VOL. XLVI

No 50

15-December-2003

Iraq Oil Development Policy Options: In Search Of Balance

By Tariq Shafiq

The following article was written for MEES by Tariq Shafiq, a petroleum engineer who was Vice President and Executive Director of the Iraq National Oil Company (INOC). Recently he was the leading researcher and coordinator for a Petrolog & Associates study on Iraq’s exploration and production capacity, in a joint venture with the Centre for Global Energy Studies (CGES).

1.0 Introduction

Iraq may prove to have one of the greatest endowed petroleum resource bases in the world, with oil potential reserves in excess of 215bn barrels and ultimate proven reserves in the region of 140bn barrels. Moreover, its finding and development costs are low – amongst the lowest in the Middle East. However, its historical maximum production rate in any one year has not exceeded 3.5mn b/d, although its exploration and development history has stretched over five decades. The traditional slow-go approach of the Iraq Petroleum Company (IPC) and associated companies, their ability to shift their activities where it best served their interests and to strengthen their negotiating power, together with Iraq’s politically driven decision-making and confrontational policy, as well as years of sanctions and unnecessary and destructive wars, have proven to be serious impediments to the development of Iraq’s oil industry.

Today, its production facilities are either dilapidated or war-torn to the extent that last September its production rate sank to around 1mn b/d, from a pre-war level of some 2.5mn b/d. Hence, production capacity restoration to 2.5mn b/d and rehabilitation to 3.5mn b/d are priorities.

However, future exploration and capacity expansion require much time and homework to allow the preparation of a hydrocarbon law and the administrative and managerial organization that can cope with an accelerated production capacity expansion. This expansion would only be limited by market conditions and consumers’ outlook, as Iraq’s present proven reserves, as shown in this paper, can support a production rate of 10mn b/d.

The reserves are so fundamental to future planning that, for this reason, a review of past estimates was carried out. The results confirm the credibility of the figures cited here. The finding costs estimated for the three main areas ranged from 0.1 cent/B in the south to 5.6 cent/B and 0.4 cent/B with a volumetric average of 0.26 cent/B. Development costs ranged from $750 per b/d in Kirkuk and the surrounding areas, to $1,570 per b/d in the south and around Zubair and Rumaila, and $3,130 per b/d for the smaller fields in the north-west, with an average of $1,040 per b/d.

An examination was then carried out of the achievements, merits, demerits and impediments in each regime during the concessions and national exploration and development eras.

The scene was then set in order to be able to plan and cost the restoration phase to a pre-war level of 2.5mn b/d and the rehabilitation phase of producing fields to the pre-Gulf war and sanctions level of 3.5mn b/d. And finally, to consider the guiding policy and plans required in order to proceed with efficiency, transparency and accountability, taking into consideration the changes needed by way of administration and management organizations, and capital and technical requirements.

2.0 Oil Reserves And Cost Of Finding And Development

Much has been published and debated in oil conferences and publications about Iraq’s oil reserves, but little evidence has been sufficiently given to back up the credibility of either a present proven reserve figure for Iraq of some 112bn barrels, and particularly its additional future potential of 215bn barrels, or its low finding and development costs. This has given rise to speculation about possibly exaggerated figures from some quarters and cynicism from others.

Hence, since the size of oil reserves and their finding and development costs are so fundamental to the conclusions and guiding policy and plans advanced in this paper, I will go into some detail to establish their credibility.

2.1 Proven And Potential Oil Reserves

• In 1966, the Iraq National Oil Company (INOC) carried out a study of potential oil reserves covering an area of approximately 215,000 sq km south of the horizontal line at the center of the country and to the south, but excluding the major producing fields of Rumaila and Zubair. The information and data were derived from the records of IPC and its associated companies (BPC and MPC). A total of 301 anomalies were identified, mainly by gravity and some seismic surveys. Of these, only 135 anomalies were considered sufficiently credible. Aided by their geological settings and by probability analysis, the oil-in-place of the Tertiary and Cretaceous age was estimated at 350bn barrels and potential recoverable oil reserves at 111bn barrels.
   

