Guest Writings
22/03/04 Oil is not well in Iraq by Edward Teague

The U.S. military has delayed a planned cut in payments to Halliburton Co. to give the company more time to submit new estimates for costs surrounding disputed meal charges in Iraq. Halliburton has been accused of overcharging for delivery of gasoline to Iraq; that company employees took kickbacks; and that it charged too much for meals served to troops in Iraq.

Halliburton, of which Dick Cheney was chairman before his 2000 US vice presidential campaign, has consistently denied overcharging.

Auditors and criminal investigators from the Pentagon's Inspector General are investigating allegations of overcharging for fuel brought into Iraq under a no-bid contract it had with the Army Corps of Engineers.

It now seems their contracts for supply of refined fuels to supply have been replaced by Texas based Refinery Associates of Texas (REFINERY ASSOCIATES OF TEXAS INC .1150 HWY 46 S. NEW BRAUNFELS TX 78130). So says Lynette Ebberts, a spokeswoman for the The Defense Energy Support Center (DESC) at Fort Belvoir, Va., who said on Friday that a $108 million fixed-price contract is for three months – with three, three-month options for renewal has been awarded to Texas based Refinery Associates. DESC supplies fuel to the US military and was tasked In December 2003 to rebid the contracts and find cheaper alternatives to replace Halliburton's role in the supply chain.

"This is fuel that will be in direct support of Task Force Rio (Restore Iraqi Oil), which supports the civilian Iraqi population," Ebberts said.

Refinery Associates of Texas is headed by President and CEO Joe Desormeaux, 58, who served in the U.S. Army from 1965 to 1967, worked for Amerada Hess Corp. of New York. He joined with Refinery Associates in 1978 and now owns 100% of the company. Refinery Associates is solely a petroleum products trading company that employs five people and has annual sales of $120 million. Other Directors include R.G. Wills Jr., who was employed with Amerada Hess Corp. from 1958 to 1981. Aremada Hess have had contacts through Armand Hammer with Russian oil going back many decades.

Interestingly the Geneva-based trading arm Lukoil International Trading and Supply Company (LITASCO) of the Russian oil company LUKOIL has announced signing a three-months deal, with refinery Associates of Texas which can be possibly extended to up to 12 months, for the quarterly supply to Iraq of 180,000 tonnes of gasoline and 130,000 tonnes of diesel fuel to Iraq, starting April 1.2004. According to calculations by the Russian business daily Vedomosti, LITASCO will be responsible for up to 45 percent of the total fuel supplies to Iraq paid for by the U.S. government.

LUKOIL wants to revive its 1997 agreement with Saddam Hussein for a $3.7-billion deal to develop the Iraqi giant West Qurna2 oilfield, and is hoping for talks with the future Iraqi government. However, no final decision was made on the West Qurna-2 project. In March 1997, a consortium of LUKoil (68.5 percent), Zarubezhneft (3.25 percent), Mashinimport (3.25 percent) and the Iraqi oil Ministry (25 percent) signed an agreement to develop the West Qurna-2 field on the basis of production sharing.

The production sharing agreement was signed for the period up to 2020. The West Qurna-2 reserves are estimated at 20bn barrels, and investments in the project was at the time said to be $3.7bn. But the Russian companies were unable to start implementing the project because of UN sanctions against Iraq.

Scrapped during Saddam Hussein's last months in power, LUKOIL considers the contract to be valid, but the U.S.-backed Iraqi leadership has not yet decided whether to recognise the deal.

Last week, LUKOIL's chief executive Vagit Alekperov met Iraq's Oil Minister Ibrahim Bahr al-Ulum who has said that oil companies of different countries should do business in Iraq. According to him, talks with LUKoil were held in December 2003. During their March 11th meeting in Baghdad, they signed a deal to train Iraqi oil industry employees and students. 40 Iraqi students will study in Russia's I.M. Gubkin Oil and Gas University. Their numbers will increase to 100 students in 2005.

Richard H. Matzke a Member of the Board of Directors of LUKOIL is also handily placed as Vice-Chairman of the Board of Directors of ChevronTexaco Corporation .

LITASKO's president Valery Golovushkin told Itar-Tass on Friday that the fuel would be exported mostly from LUKOIL's refinery in the Bulgarian city of Burgas, site of the major US military base and military air field in Bulgaria.


He said "petroleum products will be delivered to Turkish ports and from there by truck to Iraq". He added that "prices will change depending on world quotations".

"We have been carrying out exchange deals with the Iraqi state concern SOMO for several months, delivering to it petroleum products and receiving in exchange different types of black oils. Volumes of deliveries are significant there, but not very large, and they do not have any relation to the current contract," LITASKO's president added.

Iraqi Foreign Minister Hoshyar Zubari said he saw the future of Russia-Iraq relations as quite promising.

Meanwhile the oil majors are keeping out of Iraq.

Majors hold back

"There are a couple of things that need to happen," before the world's biggest oil company, ExxonMobil, takes part in any development activity in Iraq, said spokesman Tom Cirigliano.

"This is oil that belongs to the people of Iraq," he said. "If and when the people decide they need help with the development of oil resources from multinational companies, then we'll give it strong consideration at that time."

Peter Zeihan, an energy analyst for the research firm Stratfor, said no company would make a major investment in the country until it was sure that the government was stable, as a sudden change in leadership could cost a company its entire investment.

Turkish delight

Other companies, based in Turkey, were also awarded fuel supply contracts in Iraq.

Gasoline contracts to Turcas Petrol, $59 Mn. and Opet Petrolcul, $55 Mn;

Diesel contract to Petrol Ofisi, $35 Mn;

LNG contracts to Delta Petrol Urunleri Ticaret $18 Mn.,_Iprgaz, a $17Mn contract and Tefirom Construction & Energy, awarded a $15 Mn contract.

Interestingly these contracts favour companies in countries who did not form part of the 'Coalition of the Willing' who were said to be first in line for post invasion contracts. No doubt commercial realities have hit hard, especially as the world's oil majors are merely kibbutzing whilst the field of play settles.

No wonder that world oil supplies are tight and that oil is trading at record highs.

LUKOIL strikes it rich in Saudi as well.

Vagit Alekperov, on the same trip also stopped off to meet the Saudi minister for oil and natural resources, Ali al-Naimi, who acting on behalf of the government, signed a massive 40 year contract with LUKOIL for the exploration and development of gas fields and gas concentrate in an area known as Bloc A, an area located in the center of the country, next to the world's largest oil field, Gavar. The exploratory period will be five years. In that time, LUKOIL will drill a minimum of nine exploratory wells, and will conduct seismic tests in an area covering 875,000 kilometers. LUKOIL's expenditure on the exploration program will total $215 million.

A joint company has been established together with the oil company Saudi Aramco, in which LUKOIL will control an 80-percent share. It will be called LUKOIL Saudi Arabia Energy Ltd. ('LUKSAR').

Lukoil, based in Russia has significant operations in Kazakhstan and has acquired the Getty Petroleum chain in the US, and has placed growing emphasis on its expansion into the Middle East.

It has acquired Bitech of Canada, gaining in the process the company's activities in Egypt. It also recently bought a minority stake in oilfield development in Iran.

It does make you wonder who is cleaning up in Mid-East oil and gas.

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