the Disillusioned kid: Making a Killing, Part 2.
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Friday, April 15, 2005

Making a Killing, Part 2.

I've been looking for information on British companies operating in Iraq for sometime now with little success. Weirdly enough the one day I decided to purchase the Financial Times rather than my usual paper (the Graudniad) was the day they decided to focus on that very topic. The paper had three articles on the matter. One looking at oil companies investing in the country; another, shorter piece looking at the role of construction companies; and a piece of less immediate interest on the emergence of Iraq's oil industry in the early-20th Century.

On the reconstruction contracts front, construction group Amec "became the only British firm to win one of the 19 so-called prime contracts to manage $18.4bn (£9.7bn) to reconstruct Iraq." However, their "subsequent 50 per cent share of a $500m contract alongside Fluor, the US contractor, to rebuild parts of Iraq's power network, has looked less appealing." They are "mainly working in the south of Iraq, which falls under British military control, but has admitted that security conditions have hampered progress."

Other construction companies have understanably been wary about investing in the country. "Costain has won three smaller contracts in Iraqi Kurdistan but the north of the country is largely peaceful. " On this basis it sounds like things aren't going so well for British companies, but don't worry, it isn't all bad:
Success for UK companies, in terms of scale of contracts and personnel deployed, has come in the private security industry, which is experiencing an unprecedented and possibly unrepeatable boom in Iraq. Ironically, the costs of providing security and insurance cover have drastically curtailed operating margins for companies, such as Amec, which are trying to do business in the country.
The FT, being good capitalists, have only made the longer piece on the oil industry available to paid-up subscribers. For those of you that don't have a subscription and missed the paper yesterday I'll try and draw out some of the salient facts.

Royal Dutch/Shell have a chairman for Iraq, Wolfgang Strobl who is based in Dubai and hasn't set foot in the country since 2002. Shell are working with BP to carry out technical studies of the large Rumaila and Kirkuk fields "for Iraq's oil ministry but neither has any people on the ground."

The FT is honest enought to concede that "all the big international oil companies do want access to Iraq's 115bn barrels of proven reserves with some estimating that twice that is waiting to be developed." Not that the invasion had anything to do with any of this, you understand. That said the security situation has made the oil majors cautious which, according to Mr Horgan (who doesn't seem to have a first name) from Ireland-based firm Petrel, "opens the door for entrepreneurs and all the animal spirit"; those, like his firm, who "are prepared to do irrational things." In case anybody has any illusions about oil-men doing any of this out of concern for Iraq and its people, Horgan admits, "We want to be in the next edition of The Prize [Dan Yergin's influential history of the global oil industry]."

That said, Petrel don't actually seem to have been all the succesful. They've lost out on two bids. One for the Khurmala Dome field in the north of Iraq was won by a Kurdish-led group, while another went to a group led by Canadian firm OGI (which Justin Podur blogged about at the time), although Hogan has yet to receive official notification that he has lost out. These decisions have led Hogan to bemoan the opacity of the bidding process for oil service tenders. "Another executive with Iraqi interests" goes further: "The procurement guy may just be checking price or there may be corruption... You can be sure that someone will will open up and look at your bid. And there are always political shenanigans in the shadows." Mahdi Sajjad, an Iraqi-born international business development director for Gulfsands, suggests, "People are not trying to be obstructive but there is no real experience in how to deal with international companies." Something I'm sure they wouldn't dream of exploiting.

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