• In 1994, I presented a paper at a geological oil conference in ΄Amman, Jordan, and developed it further a few years later for an oil conference at the Centre for Global Energy Studies, in London (CGES). I utilized an empirical relationship, which relates the discovered oil in a geological basin to the exploration effort along a time-scale. It demonstrates that exploration effectiveness starts low at the initial phase, then picks up sharply and grows almost linearly until the bulk of the reserves are discovered, when it slows down as the ultimate reserves of the basin are reached.
  
  In Iraq, there are some 530 structural anomalies that have been identified by geophysical means. Of these, only 114 have been drilled and, by 1994, oil was established in 73 structural anomalies. I estimated the total ultimate oil reserves housed in these 73 enclosures to be in the order of 144bn barrels, which is in conformity with published data and the experience of Iraqi experts. With the use of size distribution and varying success ratios, the potential oil reserve was estimated to be in the order of 280bn barrels to 360bn barrels, housed in 143 to 183 structural anomalies.
  
  In a further joint study with CGES on Iraq published in 1997 (Oil Production in the Gulf Volume IV), the Petrolog and Associates team – involving myself and others amongst the most experienced petroleum engineers and geologists – carried out an extensive analysis of Iraq’s exploration potential, taking over three man-years. The proven ultimate oil reserves were estimated at 128bn barrels, housed in 80 fields, of which 124bn barrels were housed in 43 discovered fields. The remaining 37 fields have been discovered but not sufficiently delineated. Each has been assigned only 0.1bn barrels. Iraq’s potential reserves were estimated conservatively to be in excess of 216bn barrels. These are large fields with as much reserves as in some of the discovered fields. The largest eight fields housed some 50bn barrels, compared with 92bn barrels housed in eight discovered fields. Our estimate was based on conservative volumetric calculations, using average porosity, oil shrinkage and a recovery factor not exceeding 31% for the oil reserves recoverable from 224 anomalies, among the total of 440 surface and sub-surface identified anomalies which are sufficiently prospected to be included. The potential proven reserve was estimated at 455bn barrels, to which a success rate of 47.5% was applied (being the average of 70% terminating at 25% at the end of the exploration period), giving 216bn barrels of proven reserves. On the basis of the above results, we endorse estimates of an ultimate proven reserve of 140bn barrels and a potential reserve of 215bn barrels, as reported here.

2.2 Finding, Development And Associated Costs

In the joint 1997 study, referred to above, past accounting records for the IPC and associated companies were examined and tangible and intangible assets were analyzed and adjusted for inflation in order to reflect current costs at date of publication.

• Finding Cost
  The average finding (exploration) cost for Iraq amounted to 0.26 cents/B. The IPC, BPC and MPC revealed different costs for their different respective concession areas. The BPC area in the south had the lowest finding cost of 0.1 cent/B, followed by a cost in the north to the east of the Tigris river of 0.4 cent/B, and a much higher cost for the north-west of the Tigris of 5.6 cents/B. Clearly these costs reflect the relative richness of their respective areas and not different management or technical skills, as the three companies shared a common management and shareholders.
   

• Development Cost
  The two major cost components, production facilities and wells, were assessed and the average development cost at the field boundary was derived. Our assessments revealed that Iraq’s overall average Development Investment Intensity (cost per a rate of one barrel per day, $b/d) in the different areas amounted to an average of $1,040 b/d, which is made up of $750 b/d (IPC), $1,570 b/d (BPC) and $3,130 b/d (MPC) at the field boundary. It should be mentioned at this juncture that the future development cost will change to reflect lower well productivity, restricted natural water drive requiring full water injection, deeper wells, and in some areas more difficult drilling conditions and generally smaller fields to develop. However, costs will remain at the cost level of Saudi Arabia and Kuwait. On the whole the finding cost should remain in the region of a few cents per barrel and the development cost around $5,000 b/d.

