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Canada May Win Afterall

Canada's decision to sit out the war in Iraq saddened and embarrassed many in this country's oil and gas industry, due to its long history of commercial alignment and friendly relations with the United States.

Canada's decision to sit out the war in Iraq saddened and embarrassed many in this country's oil and gas industry, due to its long history of commercial alignment and friendly relations with the United States. Still, they aren't getting too worked up about a controversial U.S. ban that's keeping Canadian businesses from bidding for reconstruction contracts in Iraq. That's because Canadian oil and gas firms -- probably the Canadian business group with the biggest shot at playing a significant role in rebooting post-war Iraq -- have bigger fish to fry than a reconstruction role. What they want is to be long-term players in Iraq's oil industry, the biggest oil opportunity available in the world today. And they know that when things get down to business in Iraq and oil and gas ventures, such as production-sharing contracts, come up for grabs, American approval may get as relevant as a ticket to yesterday's hockey game.

In fact, some experts on the Iraqi oil scene say Canada's decision not to participate in the war could turn out to be one of Canadian oilmen's biggest advantages. "What [Iraqis] want is people they can trust and who they like," said John Fletcher, a Calgary-based lawyer and former executive with Ranger Oil Ltd., a Canadian oil company that was active in Iraq. "They hate the Americans and they see them as an army of occupation and not as liberators. They are very happy to see Saddam is gone, but otherwise, [they feel] it's time for the Americans to leave. And the longer they stay, the more it looks like an oil grab."

Which is why, as reported in the Financial Post, Canadian companies that are poised to mount their own Iraqi invasion are quietly sending envoys to cultivate relationships with its civil service, expected to have a big say over who gets to be an oil player when an Iraqi-controlled government finally takes charge. Experts say Canadians are well liked by Iraq's skilled oil cadre because they are from a friendly English speaking country [a language they favour for business], have a history of strong trade ties and come from a country with a similar-sized population, which means we won't push them around. "We are not imperialistic," said Donn Lovett, a consultant to Canadian companies who recently established an office in Baghdad. "We don't have the strength to abuse them and we don't have the personality to abuse them."

They're also seen as competent. Canada happens to be home to a unique and strong oil and gas sector that is active around the world, successfully competing with much larger players because of its technical expertise, fair business practices, high ethical and environmental standards.

Take Nexen Inc., Yemen's top foreign investor and so highly regarded it has never suffered a production interruption, while the operations of American companies in the same country are routinely targeted for sabotage. The company was handed the opportunity by its former parent, Occidental Petroleum Corp. of Los Angeles, which was prohibited from doing business there by the U.S. government because its oil concession was located in what was previously a Marxist state. Nexen built on it and became a national institution in Yemen through initiatives like community investment, employing and training locals, support for education, keeping its promises. Its operations are seen as the gold standard in how an oil company should operate in a foreign country. "We are generally perceived as good guys," said Nexen spokesman Kevin Finn. "We are not pushy. We are a lot more willing to listen, to go out of our way to try to help. It's a different kind of ethics and values, good old Canadian nice guy stuff."

Even Talisman Energy Inc., the Canadian company that was forced out of Islamist Sudan after being maligned by Western human rights organizations, scored big points in the Middle East for standing firm against a lot of opposition. The Iraqis are also big on relationships, and won't forget the work done by Canadians like Mr. Fletcher, who travelled there 37 times for Ranger, some during the country's darkest hours.

Indeed, the Iraqi oil opportunity is so huge that the country will be invaded by oil companies once security improves, and Canadians will face a lot of competition, especially from powerful oil supermajors and others like the Russians and the French, who will want to cash in political favours.

The country holds 112 billion barrels of proven oil reserves, the third largest in the world after Saudi Arabia and Canada, but only 10% of Iraq has been explored, and an estimated 220 billion barrels are left to find.

Exploration and development costs are among the lowest in the world, at US$1 a barrel. Only 17 out of 74 discovered fields have been developed. The country's industry is in such bad shape after three major wars and a decade of sanctions it has not had access to technology that is widely available in Canada, like 3-D seismic and directional drilling. Tens of billions in investment will be required to boost production to Iraq's potential of six million barrels a day, nearly three times current levels.

Even the natural gas prize is huge, with proven gas reserves estimated at 110 trillion cubic feet -- nearly double Canada's -- and an estimated 160 trillion cubic feet left to find.

Canadian independent companies will be well served by their smaller size, too. "We move fast," Mr. Fletcher said. "We are not dinosaurs. These large companies are too big. They are too slow in decision making. For smaller companies, a place like Iraq is a company-maker, and they will want to prove themselves."

And their motive will be clear from the start: good, old fashioned profit. Since they hail from an even richer oil country, nobody can accuse them of a participating in a politically motivated oil grab. Americans would be wise to take notice. The Iraqis already have.


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