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imperialism & war

It's All About French Oil, TotalFina Elf

Thierry Desmarest, chief executive of the French oil giant Total, who has said that "we will fight" to participate in the reconstruction of Iraq's oil, argues that he also holds the trump cards of technical expertise and recent, extensive geological surveys.
Kirkuk is rich in symbolism but its wealth is failing
By Bronwen Maddox, Foreign Editor
Times Online

KIRKUK is under American control; the scramble to control Iraq's oldest and biggest oil fields now begins. But although to the Kurds of the region that buried treasure stands for their dreams of an independent state, the prize is not what it seems.

From under-investment, clumsy development and from sheer age, Kirkuk's oil wealth is drying up. Of course, it is still a prize worth coveting. But the Kirkuk fields need to soak up billions of dollars quickly if they are not to plunge into steep decline.

The huge Kirkuk field was discovered in 1927. Britain, France, the Netherlands and, later, the United States joined to form the Iraq Petroleum Company and signed a pact the following year to exploit its reserves.

Last year Kirkuk was producing about 800,000 barrels a day, roughly the same as the Rumaila field in the south; together they were producing more than two thirds of Iraq's entire output.

But the flow of oil from Kirkuk has been slipping down towards 700,000 barrels a day, from 900,000 a couple of years ago. The pressure is falling, and the water and sulphur content are rising.

Analysts say that is because the field has been pushed to deliver the maximum possible output while, under the United Nations sanctions regime, being deprived of the sophisticated technology for repair and development it needed.

Just before the outbreak of war, Iraq had installed treatment equipment at Kirkuk which appeared to be coaxing another 80,000 barrels a day out of the field. But although Iraq is poorly surveyed overall, industry analysts estimate that Kirkuk may now have only 10 per cent of its oil left.

For all the resonance of the name within Iraq — its symbolism as the birthplace of Iraq's oil industry — Kirkuk is something of a tarnished jewel.

The predicament of TotalFinaElf

AS THE exultant talk on Capitol Hill would have it, the US should not allow French companies a single molecule of a contract in the reconstruction of Iraq. But even if the Bush Administration shared that view — and it is certainly that way inclined — it may not be simple to shut out those with a foothold already.

In the contracts signed by Saddam's regime to develop the country's oil, French and Russian companies predominate. This is an old allegiance; in the past 30 years they succeeded in edging out British and US companies as Paris and Moscow strengthened their ties with Baghdad. Of all those contracts, the largest is the one Baghdad agreed with TotalFinaElf of France to develop the Bin Umar and Majnoon oil fields in the south.

The commercial terms have never been disclosed but industry analysts reckon that Majnoon contains reserves of 20 billion barrels; it would consume $4 billion (£2.6 billion) to develop but would have a capacity of 600,000 barrels a day. Bin Umar's six billion barrels of reserves are thought to need $3.4 billion in development cash, and to be capable of yielding 440,000 barrels a day.

Total can certainly claim a history in Iraq; its predecessor, Compagnie Française des Pétroles, took part in the 1927 discovery of Kirkuk reserves. But its recent experience may prove its most valuable card in arguing for a share of the Iraqi bonanza against any attempt to declare Saddam-era contracts void. Total has certainly made clear that it will mount a ferocious legal challenge to any such move. The expense of that contest might give any rival pause for thought.

Thierry Desmarest, Total's chief executive, who has said that "we will fight" to participate in the reconstruction of Iraq's oil, argues that he also holds the trump cards of technical expertise and recent, extensive geological surveys.

Negotiations between Baghdad and Total and Elf Acquitaine, then separate companies, to develop the southern Iraqi fields began in the early 1990s, and Baghdad described them as "advanced" by 1992. The geological work alone could take years for any new contract holder to reproduce.

It is rare that any oil company develops a large field entirely on its own, certainly not one the size of Majnoon. Whatever the name at the top of the contract, below is a cascade of subcontractors to share the work.

Even if new contracts are eventually written by an American-friendly government in Baghdad, and anti-French sentiment plays a part in keeping Total out of the leading role, it would be astonishing if it did not get a slice of the action in some form, given the attraction of its expertise and the threat of years of legal action.

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