3.0 Lessons From History

History is there for the wise to consider, and build and improve on, thus avoiding failures. This short review of Iraq’s oil industry during the concession and nationalized eras highlights the impediments which held back the exploration and development of Iraq’s oil industry.

3.1 Concession Era

The IPC acquired its first concession agreement over a limited area in 1925, and extended it in 1930 (MPC) and then in 1938 (BPC) to cover practically all of the country for 75 years, without relinquishment. The concession agreements’ history, however, goes back to the First World War when a victorious Britain took over concession rights in Iraq.

A significant point to note here is that while the First World War was not triggered by the struggle for oil, the victorious parties found oil concessions to be a valuable prize.  And in a similar way, the Gulf Wars seem to have signaled the return to the Middle East of the multinational oil companies. 

• Long term exploration and production (E&P) agreements must be written and applied in good faith. The presence of the participation clause in the IPC agreement was so worded as to make it inapplicable. Participation was conditional on the IPC parents companies’ issuing new shares, and since the IPC is a private company, no new shares might ever be issued if they so wished, as was indeed the case. The participation clause became a major source of dissatisfaction and long disputes.
   

• Agreements between the state and foreign oil companies need to be balanced and fair in order to reduce potential disputes and to be able to stand the test of time and, preferably, to permit reviews in the light of justifying changed circumstances.
   

• The Revolutionary Government of 1958 could not accept the de facto powers of the companies. It made demands in connection with relinquishment and participation, which were not acceptable to the multinational IPC parent companies. To accept these demands would set a precedent for the rest of their concessions in the Middle East. They decided that freezing their activities in Iraq or losing their concession rights would be preferable to accepting Iraq’s demands. Not only did exploration cease, but the multinationals used their power to switch supply to other areas leaving little growth, if any, to Iraq.
  
  As a result, Iraq enacted Law 80 in 1961, relinquishing unilaterally 99.5% of the concession areas, including part of the producing field of Rumaila and all the discovered but undeveloped fields. In so doing the government ignored the realities of the oil industry’s concession terms. Law 80 became the cornerstone of Iraq’s oil strategy to such an extent that, although the 1965 negotiations produced agreement terms that met the demands of the 1960 negotiations and improved on them, the politicians of the day thought otherwise. Political considerations and ideology took over economic realities and Iraq pursued its confrontational policy with oil companies singly, until 1972 when it nationalized the oil industry in phases over two years.  In so doing, Iraq was denied economic benefits acquired by the other OPEC members throughout these years and suffered a loss of production, capacity growth, and significant income and markets throughout the years 1961-72.
  
  The lesson is clear: political decisions at the expense of economic reality can be very costly indeed to the nation.
   

• The IPC parent companies did not have the same interests in developing Iraqi’s oil industry. BP had greater interests in Iran and Kuwait, while Exxon’s interests lay in Saudi Arabia, while France’s CFP was in crude deficit and Iraq was its sole source in the Middle East. As a result there was a lack of conformity of interest, which contributed to slow exploration and development.

3.2 The Nationalized Era

The IPC and associated companies developed the oil industry in Iraq over some five decades on the basis of sound technical and commercial principles and produced a generation of Iraqi oil experts and technocrats. INOC took over seven producing fields, with a total production capacity of around 1.5mn b/d and a host of discoveries.

INOC was established in 1964, but did not become operational until the early 1970s. It expanded exploration and development fairly swiftly. The 70s witnessed a production capacity reaching 3.5mn b/d and the highest reserve growth in the world as the annual rate reached above 6bn barrels, equivalent to the total growth rate in the rest of the world. Prospective and proven formation, above and below the main producing formation, was tested in producing and discovered fields and delineated new structures. Some 40 prospective formations were logged. A number of these had been logged by the IPC and associated companies but were left insufficiently tested or neglected as long as they tested only a few thousand b/d. The exploration drilling intensity increased from 1.5 wells per year during the concession era, to 3 wells per year, while the overall success rate was maintained at three out of four wells. The total drilling intensity amounted to 10 wells per year in the 1960s, compared to 36 wells per year in the 1970s, and 92 wells per year in the 1980s during the years of the nationalized era. In 1989, the nationalized oil industry drilled 178 wells and over 1mn footage.

