JamaicaObserver.com OLIVIA LEIGH CAMPBELL, Observer staff reporter Tuesday, April 15, 2003

A file photo of drilling being done for oil. Jamaica is taking another go at oil exploration, with technical assistance from Ecuador and Venezuela.

TWO decades after its last serious search for petroleum, Jamaica is to take another stab at oil exploration and is to get technical help for the venture from Venezuela and Ecuador, Phillip Paulwell, the minister with responsibility for energy, confirmed yesterday.

"Having reviewed information dating over the past 20 years, we have decided that it is worth pursuing, based on our finding so far," Paulwell told the Observer. "Ecuador and Venezuela have offered technical support and guidance, and based on the advice given, the ministry will vigorously pursue exploration efforts using private sector investments." PAULWELL... we have decided that it is worth pursuing

He declined to name the private sector companies with which Jamaica is talking for this new round of oil probe which is likely to concentrate on areas off the island's south coast, although the minister did not give specific geographic location for the search.

Proposals are soon to be reviewed by the National Contracts Committee (NCC) and it was possible that activity could start during this fiscal year, Paulwell said.

In 1981/1982 a consortium of an American oil company, Union Texas, and the Italian state oil company, sunk an exploratory well in Pedro Banks, 50 miles off the island's south coast, which the Petroleum Corporation of Jamaica (PCJ) had divided into five blocs to be auctioned as concessions.

Although Jamaican officials at the time claimed that the Union Texas/Agip had been encouraged by their finding in their Arawak bloc, the consortium packed up without exercising its option over its second bloc, called Bonito.

PCJ itself, in the early 1980s, drilled three on-shore wells on the island's northwest coast in Westmoreland. These were declared to have shown promise, but not the likelihood of commercially exploitable deposits of oil.

Jamaica had financed its initial hydro-carbon mapping with funding and technical help from the Norwegian Government and Canada's PetroCanada. In the mid-1980s, the Norwegians financed further seismic and geological mapping in the west, north and eastern sections of Jamaica, but no further exploration took place.

"Many years ago, Jamaica conducted a tremendous amount of research but stopped, primarily because of the cost of doing such exploration," Paulwell said yesterday.

The minister's confirmation of the country's renewed interest in oil and gas exploration came on his return from trips last week to Venezuela and Ecuador to firm up agreements for oil supplies from these countries.

Jamaica, for more than 20 years, has been entitled to up to 16,000 barrels per day (bpd) from Venezuela under the San Jose Accord under which Venezuela and Mexico provide petroleum to a number of Caribbean and Central American countries on a preferential basis. Under San Jose, beneficiaries pay cash for 80 per cent of their supplies and have credit on the rest. But the deferred payments can be turned into long-term loans if the savings are invested in approved development projects.

Additionally, nearly two years ago Venezuela, on its own, extended the Caracas Oil Agreement to a number of regional countries providing additional supplies on terms similar to San Jose.

Jamaica is entitled to 7,400 bpd under the Caracas agreement, but there was apparently uncertainty between Jamaica and Venezuela whether there was an automatic annual roll-over of the agreement or whether it required new negotiations.

Paulwell said that the Caracas pact was an "evergreen" agreement which was automatically renewable annually.

Jamaica gets 60 per cent of its oil supply from Venezuela and last year when strikes aimed at ousting President Hugo Chavez shut down Venezuela's oil production for several months, Jamaica turned to Ecuador for supplies of 12,000 bpd.

Venezuelan oil shipments to Jamaica are to resume in June, coinciding with the re-opening of the 35,000 bpd Petrojam refinery, which is now closed for maintenance.

<a href=reuters.com>Reuters Mon April 14, 2003 03:05 PM ET

NEW YORK (Reuters) - Oil prices rose on Monday, weighing up the prospect of a return of Iraqi crude exports to the world market against possible supply curbs by OPEC to avert a potential price crash.

U.S. crude futures for May in New York rose 49 cents to $28.63 a barrel while benchmark Brent crude oil in London rose 25 cents to $25.00.

Oil prices have fallen about 30 percent from pre-war peaks near $40 as U.S. and British forces quickly secured a majority of Iraq's oil infrastructure in the south of the country and traders predicted a fairly swift end to hostilities.

