Yes Naomi

This really does take the biscuit. Naomi Klein\’s not normally all that clued up, agreed, but she rarely actually undermines her own argument in the same piece.

Firstly, there\’s this:

It started with no-bid service contracts announced for Exxon Mobil, Chevron, Shell, BP and Total (they have yet to be signed but are still on course). Paying multinationals for their technical expertise is not unusual in itself. What is odd is that such contracts almost invariably go to oil service companies – not to the oil majors, whose work is exploring, producing and owning carbon wealth.

Any of our resident oil industry experts want to take that on?

But then there\’s this:

One week after the no-bid service deals were announced, the world caught its first glimpse of the real prize. After years of backroom arm-twisting, Iraq is officially flinging open six of its major oilfields, accounting for half of its known reserves, to foreign investors. According to Iraq\’s oil minister, the long-term contracts will be signed within a year. While ostensibly under the control of the Iraq National Oil Company, foreign corporations will keep 75% of the value of the contracts, leaving just 25% for their Iraqi partners.

That kind of ratio is unheard of in oil-rich Arab and Persian states, where achieving majority national control over oil was the defining victory of anti-colonial struggles. According to Greg Muttitt, a London-based oil expert, the assumption up until now was that foreign multinationals would be brought in to develop new fields in Iraq – not to take over those which are already in production and therefore require minimal technical support. "The policy was always to allocate these fields to the Iraq National Oil Company," he told me. "This is a total reversal of that policy, giving the Iraq National Oil Company a mere 25% instead of the planned 100%."

So what makes such lousy deals possible in Iraq, which has already suffered so much? Paradoxically, it is Iraq\’s suffering – its never-ending crisis – that is the rationale for an arrangement that threatens to drain Iraq\’s treasury of its main revenue source. The logic goes like this: Iraq\’s oil industry needs foreign expertise because years of punishing sanctions starved it of new technology, while the invasion and continuing violence degraded it further. And Iraq needs to start producing more oil urgently. Why? Also because of the war. The country is shattered and the billions handed out in no-bid contracts to western firms have failed to rebuild it.

And that\’s where the new contracts come in: they will raise more money, but Iraq has become such a treacherous place that the oil majors must be induced to take the risk of investing.

So a system of contracting out the running of oilfields which will raise more money (as she says) is in fact pillaging?

That doesn\’t even make sense in and of itself, let alone her analysis of the wider issues.

Effectively what the Iraqi contracts are doing is allowing the private sector oil companies to invest, find, drill, pump up, transport and sell the oil: while paying whacking great royalties to the Iraqi government for the privilege of doing so.

The system is such a terrible rip off, such a disastrous deal, that it\’s exactly the system that we use in the North Sea and the same system that the US uses in that country. Indeed, it\’s the same system used in Ms. Klein\’s native Canada.

So why is everyone complaining about it?

 

8 thoughts on “Yes Naomi”

  1. Is this a lousy deal? It might be – does any body know what percentage royalty constitutes a competitive return in this context?

  2. What is odd is that such contracts almost invariably go to oil service companies – not to the oil majors,

    Naomi Klein is cheerleading for Halliburton. Well I never 😉

  3. 75% of the value is very high in today’s market, but is there upfront payments, or other restrictions that lead to this?

  4. @ Tim – I’m not one of the resident oil experts, but the business press also highlighted that it was unusual for oil majors to bid for this kind of service contract, and that it seemed likely that they were doing it in the hope of winning the concession.

    @ Serf – I think Klein’s conflating separate things here – the oil majors will be awarded contracts covering 75% of Iraq’s oil production, with the state oilco taking 25%; I don’t think there’s yet any word on the royalty share between producers and the government.

    @ Cleanthes – I’m assuming the investment risk is in having the installation blown up and your managers shot?

    More generally – I agree that there’s absolutely no sane reason why this model should be considered acceptable in the UK, US and Canada but not abroad…

  5. “but Iraq has become such a treacherous place that the oil majors must be induced to take the risk of investing.”

    But that contradicts her assertion above that

    “the assumption up until now was that foreign multinationals would be brought in to develop new fields in Iraq – not to take over those which are already in production and therefore require minimal technical support. “

    If they require such minimal technical support, where’s the investment risk?

  6. Any of our resident oil industry experts want to take that on?

    I’ll have a go. All the supermajors take a minority share in an oilfield in order to provide technical expertise, management expertise, and capital. Most of the ADNOC (Abu Dhabi National Oil Company) subsidiary companies had at least one supermajor as a minority stakeholder on board for this purpose. They don’t normally bid for an out-and-out service contract, as opposed to a minority stake, but everyone has been saying this is the direction the supermajors will start to take as they get shut out of the major oilfields by governments inclined towards resource nationalism. Expect this to be repeated elsewhere. They are simply doing what they’ve always done, using a different method.

    You’ve covered the rest pretty well. Note how Klein doesn’t mention the effects of the Iran-Iraq War or the Gulf War on Iraq’s oil infrastructure, instead only mentioning the Iraq War and the sanctions. It was in the former two which most of the damage was done, from which Iraq never recovered.

    And this:

    the assumption up until now was that foreign multinationals would be brought in to develop new fields in Iraq – not to take over those which are already in production and therefore require minimal technical support.

    is proof she knows nothing about oil field developments. Fields already in production need huge amounts of technical support, unsually in order to maintain production rates and prolong reservoir life. These can involve gas reinjection projects of billions of dollars, a lucrative business for dozens of brownfield service companies.

  7. The draft Iraqi Oil law has royalty set at 12.5%. Not sure if this is high or low, but the royalty in Alberta ranges from 5% to 50%. Guess this is another one for the resident oil expert.

  8. BlacquesJacquesShellacques

    Naomi Klein may have been born in Canada, but it was in Montreal.

    Most Montrealers are francophone leftoids, and loathe the oil industry, which is centred in Alberta, 4000 km distant. The Canadian oil industry is Anglo, right, has lots of eeevil Americans working in it, successful and has given Alberta the population and financial clout to tell Montreal (and Toronto) to drop dead. Of course the woman hates the oil industry – she just cannot decide which segment she hates the most on any given day.

    London is only 2500 km from Moscow. What would you think if I suggested a born Brit should by reason of that birth understand the Russian oil business?

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