• Clearly the nationalized oil industry demonstrated a high degree of success. Its engineers demonstrated ingenuity in making good what their authoritarian politicians allowed to be damaged or ruined in the three destructive wars. Their plans and performance were not only to achieve a target income, but also to develop the most valuable assets in the country, as seen in their search to explore and test every oil potential formation vertically and horizontally.
   

• However, political decisions contributed to the impediments against progress and caused a substantial loss of income.
  
  Iraq’s politicians resorted to a confrontational strategy with the companies during the 1960s, when an alternative was available. Instead Iraq could have achieved the same results with patience and better planning, through negotiations rather than legislation, and by working within OPEC rather than acting singly outside it. The Iraqi regime also failed to develop oil institutions capable of running a modern oil industry with transparency and accountability. Scientific research was neglected. Staff changes were carried out for political reasons, and were too frequent to permit continuity. Training was badly neglected. Further, the former Iraqi regime’s authoritarian and arrogant policies of the last three decades plunged Iraq into three unnecessary and devastating wars and savage sanctions. The wars consumed time and resources on repairs and reconstruction and the sanctions contributed to maintaining already out-of-date reservoir management practices. In addition, the absence of any separation between ministerial policy roles and the national oil company’s operational and commercial functions only contributed to less transparency and accountability. 

4.0 Staged Development And Costs Thereof

There would appear to be a majority legal opinion that legitimizes the reconstruction or repair of Iraq’s key infrastructure under UN Security Council Resolution 1483. This would include either the ‘restoration’ of Iraq’s oil facilities to its pre-war level of 2.5mn b/d, and perhaps its ‘rehabilitation’ to an original production capacity of 3.0-3.5mn b/d. However, the same resolution stresses “the right of the Iraqi people to determine their own political future and control their own natural resources.” Since Iraq is under occupation and oil E&P contracts are of a long-term nature and not vital to the needs of the nation at the present time, they should be deferred until a legitimate sovereign government is democratically elected and recognized by the international community in accordance with international law. 

4.1  Restoration And Rehabilitation

The Ministry of Oil and its oil operating companies have had long experience in dealing with the reconstruction of war-torn and dilapidated oil production facilities with diligence and ingenuity, with or without the services of international engineering contractors. Having to adjust to sharing the task with the CPA in Iraq and their counterparts in the US, a lack of law and order and acts of looting and sabotage have taken their toll in terms of the loss of time and frustration, and the loss of billions of dollars in revenue resulting from loss of oil export and the cost of importation of products for local consumption.

• A realistic cost estimate could only come from those on the scene who have details of the condition of the infrastructure, wells and their productivity. Most published estimates in the past have been higher than Petrolog’s. Its estimates have been based on past investment records, and it is difficult to make a comparison with other published estimates without the data to justify them. Therefore, based on these results, with adjustments for reduced well productivity and inflation, the investment expenditure at the field’s boundary per 1mn b/d expansion of production capacity should be in the region of $1.9/B in the south and $0.95/B in the north, where the North and South Rumaila fields in the south and the Kirkuk field in the north remain to contribute to the bulk of production.
  
  Additional capital required for the repair of pipeline pumping stations and the Gulf terminal is not included in the above estimates.
  
  It must be emphasized at this juncture that Iraq present proven reserves can support a production of 10mn b/d and beyond at 12mn b/d as new potential reserves are ploughed in. 

4.2 Expansion Of Production Capacity To 10mn b/d And Beyond

Iraq, like all the major oil producers in the Middle East, has been producing oil reserves at a depletion rate of around 1%. The practice was inherited from the concession era when the multinational majors had the oil reserves to produce multiples of the market demand. The companies then, however, had virtually a monopoly over the oil-integrated operations and in order to maintain a stable crude oil price they had to adopt a low depletion rate. They also had to satisfy all their host countries and hence adopted low depletion rates in each country.