But any resumption of Iraq's vital crude exports will be up to an interim authority in Baghdad in conjunction with the United Nations

Some analysts forecast that diplomatic wrangling will keep Iraqi barrels off the market for months, but a senior U.S. engineer said on Monday that Iraq's giant Kirkuk oilfields could start pumping within weeks.

The northern fields are capable of producing up to 900,000 barrels per day (bpd) of Iraq's pre-war production of roughly 2.5 million bpd.

"It's a definite possibility that could be just a few weeks away," said Tom Logsdon, a senior member of the U.S. Army Corps of Engineers charged with repairing Iraq's oilfields.

Logsdon said the southern oilfields, where output was up to 2.1 million bpd before the war began on March 20, could be up and running in less than three months.

"Depending how quickly workers come on line, we estimate we will have between 330,000 and 1,000,000 bpd being produced within 12 weeks from now," said Logsdon.

VENEZUELA SUPPORTS OPEC CUT

Iraq's crude could hit world markets just as demand wanes in the second quarter, a seasonal slump between winter demand for heating oil and the peak consumption of gasoline during summer.

Compounding the demand downturn, many commercial airlines have slashed routes due to the spread of the flu-like SARS virus around the globe.

At the same time, supplies from OPEC producers are running almost two million bpd above the group's self-imposed ceiling, to counter supply disruptions from Venezuela, Nigeria and Iraq.

"The industry is now facing the prospect of too much oil in the months ahead unless OPEC reins in some of its recent output increase," the London-based Center for Global Energy studies said in a report.

The Organisation of the Petroleum Exporting Countries is planning an emergency meeting later this month or in early May to discuss tightening compliance to current output quotas or even possible curbs to formal limits.

The International Energy Agency said last week that a big volume of OPEC crude was sitting on the water waiting to hit consumer shores, but warned that it would be imprudent for producers to cut supplies too soon as fuel stockpiles in industrialized nations remain well below normal levels.

Venezuelan President Hugo Chavez said on Friday that South America's biggest oil producer was ready to back any proposed OPEC supply cut to support prices in the group's target band of $22 to $28 a barrel for OPEC's reference basket of seven crudes.

OPEC's basket price stood at $25.40 on Thursday, compared with a monthly average of $31.54 in February.

Forbes.com Dan Ackman, 04.11.03, 8:57 AM ET

NEW YORK - The U.S. military capture of Iraq's northern cities of Kirkuk and Mosul and the nearby oil fields has ended doubts that Iraqi oil would flow and eased oil prices in international markets. While the fate of Iraq's shattered economy is very much in doubt, U.S.-led forces are at least in control of the nation's oil wealth, which the Bush Administration has said it will deliver to the Iraqi people.

The Iraqis will need it. While no one knows what the cost of rebuilding Iraq will be, some in the administration have placed it at $20 billion annually for years to come. That figure would nearly exhaust Iraq's entire oil export revenue, assuming it sells 2.5 million barrels a day (slightly more than estimated exports in recent years) into the international market at $25 per barrel.

The war news led the price of London Brent oil to fall 32 cents to $24.15 a barrel. U.S. light crude dipped 36 cents to $27.10. These prices are about 10% lower than when the shooting war started and are substantially less than the near $40-per-barrel levels reached during prewar spikes; oil is still selling for more than it has in recent years. Between 1999 and 2002, the world price for oil averaged $23.20, according to the U.S. Energy Information Administration.

Whether Iraq will be able to tap its oil to pay rebuilding costs is not at all clear. The country is estimated to owe something like $60 billion to $100 billion to foreign creditors, and Kuwait is still seeking even more than that figure in reparations relating to the 1990 invasion.

Some oil traders see prices falling further with the war over--but OPEC, of which Iraq is a founding member (if not a participant in its councils in recent years), has other plans. "With all the Iraqi oil facilities now in allies' hands, there seems to be no threat to medium- or long-term Iraqi supplies and the market is marking that down," John Waterlow, oil analyst at Wood Mackenzie in Edinburgh, Scotland, told Reuters. "I think there is more downside to the market."

