NOC Survey 2008: Iraq

04 July 2008
Restoring control of Iraqi oil to one national oil company could help revive the sector.

Iraq is unique among Middle East oil producers because it has no national oil company. This is a legacy of Saddam Hussein’s 1987 decision to disband the Iraq National Oil Company (Inoc) and devolve its responsibilities to four newly created firms: South Oil Company (SOC), North Oil Company (NOC), Iraq Drilling Company and Iraq Oil Exploration Company. A few service companies run by the Oil Ministry were also established.

CompanySouth Oil Company
North Oil Company
Iraq Drilling Company
Iraq Oil Exploration Company
Oil Reserves115 billion barrels
Oil Production 20072.1 million barrels a day*
Gas Reserves112 trillion cubic feet
Gas Production 2007Not available
*includes NGLs. Source: BP Statistical Review 2008

Prior to its dissolution, Inoc had made progress on exploration and capacity expansion. In the 1970s, the company earned a reputation for logistical and operational efficiency, ploughing on with field development work while the Baathist regime used its revenues to help fund military action.

The splitting up of the state oil company did little to revive Iraq’s oil sector in the subsequent 20 years, as starved of equipment, investment and then export markets, its reservoirs deteriorated and output fell. Today, Iraq’s 2.1 million b/d output is a shadow of the 6 million b/d it could sustainably produce under better circumstances.

All sides broadly agree that Inoc needs to be reassembled and remodelled as a modern NOC capable of steering the overhaul of Iraq’s underperforming oil and gas sector. Some, though, still see scope for three regional NOCs, covering the southern and northern fields, and the Kurdish provinces - an entity that already exists at the Kurdistan National Oil Corporation (Knoc).

Determining Inoc’s future role will be difficult. In March 2007, the country’s Petroleum Law envisaged the re-establishment of Inoc as a rejuvenated state company to operate Iraq’s 27 producing fields, implicitly including some of the partially developed fields that are now subject to technical support agreements with the world’s five largest oil majors.

The country’s petroleum legislation is in limbo as Iraq’s political factions attempt to reach agreement over who exactly controls its hydrocarbons.

A reconstituted Inoc is likely to have significantly curtailed powers. For example, some senior Iraqi ministers want to put an end to the company’s role of oversight over national oil production. The concern is that if Inoc is granted too much power, it will become a fiefdom of vested political or militia interests and fail to adequately meet its mandate of developing the oil sector in the broader national interest.

The Petroleum Law would grant the Oil Ministry and Supreme Oil Council the freedom to take control of long-term planning and strategy, leaving Inoc broadly responsible for operational activity.

Inoc would be responsible for the management of fields in production. New or undeveloped fields would be handed over to IOCs, although the likely contract model has yet to be determined.

Recent moves by Prime Minister Nouri al-Maliki suggest the government is attempting to wrest control of SOC away from the Shia militias that have emerged as key influences on the Basra-based oil company. The government has accused officials linked to the Basra-based Shia Islamist Fadhila party of siphoning off illicit earnings from oil-smuggling rackets.

The current stalemate has allowed the regions to set up their own oil companies. In Maysan governorate, a stronghold of anti-government Shia cleric Muqtada al-Sadr, a new offshoot of SOC known as Maysan Oil Company was set up earlier this year.

Reasserting central control - an essential precursor to a strong new NOC - is not easy, say experts. “The problem is that the Oil Ministry is weak,” says Thamer Uqaili, an Iraqi oil consultant at the Centre for Global Energy Studies. “The companies are almost fully independent and don’t need to refer back to the ministry to make decisions unless they need money that is outside their budget allocations.”

Reasserting control

The only way for the ministry to regain some authority may be to unify the disparate oil companies. “Contracting is very weak in the north and the south, and the only body that can do it is at the centre,” says Uqaili. “It is now very small and needs to be reactivated with much more authority.”

He says lenders would be comfortable arranging the required financing as to reach 3.5 million-b/d production, it would only need to rehabilitate already producing fields.

Inoc is unlikely to go down the Saudi Aramco route of seeking to retain 100 per cent control of national oil resources. The country’s lack of technical and managerial prowess, and its denuded capital base, will limit the com-pany’s room for manoeuvre. It will remain dependent on working with IOCs, which over time may yield much-prized technology transfer benefits.

If Inoc is able to take on a handful of development projects without IOCs, in conjunction with service companies, it may eventually pick up the project management and technical skills that a 21st century NOC needs to remain competitive with international firms.

But first it will need a clear and stable regulatory framework, agreed on by all political factions and devoid of the violence and instability that has scarred the country over the past five years. Creating this will be the difficult part.

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