The nationalized era seems to have inherited the practice and took on itself a policy of crude oil stabilization with the aid of OPEC, by regulating production. In the meantime, the multinational oil companies and their partners in the non-OPEC countries had to go into much higher depletion rates in order to enhance payback and return on their investment, particularly, in view of investing in higher cost oil countries.

The 2001 depletion rates of the major producers were: North Sea, 18% (UK) and 8% (Norway); the Russian Federation 5%; North America, 9% (USA), 11% (Canada) and 5% (Mexico).

Adopting a depletion rate for Iraq of 4-5%, which is well within good reservoir management practice for large fields, would permit increasing Iraq’s production rate to a peak of 10mn b/d, maintaining it for nine years and then allowing a natural decline. At the end of 25 years, the production rate would be 6.4mn b/d, but the reserves would have declined to 42bn barrels from its current level.

On the same basis of maintaining a depletion rate of 4-5%, Iraq can lift the 10mn b/d plateau to 12mn b/d, and maintain it for eight years provided that 60bn barrels of additional new discoveries are added. This represents only 28% of the likely potential reserves. The plateau could be maintained for eight years, as new reserves are ploughed in at the rate of 3bn barrels per year starting on the seventh year. By the end of the 25^th year, production would have reached 11mn b/d and remaining 88bn barrels.

• With the world’s annual incremental increase in consumption in the order of 1mn b/d, it would take Iraq a good many years to require a production capacity as high as 10mn b/d. As a result exploration for new potential could very well be deferred.
  
  Clearly exploration for additional reserves is less of a priority than the most pressing one of restoration and rehabilitation, followed by production capacity growth at rates commensurate with market forces, and Iraq’s need for capital for its economic and social development.
   

• Under optimal conditions Iraq has sufficient pipelines and export capacity. The north export system has some 3.0mn b/d feeding the Mediterranean, split almost equally between the Ceyhan terminal in Turkey, the Banias terminal in Syria and the Tripoli terminal in Lebanon. Its pipeline carrying capacity in the south is 2.8mn b/d, divided between 1.6mn b/d at the Basrah Oil Terminal (previously Mina al-Bakr) and 1.2mn b/d in Khor al-΄Amaya. Additionally, the pipeline system in the south can feed the Red Sea Yanbu΄ terminal in Saudi Arabia to a rate of 2.15mn b/d. At present, however, Saudi Arabia is out of reach and Syria’s system requires rehabilitation to be brought up to capacity. In the medium term the pipeline and export system would not be a restrictive factor.
  
  A strategic pipeline connects the northern and southern pipeline systems. It has a northern flow capacity (to the north) of 1.5mn b/d and a southern flow capacity (to the south) of 0.8mn b/d.

4.3 Technological Limitations

Iraqi experts have demonstrated high capability and competence under the severe working conditions of an authoritarian regime, sanctions and three devastating wars.

The replacement of wells and the repairing or replacement of damaged equipment and other production facilities in the old and new producing fields may not take more than two years, allowing production to be restored to its pre-war level of 2.5mn b/d, before rising to pre-sanctions levels of 3 to 3.5mn b/d, law and order permitting.

There is, however, strong evidence that the major two producing fields, Kirkuk and Rumaila, have suffered reservoir damage, which could lead to a serious loss of recovery unless remedial action is taken. It is matter of urgency that each field is assessed with the aid of bottom hole measurements and surface seismic surveys. The data obtained there, together with past records, should allow for a diagnosis of the nature and size of damage and enable remodeling of the reservoir formation and the planning of production management techniques and procedures, in order to ensure optimal recovery.

However, it is indeed very sad that there are too few Iraqi experts left in Iraq today to cope with the huge task in hand. They are a rare resource and none should be laid off or discriminated against on political grounds.