But OPEC has said it wants to maintain prices at a minimum of $25 per barrel and may urge production cuts to do so. Such action would mean stopping the increased production it allowed before the war to ease fears or even new production quotas, OPEC President Abdullah al-Attiyah said yesterday.

But with Iraq on its way to rejoining the international community--meaning it can sell more oil--why haven't oil prices fallen fully back to their recent averages? After all, following the last Gulf War, oil prices fell sharply. But this post-war is different, says Tina Vital, Standard & Poor's oil and gas equity analyst, in a survey published yesterday. "Today's prices reflect more than war worries; they also reflect tight supplies." Even disregarding Iraq, supplies have been squeezed by disruptions in Venezuela and recently Nigeria. "By March 2003, U.S. oil inventories had reached a 27-year low of below 270 million barrels," Vital says.

Iraq can add to that supply, but how quickly and to whose benefit are open questions.

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By Reuters, 4/13/2003

SINGAPORE, April 14 (Reuters) - Oil prices opened the week one percent down on Monday, weighing up the prospect of a return of Iraqi crude exports to the world market against possible supply curbs by the OPEC cartel to avert a potential price crash.

U.S. light crude fell 29 cents to $27.85 a barrel.

Renewed downward pressure on oil prices came after weekend comments by a senior U.S. engineer that Iraq's giant Kirkuk oilfields could start pumping within weeks.

The northern fields are capable of producing up to 900,000 barrels per day (bpd) of Iraq's pre-war production of roughly 2.5 million bpd.

''It's a definite possibility that could be just a few weeks away,'' said Tom Logsdon, a senior member of the U.S. Army Corps of Engineers charged with repairing Iraq's oilfields.

Logsdon said the southern oilfields, where output was up to 2.1 million bpd before the war began on March 20, could be up and running in less than three months.

''Depending how quickly workers come on line, we estimate we will have between 330,000 and 1,000,000 bpd being produced within 12 weeks from now,'' said Logsdon.

Oil prices fell about 10 percent after the start of the war as U.S. and British forces quickly secured a majority of Iraq's oil infrastructure in the south of the country and traders predicted a fairly swift end to hostilities.

But any resumption of vital crude exports will be up to an interim authority in Baghdad in conjunction with the United Nations, where some analysts forecast that diplomatic wrangling will keep Iraqi barrels off the market for many months to come.

VENEZUELA SUPPORTS OPEC CUT

Iraq's crude could hit world markets just as demand is expected to wane by up to two million bpd. The second quarter sees a seasonal slump between winter demand for heating and the peak consumption of gasoline during summer vacations.

Compounding the demand downturn, many commercial airlines have slashed routes due to the spread of the flu-like SARS virus around the globe.

At the same time, supplies from OPEC producers are running almost two million bpd above the group's self-imposed ceiling, to counter supply disruptions from Venezuela, Nigeria and Iraq.

The Organisation of Petroleum Exporting Countries is planning an emergency meeting later this month or in early May to discuss tightening compliance to current output quotas or even possible curbs to formal limits.

''Higher prices, slower economic growth, warmer weather in the northern hemisphere and lower jet travel due to the SARS outbreak have all depressed the demand for oil,'' said David Thurtell, commodities strategist at Commonwealth Bank in Sydney.

''We expect that with oil prices heading lower, OPEC will try to be proactive in attempting to keep oil prices at, or above, $25 a barrel,'' Thurtell said in a research note.

Venezuelan President Hugo Chavez said on Friday that South America's biggest oil producer was ready to back any proposed OPEC supply cut to support prices in the group's target band of $22 to $28 a barrel for OPEC's reference basket of seven crudes.

OPEC's basket price stood at $25.40 on Thursday, compared with a monthly average of $31.54 in February.

''If we have to cut production by one million bpd, or 1.5 million bpd, or 1.8 million bpd, we would be ready to cut,'' Chavez told a news conference.

An anti-Chavez strike in December and January slashed crude output in Venezuela, usually OPEC's third biggest producer, from 3.1 million bpd to just 40,000 bpd at its low point.

Officials at state oil firm PDVSA said at the weekend that production had recovered to pre-strike levels at about 3.05 million bpd for crude output and 150,000 bpd of condensate production.

