Could Iraq Become the World's Largest Oil Exporter?


Back in 1849, thousands of men and women ventured out into the territory of California in hopes of striking it rich during the Gold Rush. Today, there is a similar rush -- but this time the prize is oil, and the new territory is Iraq.

Black gold ... Basra tea
Ever since the U.S. invasion of Iraq in 2003, private companies from all over the world have lined up to get a piece of the formerly nationalized oil fields of Iraq. Since the country was under the Hussein regime, there was only speculation surrounding the potential reserves in Iraq. Now that private companies have had a chance to survey the landscape, it is clear that Iraq is sitting on loads of cheap-to-get oil. The U.S. Energy Information Administration (IEA) estimates Ithat raq's reserves are only second in the world only to Saudi Arabia.

What is more stunning than the total reserves in Iraq is the lack of production. As of January 2012, only about 2,000 wells have been drilled in Iraq, compared with roughly 1 million wells in Texas alone. Clearly, opportunity abounds in Iraq, and the usual suspects of the oil world appear ready to cash in.

With a country still reeling from the invasion and a government strapped for cash, Iraq's ministry of oil has put together an ambitious plan to expand production and inject oil revenues back into the country's coffers. It aims to produce 12 million barrels per day (mbpd) by 2017; that would triple its current output and place it ahead of Russia as the world's largest exporter of oil. The IEA is a little more skeptical than Iraq's oil minister and estimates Iraq's 2020 capacity will probably be closer to 6.1 mbpd. Either way, this massive expansion of capacity will require more than $200 billion in both infrastructure and labor investments.

Back in March, the ministry of oil began negotiations with BP (NYS: BP) and Schlumberger (NYS: SLB) to double the capacity of its northern fields in Kirkuk. While this region is attractive for companies because of its relative stability, its potential reserves are marginal in comparison with the giant basins located in the south.

Source: Al-Jazeera

This graphic shows only oil production and exploration companies, but it doesn't tell the story of all the companies working in the region. In September, Halliburton (NYS: HAL) and Baker Hughes (NYS: BHI) signed a $6.5 billion redevelopment contract with the Eni (NYS: E) /Occidental Petroleum (NYS: OXY) joint venture to increase capacity at the al-Zubair play to 1.2 mbpd by 2017. If a fivefold increase at the al-Zubair play sounds difficult, then the efforts at the Total (NYS: TOT) /Petronas venture at the Halfaya play will be immense. They hope to increase capacity 200fold to more than 600,000 bpd by 2016 .

What a Fool believes
Turning Iraq's oil production around will not only take billions of dollars in investment, but it will also require some very careful maneuvering by oil companies. Several U.S. companies started operations while the U.S. military occupied the country. Now that U.S. troops have to a large degree pulled out, oil companies will need to expand their current operations without furthering the rift with between Iraqis and the West. During a round of bids in December 2010, Royal Dutch Shell (NYS: RDS.B) was the only "Western" company to win a contract. Many of the other Western-affiliated companies lost out to lesser-known entities such as Angolan producer Sonangol, Norway's Statoil, and the Russian giants Gazprom and Lukoil.

We also need to keep in mind that Iraq is only part of the energy puzzle. The EIA estimates that global demand for oil will increase by 27 mbpd by 2020. If we stick to EIA projections, then an addition of 3 mbpd from Iraq will meet only 11% of anticipated demand. It's hard to believe that the companies moving into Iraq will be the only winners in upstream oil and gas going forward. The boom in North America's shale plays, Canada's oil sands, and the emergence of ultra-deepwater drilling rigs all provide investors with opportunities to take advantage of ever-increasing energy demand.

Our modern gold rush for energy will be global. Almost every corner of the earth will demand more energy to keep its economies moving forward. With so much on the line, energy companies around the world will be looking to fill that demand void. While there is a wide range of potential winners in this space; we at The Motley Fool keep a sharp eye out in this sector, and our analysts have found the Only Energy Stock You'll Ever Need. We have put together a free report for investors so you can get in on this great opportunity. To get a copy of this free report, click here.

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Fool contributor Tyler Crowe has no positions in the stocks mentioned above. You can follow him at under the handle TMFDirtyBird, on Google +, or on Twitter, @TylerCroweFool. The Motley Fool owns shares of Halliburton. Motley Fool newsletter services recommend Halliburton and Total. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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