The authoritarian regime and long years of sanctions have also taken their toll on the training and updating of Iraqi oil experts, required to keep up with fast growing pace of technological advancements. It is, therefore, most vital to remedy this and it is a task that should go hand-in-hand with industry rehabilitation and production capacity build-up, and it is one that should not be belittled or ignored.

4.4 Long-Term E&P Plan

Recalling that:

1. Iraq’s proven reserves are housed in 80 fields, the bulk of which are housed in 43 fields, and that the remaining 37 have been allocated only 0.1bn barrels each, simply because these have not been delineated and as such were assigned only a small nominal figure.
    

2. There are some 530 structural anomalies, according to semi-official reports, but that some 440 in our estimate are sufficiently prospective to permit inclusion. Of the above, only some 115, which fall mainly outside the Western desert, have been drilled to date, leaving 325 to 415 structural anomalies to explore.
   
   Delineation as semi-exploration has limited risk and, therefore, it is logical for the national effort to prioritize the programming of these discovered but not delineated anomalies in partnership with the international companies, on the basis of a suitable contractual regime whereby the partner provides the necessary capital and state-of-the-art technology.

4.5 Market Limitations

Restoration and rehabilitation to reach a production capacity of 3-3.5mn b/d could be achieved by 2005, assuming the return of law and order, with expansion to a production capacity of 5-6mn b/d perhaps by 2010. That would imply that Iraq manages to export at an annual incremental growth of around 0.5mn b/d, which amounts to around 50% of the world’s annual growth.

While this is possible, there are three factors to consider:

• Firstly, a cause for optimism, the oilfields of the major oil producing countries can continue to produce at their maximum plateau well into this millennium, at a time when other fields of the major oil producing regions of the world have peaked. The consuming countries, especially the major consuming areas of Asia, the Far East and the US, will become more dependent on Middle East oil. Meanwhile, the cost to these countries, and especially to Iraq, will remain low, while in other producing countries it will rise due to the requirement for secondary and tertiary recovery and the search into deeper horizons.
   

• Secondly, again a cause of optimism, geo-politics are likely to change in the medium term in favor of the Middle East and particularly Iraq. This implies that dependence on Russian oil and the expensive Caspian Sea would be reduced.
   

• Thirdly, an optimistic or pessimistic note depending on OPEC’s future policy, OPEC, the swing producer, has lost considerably its market share to the non-OPEC producers. With continued market loss or stagnation OPEC must rethink its strategy. No doubt, OPEC has served profoundly its members and world oil market stabilization, but non-OPEC members should also be made to recognize the cost of lower prices to their budgets, as well as the threat of closure of high cost oil areas and regions. Indeed, OPEC must reconsider.
  
  Iraq’s oil reserves resource is of the order of 330bn barrels. It would take Iraq 300 years to exhaust its rehabilitated production of 3mn b/d, 180 years at 5mn b/d and 90 years at 10mn b/d!.
  
  Keep in mind that the share of petroleum as an energy source is of the order of 40%, which may decline in the face of competition from other sources (hydrogen cell in the main), and for environmental reasons. And that the petroleum era is estimated to last some 40 to 50 years.

4.6 Finance Limitations

• Future expansion derived from the main fields (Rumaila North and South and Kirkuk), in almost equal increments at the field’s boundary, should be in the region of $1.9/B per 1mn b/d and $0.95/B per 1mn b/d in the North.
   

• Grassroots production capacity of other discovered fields, with well productivity in the region of 1,500 to 2,500 b/d per well, would cost $3/B to $4/B per 1mn b/d, and it should not exceed $5/B per 1mn b/d. There are, however, semi-official reports that place the capital investment cost at $5/B to $6/B per 1mn b/d.
   

• An investment cost by the national oil company of the order of $5,000 per b/d would be recovered in seven months of production at a price of $24/B.
  
