Iraq inches toward luring big oil investment

By Simon Webb - Analysis

DUBAI (Reuters) - Iraq is inching toward attracting the billions of dollars needed to revamp its oil sector but international oil companies are still not ready to commit the massive sums required.

Iraq has the world's third largest oil reserves, its reservoirs are among the cheapest anywhere to develop and the country is desperate for investment after years of sanctions and war.

The lure of Iraq is all the more powerful as big oil has limited access to the Middle East's lucrative oilfields, which are mostly off-limits to foreign investors.

An oil official said last year Iraq's oil sector could need as much as $75 billion (38 billion pounds).

U.S. officials say the main reason foreign oil majors have avoided Iraq is the lack of an oil law, not security concerns. Security has improved, although it is still a dangerous country.

"The crucial points are still security and the oil law," said Alex Munton, analyst at global consultancy Wood Mackenzie.

"The outside perception is that things have improved on security but it is still a concern. The issue of the oil law is throwing up more interesting questions. Is the federal government signalling it intends to proceed with oil development without a clear legal framework in place?"

Iraq's cabinet agreed a draft oil law a year ago but disputes with the Kurdistan regional government and objections from Shi'ite and Sunni Arab politicians have delayed it.

With the law bogged down, Iraq's oil ministry is looking for other ways to get foreign firms involved and bring in at least some of the investment and technology needed.

Over 70 companies responded to Iraq's request to sign up by Monday for a register to compete for future tenders for oil extraction and service contracts that it plans to announce in April. Iraq will announce the companies that have qualified next month.

The contracts on offer are likely to be for a set fee for two or three years to rehabilitate and expand facilities at already-producing fields, analysts and company executives say.

Iraq has not said what fields it will tender or on what terms, but the deals are seen as a stop-gap until the oil law is passed and will not provide the long-term involvement big oil companies crave.

SIGNING UP

Still, foreign giants BP, ConocoPhillips, Repsol and Royal Dutch Shell have said they met the deadline in advance, and others have said they would submit their paperwork. The contracts may not be what the oil firms want, but they have signed up to ensure they are in the game if and when deals for Iraq's giant oilfields are offered.

"Companies are signalling their readiness to be involved," said Mustafa Alani, senior consultant at Dubai-based think tank the Gulf Research Center. "It's the foot-in-the-door strategy. They are involved but they are not committed. And until security and the legal issue are completely clarified, they won't commit."