Global Policy Forum

By Sylvia Pfeifer

BG Group, the British oil and gas explorer, could become the first major Western energy company to invest in Iraq. It is understood that representatives from BG recently visited the northern region of Iraq in a move to assess the opportunities. Despite the ongoing hostilities, Iraq has long been on the radar of the world's majors who are under pressure to replenish their oil and gas reserves. Iraq is not only blessed with the world's largest petroleum reserves after Saudi Arabia but much of it is simple to extract from the ground. BG is believed to be interested in any opportunities for gas exploration; the Kurdish-controlled north, which has escaped much of the violence of the south, is home to about a fifth of Iraq's total reserves.

Since 2003, there have been more than 380 attacks on Iraq's oil assets: pipelines blown up, terminals set on fire and key personnel killed. Although some of oil majors have privately identified areas in the country where they would like to explore, especially in the south, none have so far taken the plunge. Until now, only minnows, such as Norway's DNO, and Aim-listed companies Petrel Resources and Sterling Energy, have signed deals. DNO is the first western group drilling for oil after striking a deal with the Kurdistan regional authorities two years ago.

Iraq produces around 2m barrels a day, which is below the country's pre-2003 levels. Analysts believe output could hit between 5m and 6m barrels a day over the next two decades once new investment and infrastrucutre is in place. Aside from the violence, a significant barrier to western investment so far has been who controls the oil reserves. The Kurds insist that they should be allowed to strike their own deals. Iraq's cabinet finally approved a draft version of the petroleum legislation last month but although it allows the Kurdish authorities to agree their own deals, it fails to clarify how any revenues will be distributed A deal with BG would be seen as a coup for the Kurdish authorities. In a recent interview, Ashti Hawrami, the Kurdish regional government minister of natural resources, said he believed the region would have 10 new companies signed up by the end of this year, from small independents to large public companies.

Frank Chapman, the chief executive of BG, has made no secret of his desire to acquire more gas exploration assets. Unlike many of its industry rivals who are under pressure from falling production, the company has consistently managed to meet or even beat its production targets. Last month it reported that oil and gas output jumped 19 per cent last year, compared with a 4.2 per cent gain at ExxonMobil, and declines of 2.2 per cent and 1.3 per cent, respectively, at BP and Shell. BG declined to comment specifically on Iraq but said: "The company is looking at a number of opportunities across the Middle East."