  Under normal conditions, the necessary capital could be borrowed from financial institutions. Production capacity would be built in stages in such a way that the capital inflow pays for the investment and original debt, along a predetermined time scale. It must be feasible to have an Iraqi national oil company, organized in the future on a commercial basis, with authority to obtain loans. The oil industry elsewhere has been built on a 80-90% loan basis, and there is no reason for Iraq’s industry not to consider this as one way to proceed.
  
  An alternative is for the national oil company to enter into a contractual regime with international oil companies to expedite the process of rehabilitation and future production capacity expansion, instead of paying out cash payments to service companies. Such arrangements would provide the state-of-the-art technology, training and investment capital. Such arrangements could take the form of buy-back service or production-sharing contracts and, if needed, with the added incentive of a future exploration contract on a production-sharing basis.
  
  The logical approach is to have a balanced combination of both as circumstances dictate.

You will note that I have excluded privatization as a means to raise capital or provide benefits, for the following reasons:

• Privatization is equated today with denationalization, whether partially or 100%. Iraq’s economy is almost totally dependent on its oil income. With decision-making for exploration, production and exports in the hands of the multinationals, Iraq’s economy and its government’s decisions would be at the mercy of the multinationals, whose interests are firstly to their shareholders. Plus there would be the numerous disadvantages of the kind discussed above under Section 3.0 -- possible incompatibility with the national interest under future conditions and potential use of companies’ power to slow activities or switch supply to other countries when it best served their interests.
   

• There is no particular advantage gained by way of investment capital, technology, or efficiency, that cannot be obtained from other contractual arrangements.
   

• Decisions made over a resource system depend not only on economic or technological criteria, but also on political, historical and cultural considerations, in addition to the characteristics of the deposits and their environment.
   

• Finally, denationalization runs against the grain of almost every Iraqi – this is a significant consideration in any future democratic Iraq.

5.0 Guiding Policy

I would like to conclude the above deliberations with the following suggested guiding principles:

5.1    The national oil industry should be given a pivotal role to play, but without excluding a positive role for the international oil companies, with the right balance, at the right time, and under the right contractual arrangements, and laws and regulations.

• Iraq’s interests would be better served by separating the Ministry of Oil from the national operating companies. The ministry could then focus on policy-making, and have a supervisory role over resource management, and the negotiating and issuing of licenses.
   

• The national oil company should form the pivotal state enterprise, whose function is to implement government policy for exploration and production, in order to accomplish predetermined objectives. It should be established as an independent commercial company, in accordance with prevailing laws and regulations. It should have sufficient capital and the right to borrow and enter into joint ventures or associations with others in accordance with approved contractual regimes. Its board should be appointed by the government, drawn from leading experts in oil, finance and related skills. Above all, it should be so organized as to ensure efficiency, transparency and accountability.

5.2    Clearly the restoration and rehabilitation of the oil industry should take priority. In the meantime, a process of evaluation and reassessment of petroleum resources and their management should be started urgently. Setting priorities is vital. This may need to begin with attitudinal change, so that consultation and consensus are encouraged as the means to arrive at optimal oil policy, planning and organization.

Production capacity expansion and growth should be based on a composite master plan which takes into consideration the country’s development and economic needs. It should be based on optimal use of the proven reserves housed in numerous and different locations, with an alternative option to cater for future additional potential reserves. Market capacity, investment capital and the capacity and role of each of the national oil companies, and the complimentary role of the international oil companies, as well as administrative, legislative and regulatory needs should be simultaneously assessed and integrated in the plan.

5.3    A petroleum law should state, amongst other things: that petroleum resources are the property of the state and should be managed in the best interests of the nation, in accordance with a legislative and regulatory system capable of making open and transparent decisions;

The preservation of petroleum resources and the environment be upheld and accordingly gas-flaring should be stopped (in stages) in order to preserve the gas and protect the environment;

The ministry should ensure that exploration, development and exploitation operations be efficient and in accordance with the best good oil industry practices.

As Iraqis we are now at yet another crossroads. The decisions we make today will determine our future.