iraq 
anytime soon if ever. 
''It is not a given that you're going to get this surge of oil out 
of Iraq,'' said Jim Placke, a senior associate at the Washington 
office of Cambridge Energy Research Associates, which is advising 
major oil companies about postwar investment opportunities. Adds 
L. Bruce Lanni, an oil industry analyst at the brokerage A.G. 
Edwards in New York: ''I still think it's a pipe dream.'' 
	The holy grail for oil giants would be if they could arrange 
production-sharing agreements with the 
Iraqi government a common practice around the world but one that 
has been met with wariness in the Middle East. Neither Saudi 
Arabia nor Kuwait allows for production-sharing agreements, 
eschewing any semblance of Western exploitation or economic 
colonialism. 
	A typical production-sharing agreement puts the upfront 
financial risk the costs of gathering data and conducting 
exploratory drilling on the backs of the oil companies. Then, if 
oil is found, the company and the government controlling the 
natural resource work out a deal to share the revenue from oil 
sales. 
Lee Raymond, the chairman of Exxon Mobil, recently told an 
assembly of investors: ''I think we would apply the same criteria 
as we do everywhere in the world and that is you have to have 
confidence in the political system, the legal system and in the 
tax system before companies would show up to make major 
investments in the country.'' 
	Expatriate Iraqis who held senior positions in the country's 
oil sector before Saddam Hussein came to power are consulting with 
major oil companies in the event that the new regime does seek 
foreign investment. But there is no telling how much power these 
West-leaning technocrats will be given in the Iraqi oil ministry. 
Many of them are keeping a low profile lest they be seen as 
too conciliatory toward outside interests. 
	Interests that conflict with those of Western oil companies 
will surface, analysts said; it's just a matter of when and to 
what degree: 
Iraq will face pressure from the Organization of Petroleum 
Exporting Countries if it seeks to increase production beyond 
historical levels because, as its output grows, other nations 
might be forced to curb production and lose market share. Iraq, a 
founding member of OPEC, could easily be persuaded that pumping 
too much oil would cause prices to fall, hurting everyone's 
profitability. Conversely, it could decide to abandon the oil 
cartel. 
	Also, Iraq's new leadership might project a strong sense of 
nationalism or anti-Americanism and favor tight control over its 
natural resources. ''They might say 'We can do it by ourselves,''' 
said Robert Ebel, director of the energy program at the Center for 
Strategic and International Studies 
in Washington. 
''The experience of Kuwait after 1991 should temper expectations 
of a windfall,'' concludes the report by the Council on Foreign 
Relations and James A. Baker III Institute. ''After hiring Western 
firms to put out its oil-field fires and repair surface 
facilities, Kuwait's parliament has routinely 
voted against contracting with foreign firms for oil-field 
development ...'' 
Notwithstanding the long-term uncertainty surrounding the 
development of Iraq's petroleum reserves, there is certainly money 
to be made right now by fixing up the country's dilapidated oil 
infrastructure. 
	Bechtel, a San Francisco-based engineering firm, and 
Halliburton, a Dallas-based oil field services company, 
already won massive contracts to help rebuild Iraq, although 
much of the work will be outsourced to smaller companies. 
The work, expected to generate billions of dollars in 
revenue over several years, includes: repairing well heads, 
restarting wells that were shut down 
during the fighting and rehabilitating pipelines, power plants and 
petroleum refineries.