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Oil majors cut staff in Iraq on fears violence will spread

Source: Reuters - Wed, 18 Jun 2014 04:00 GMT
Author: Reuters
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(Repeats story filed on Tuesday, no change in text)

* BP reduces non-essential staff, others may be doing same

* Indian refiners told to have contingency import plan ready

* Questions mount if Iraq can increase oil output at all

By Vladimir Soldatkin and Nidhi Verma

MOSCOW/NEW DELHI, June 17 (Reuters) - Some oil companies are pulling foreign staff from Iraq, fearing Sunni militants from the north could strike at major oilfields concentrated in the Shi'ite south despite moves by the Baghdad government to tighten security.

Iraqi officials say the southern regions that produce some 90 percent of the country's oil are completely safe from the Islamic State of Iraq and the Levant (ISIL), which has seized much of the north in a week as Baghdad's forces there collapsed.

The government says 100,000 police dedicated to protecting oil facilities are on high alert and well armed.

But oil firms are taking no chances with the foreign expert staff who could be prime targets for jihadists. And some importers of Iraqi oil are getting nervous about supplies.

"We are just very vigilant in Iraq. Non-essential production people have left, but operations continue," said Bob Dudley, chief executive at BP, a major investor in Iraq through the giant Rumaila field. He was speaking to reporters in Moscow.

Industry newsletter Iraq Oil Report said Exxon Mobil , which is developing another huge field, West Qurna 1, was also cutting staffing levels. Exxon declined comment.

In a mark of concern abroad, Turkey evacuated its consulate in the southern oil hub of Basra on Tuesday.

Though the departure of foreigners would have only limited near-term impact on output, the risk of wider civil war - not restricted to attacks in the south by Sunnis but also a possible revival of friction among Shi'ite factions - could hit production and certainly hold back plans for expansion.

"PLAN B"

Russian firms said they were not reducing staff so far but were working on contingency plans.

At Gazprom Neft, first deputy head Vadim Yakovlev said of its work in the Badra field, on the Iranian border east of Baghdad: "Everything is going according to plan for now but we are working on plan B, including evacuation options."

China's foreign ministry has advised citizens to avoid Iraq.

In India, which with China is the biggest importer of oil from OPEC's second largest producer after Saudi Arabia, an official said there were concerns about future Iraqi supplies.

The Indian oil ministry official said his department asked refiners to have alternatives: "They should have a contingency plan ready to avoid any supply disruption from Iraq," he said.

In 2013, Iraqi oil accounted for 14.5 percent of Indian needs. An official at an Indian refiner said he saw no supply problem at the moment and that Saudi Arabia and the United Arab Emirates could make up any future shortfall.

International oil executives note that their assets in Iraq are a long way from the seat of the troubles in the north: "The people we are dealing with appear to be very much in control of the oil communications that we have," said BP's Dudley.

Yet firms are well aware of the need for vigilance after attacks on facilities in various parts of the world, including one which killed dozens of workers at a BP gas plant deep in the Sahara desert 18 months ago. The speed with which ISIL fighters have routed Iraqi forces underlines their potential to surprise.

Almost all international oil majors work with Baghdad on joint projects including Exxon, BP, Royal Dutch/Shell, ENI, Gazprom Neft, Lukoil and Chinese firms.

Security sources working for the oil industry say companies will proceed with a full evacuation of the hundreds of foreign staff they employ in Iraq only if there is a major escalation of violence - such as a major attack in Baghdad or Basra.

"For each company, the triggers for evacuation are different," one security source said. "They analyse practicalities, how you get people out and how you make sure fields continue to operate, possibly even unmanned."

Basra, on the Gulf, has enormous strategic importance to Prime Minister Nuri al-Maliki's government as the hub for oil exports accounting for over 95 percent of government revenue.

It presents a tough and distant target for Sunni insurgents and saw relatively little of the sectarian violence of the past decade. It has seen bombings, however, including in the past year, and has also been a battleground for Maliki against opponents among fellow Shi'ites, notably during 2008.

RISKS TO PLANS

Iraq wants to double or even triple output from the current level of 3.2 million barrels per day by the end of this decade, but hopes that it will be able to achieve that are fading.

"The bigger question than the immediate threat to production is Iraq's ability to meet the expectation to meet 60 percent of the world's oil demand growth needs," said Majid Jafar, chief executive at Crescent Petroleum.

A Barclays research team noted that while oil firms have not yet seen a major impact on operations, oil service firms such as Baker Hughes and Schlumberger suspended work for a time last year after labour unrest.

"Activity is stable, though this area does not appear to be outside the reach of the insurgents given the periodic bombings in and around Basra in recent months," the Barclays team wrote.

The think-tank Energy Aspects said that the rate of activity was likely to slow due to workers being evacuated. Merrill Lynch said Iraqi oil output was unlikely to grow at all this year.

"The risk of a protracted civil war has become all too apparent," its analysts wrote. "Longer term, the risks have also risen as investment projects could be cancelled or delayed." (Additional reporting by Olesya Astakhova in Moscow, Ahmed Rasheed in Baghdad and Ben Blanchard in Beijing; Writing by Dmitry Zhdannikov; Editing by Alastair Macdonald)

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