<a href=www.sfgate.com>SFGate.com Verne Kopytoff, Chronicle Staff Writer Sunday, April 13, 2003

WHO HAS THE OIL?

PRODUCTION Average daily oil production for 2002 in millions of barrels:

1. Saudi Arabia 7.62
2. Russia 7.41
3. United States 5.82
4. Iran 3.44
5. China 3.39
6. Mexico 3.17
7. Norway 2.99
8. Venezuela 2.60
9. United Kingdom 2.29
10. Canada 2.17
11. Nigeria 2.12
12. United Arab Emirates 2.08
13. Iraq 2.02

RESERVES Known crude oil reserves in 2002 in billions of barrels:

1. Saudi Arabia 259.2
2. Iraq 112.5
3. United Arab Emirates 97.8
4. Kuwait 94.0
5. Iran 89.7
6. Venezuela 77.7
7. Former Soviet Union 57.0
8. Libya 29.5
9. Mexico 26.9
10. China 24.0
11. Nigeria 24.0
12. United States 22.0

Source: U.S. Energy Information Administration / Source: American Petroleum Institute

Iraq's oil fields have emerged relatively unscathed after nearly a month of warfare, but the plan to revive the nation's most lucrative industry faces minor logistical problems and major diplomatic pressure.

U.S. leaders are confident they can get the fields up and running soon. The largest impediment to that effort is not in the desert, but in the theater of diplomacy where international leaders are expressing concerns over how the Iraqi riches will be managed, and by whom.

"Iraq's oil is a huge prize," said James Paul, executive director for Global Policy Forum, a New York organization that monitors the United Nations. "There's a tremendous interest from foreign oil companies to lay their hands on it."

At week's end, U.S.-led forces were occupying all of Iraq's major oil fields after capturing the important northern city of Kirkuk.

Iraq's oil industry has escaped the doomsday scenario many had feared before the invasion. U.S. officials worried about a repeat of the first Persian Gulf War in 1991, when Iraqis sabotaged nearly 750 wells in Kuwait.

"The situation is a lot better than had been expected," said John Lichtblau,

chairman of the Petroleum Industry Research Foundation in New York. "I think there's going to be every effort made to begin production and exports as soon as possible."

Before the war, fears that Iraq might set its oil fields ablaze -- in addition to an oil-worker strike in Venezuela -- sent crude prices skyrocketing to nearly $40 a barrel. Now the price for a barrel of oil has declined from $37.42 in mid-March to $28.25 on Friday.

Instead of an oil shortage, traders are now talking about a glut. Fears that Iraqi oil will soon flood the market has prompted members of the Organization of Petroleum Exporting Countries to discuss cutting their production -- after they had raised it in response to the war.

POST-WAR PRODUCTION

Vice President Dick Cheney said Wednesday that Iraq's oil production could surpass prewar levels of 2 million barrels a day and reach 3 million barrels a day within a year if given enough investment. Annual revenue could total as much as $20 billion, he said, which would go to rebuilding the war-damaged nation.

"The oil revenue is not to be diverted to any purpose other than specifically to service the immediate and, hopefully, long-term needs of the people of Iraq," Cheney said.

Iraq's oil is critical because it is expected to bankroll the nation's rebuilding. Plans to revive the industry are being watched closely, with many people suspicious that the United States is trying to gain undue control of Iraq's vast natural wealth.

Potentially, Iraq could become an oil powerhouse. It has the world's second- largest petroleum reserve, which was only modestly tapped under Saddam Hussein because of technological neglect and U.N. sanctions.

U.S. and British forces now control Iraq's southern oil fields, where 60 percent of the nation's crude is produced. In the north, soldiers are in the process of securing the other 40 percent.

The wells and pumping stations in the northern fields are largely intact. But Defense Secretary Donald Rumsfeld said that Iraqis may have rigged some of the equipment with explosives, as was the case in the southern part of the country.

During the initial days of the invasion, Iraqis sabotaged about a dozen wells in the southern Rumailah field. Only one of the resulting nine fires is still burning.

