Texas oil industry set to profit from Iraq war

dallas.bizjournals.com 11:00 PM CST Thursday  William Hoffman   Staff Writer

Texas oil and gas companies are well-positioned to benefit from the rebuilding of Iraq's multibillion-dollar oil industry, experts say

GREATER METROPLEX — The Texas oil industry will be a big winner of a quick end to the regime of Saddam Hussein, industry observers agree.

"Texas is probably in the best position of any area, probably in the world, that can benefit from this," said Mark Baxter, director of the Maguire Energy Institute of the Cox School of Business at Southern Methodist University in Dallas.

John Gerdes, senior vice president and director of energy research at Dallas-based Southwest Securities Inc., said Texas oil and gas companies are already lining up for hundreds of millions of dollars in contracts to put out Iraqi oil well fires and rebuild the country's oil industry.

Baxter said he tried to arrange a visit to Iraq about three weeks ago with a group from Dallas and, "even with my contacts, 'mum' was the word of the day" on contract bids and negotiations.

Baxter said he's read that Houston-based Halliburton, Aliso Viejo, Calif.-based Fluor Corp. and San Francisco-based Bechtel Group Inc. have been asked by the U.S. government to bid on reconstruction of Iraq's oil industry.

He suspects that non-disclosure agreements contractors signed with the government and uncertainty over the scale of work — war damage could be near zero or near total — helps keep speculation about business deals to a minimum.

It's safe to say, however, that reconstruction of Iraq's oil industry will be a massive undertaking.

Iraq is home to the world's second-largest proven oil reserves, with 112.5 billion barrels, Baxter noted. Saudi Arabia ranks first with 261.7 billion barrels.

The job will require billions of dollars in capital and technology, not only to repair war damage but to modernize an industry barred from new technologies for a generation.

Baxter said that while other countries can provide some capital, U.S. companies hold important licenses on technologies needed to modernize Iraq's oil industry.

A March 18 New York Times article said the Bush administration planned to let the lion's share of reconstruction contracts to American corporations, with foreign companies participating only as subcontractors.

Baxter doubted that was possible. "It's so big, I can't sit here and tell you that American companies can fully develop (Iraq's oil industry) the way it needs to be developed," he said. "It's going to take a lot of players."

Baxter and Gerdes both noted that a post-Saddam Hussein Iraq would likely end its state monopoly on the oil industry and begin granting concessions to foreign operators for a more direct and profitable role in the business.

While behind-the-scenes activity may be intense, Metroplex oil and gas companies seem to be putting a business-as-usual face on their response to the crisis.

"We're always producing all-out," said Exxon Mobil Corp. spokesman Tom Cirigliano in Irving, "so there isn't much of a need for making adjustments there."

He said the company takes no position on the Iraq situation, but has beefed up security to deal with potential terrorist activity.

Exxon Mobil is active in oil and gas development in practically every country in the world, according to Baxter.

Cirigliano said Exxon Mobil is confident it can meet customer demand for its gasoline, oil and petrochemical products during the crisis.

Governments in the Persian Gulf have pledged to keep shipping lanes clear, he noted, and Saudi Arabia has said it can ship product by way of the Red Sea if necessary.

Dallas-based Hunt Oil Co.'s Jim Oberwetter, vice president for public affairs, acknowledged the company had suspended drilling in Yemen after a March 18 shooting aboard a drilling rig there killed a Hunt supervisor.

However, Oberwetter added, "production from Yemen continues in an uninterrupted manner. It is performing normally. We are producing as we have in the past."

Drilling operations will resume in the near future, he said.

Oberwetter declined to discuss Hunt Oil security, personnel movements or the company's future in Iraq.

In the pipeline

Halliburton, which employs 1,500 people in the Metroplex, including 1,100 at an oil-field products facility in Carrollton, was also mum on its participation in post-war Iraq.

The Times' March 18 article reported Halliburton subsidiary Kellogg Brown & Root had been asked to bid on contracts. Halliburton spokeswoman Wendy Hall, in Houston, directed contract inquiries to the U.S. Agency for International Development in Washington, D.C.

Ellen Yount, press director at U.S. AID, said no contracts had yet been awarded to Metroplex-area companies for reconstruction in Iraq.

Phillip Feiner, general counsel at BDS International L.L.C. in Dallas, said since the natural-gas drilling and exploration company had most of its assets in Colorado, and none outside the United States, it expected no direct impact from a war.

Nevertheless, Feiner said BDS has increased security in response to the crisis. "We want to see as minimal impact from a potential war as possible," he said, "because we all suffer as a society."

Gerdes said, "There's not much these companies can do," to manage the impact of the Iraq crisis on their businesses.

Iraq is a significant contributor to the rising price of crude, he said, but an oil strike in Venezuela, frigid winter weather and the industry's low excess production capacity to deal with demand spikes all help create a bullish oil market.

Gerdes said he expected oil prices to surge at the start of hostilities. But if the conflict ends quickly, he said, crude could drop from its March 19 price of $29.88 to $29 a barrel in the second quarter, before settling at an average $26 a barrel by the third quarter.

Baxter estimated Iraq would be able to deliver 3 million to 4 million barrels of oil a day to world markets if war damage to the industry is light. Current production is about 2.8 million barrels a day, he said.

Gerdes estimated the recovered industry could generate $10 billion to $20 billion a year for a new government.

"We are not going to war to pilfer the resources of a sovereign nation," Baxter said. "That's not in the cards. I don't even think that can happen. ... I still like to believe we're the good guys in this."

Contact DBJ writer William Hoffman at bhoffman@bizjournals.com or (214) 706-7123.