BUSH'S OIL PLAN

The Bush administration's plan for restarting the country's oil industry calls for setting up an interim authority to oversee production. The team will be made up primarily of Iraqis, Cheney emphasized, but will also include international advisers.

Philip Carroll, a former chief executive of Shell Oil Co. who went on to lead the construction giant Flour, will reportedly lead the interim oil authority.

Iraq's citizens are expected to regain control of its oil industry after a government is formed. Analysts believe that could take up to a year.

The Iraqi oil ministry will be advised by a group of Iraqis who are sponsored by the State Department. The members have met several times, most recently in London last weekend.

Dara Attar, an oil consultant from London who represents the Kurds in the advisory group, said members already agree on several key points. One is that foreign oil companies should be allowed into Iraq.

The firms could begin drilling new fields in perhaps three or four years, Attar said. They would share their proceeds with the Iraqi government in deals similar to those signed by other nations and foreign firms, he said.

"Our oil industry is ruined," Attar said. "We are going to try to raise our production, and for this purpose we need foreign help."

Chris Gidez, a spokesman for ChevronTexaco, the oil giant headquartered in San Ramon, said his company is always considering future opportunities, including Iraq. But he added that it's too soon to speculate about specific opportunities there.

One fear is that U.S. oil companies such as ChevronTexaco and ExxonMobil will have an advantage getting contracts because of the wartime role of the U. S. military. The French and Russians worry about being frozen out, though Attar said that will not be the case.

"It will be a fair process," he said.

Oil companies from France, Russia and China already hold contracts signed years ago under Saddam Hussein to open new fields in Iraq, but they have yet to begin pumping because of the U.N. sanctions. It's unclear whether the contracts will be honored by a new Iraqi government.

'POLITICAL FAVORS'

Attar said many of the contracts were granted "as political favors" and should be reviewed. However, the Russians in particular have said they will file suit if their deals are thrown out.

Another issue agreed on by the advisory group is that money from oil should be spent evenly throughout Iraq. Under Saddam Hussein, the money was handed out to favored regions and cities.

Currently, Iraq's southern oil field is being maintained by Halliburton, an oil services company from Texas formerly led by Vice President Cheney. The deal could be worth up to $7 billion over two years.

The contract has raised questions from some members of Congress, who criticize the fact that it was awarded without competitive bidding. The U.S. Army Corps of Engineers, which gave Halliburton the contract, said it did so for the sake of speed and because the firm had a previous contract to plan the rebuilding of Iraq's oil industry.

Analysts expect Iraq to begin exporting oil again within the next few months. But damage and outdated equipment is just one of the problems facing the nation's oil industry.

A diplomatic rift between the United States and other U.N. members has emerged over who can sell Iraq's oil in the near term.

QUEST FOR AUTHORITY

The United States clearly wants the authority. However, some of the other permanent members of the Security Council -- France, Russia, China and Britain -- may think otherwise.

The Security Council has oversight of Iraqi oil as part of its oil-for-food program. Proceeds from oil sales go into an escrow account controlled by the United Nations.

The system was imposed on Iraq in 1995, as a way to pay for that nation's food and medicine without it being diverted to buy weapons. It's still in place, even though Hussein's regime has fallen.

"The legalities will be addressed," White House spokesman Ari Fleischer said Friday. "It doesn't require necessarily an international stamp to engage in commercial transactions legally. The United States provides products around the world that the United Nations doesn't have to say we can do."

Paul, from the Global Policy Forum, said sanctions against Iraq will be lifted at some point. But he added that there would be opposition to oil money then flowing directly "into the pockets of the occupation authority."

Iraq already has 9.2 million barrels of oil in storage at Ceyhan, a Mediterranean port in Turkey. Loadings of Iraqi oil there stopped just before the war began.

Buyers were confused about the oil's ownership. Moreover, no one was answering the phone at Iraq's oil marketing company to consummate the deal.

If not for diplomatic issues, loadings could begin at Ceyhan at any time.

The United Nations has agreed to adjust orders of goods yet to be delivered through the oil-for-food program to better address the immediate needs of Iraq.

About $2.8 billion in cash remains in the program's escrow accounts.

E-mail Verne Kopytoff at vkopytoff@sfchronicle.com.