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Iraq: New Drill: Inside Giant Oil
Industry, Maze Of Management Tensions


by Chip Cummins, Susan Warren and Bhushan Bahree Wall Street Journal
April 30th, 2003

Flanked by a half-dozen Iraqi engineers in open-collared shirts, the de facto head of Iraq's South Oil Co. wanted to make one thing clear to the U.S. army officers and oilmen sitting across the table: Iraqi oil workers still report to him.

"This is between us Iraqis," Jabbar A. El-Leaby told the Americans at a recent meeting in Basra, Iraq's southern oil capital. Local workers will cooperate with the Americans, he said, but they will report to their old bosses, just as they did before the war. "We want them to be in touch with their managers," he said.

The Pentagon is embarking on one of the most audacious hostile takeovers ever: the seizure and rejuvenation of Iraq's huge but decrepit state-run petroleum industry. Before the war, Iraq pumped about as much oil each day as Exxon Mobil Corp., the biggest publicly traded petroleum company. The Iraqi system, with the world's second-largest reserves, is potentially the second-largest oil operation of any kind, after Saudi Arabia's Aramco.

But few companies have ever faced such formidable challenges. It isn't clear exactly who's in charge. The new management must pump up oil revenue to finance reconstruction of a land devastated by 22 years of isolation and war. The U.S. faces widespread suspicion that it invaded Iraq largely to grab its oil, despite Washington's denials.

The most immediate problem is building a politically correct
management team: The U.S. oilmen have to cull loyalists to Saddam Hussein's Baath party from management and find Iraqi executives willing to work for the occupation. Already, the Americans are having trouble recruiting senior talent. At least two Iraqi expatriates have turned down top jobs, say people familiar with the situation.

The two sides are starting to stitch the basics back together. In southern Iraq yesterday, U.S. and Iraqi engineers were pumping 15,000 barrels of oil a day, said a person familiar with the work. Though that's a trickle compared with Iraq's prewar levels of 2.5 million barrels a day, officials
expect to reach 65,000 barrels today and 170,000 in coming days, all of which will be used domestically. Iraqi engineers said they expect the north to resume oil output this week. Before Iraq can begin exporting oil, Washington must sort out how to end 12 years of United Nations sanctions on Baghdad.

For the first time since the war began, U.S. officials met with top Iraqi oil technocrats yesterday in Baghdad, and both sides agreed to work together in rebuilding the industry's infrastructure. U.S. and British soldiers secured Iraq's oil fields before much sabotage or war damage could be inflicted, but the system still suffers from two decades of conflict and trade embargoes. South Oil, which pumps 60% of the nation's oil, is a mess.

Rusted spare parts and pipe fittings, along with burnt-out shells of Soviet-made tanks from the first Persian Gulf War, litter southern Iraq's massive North Rumeila and South Rumeila oil fields, two of the country's largest. In places, oil pools in small lakes, a result of leakage from underground equipment eroded by saltwater. At an oil-pumping station in the North Rumeila field, telecommunications manager Salah Muhaheel uses corroded truck batteries to power the switching room for his half-dozen antiquated dial phones.

South Oil's headquarters, a sprawling campus in Basra, was ransacked by looters after the British captured the city. A seven-story tower is charred from fire. The campus's courtyard is carpeted by papers flung from the windows: oil-field diagrams, computer spreadsheets and business contracts.

"You see our company?" asked Kareem Joudy, a 42-year-old quality-control inspector. "How many months will it be" until it can be repaired? The situation is better in Baghdad, where U.S. Marines secured the oil ministry shortly after entering the capital. Important production data and seismic archives are largely intact, officials said.

U.S. officials insist their strategy is limited and clear: Help repair the country's existing oil infrastructure and turn it over to Iraqi management. Big decisions -- about foreign investment or membership in the OPEC oil cartel -- will be left to Iraqi officials and a new, freely elected government.

But the U.S. will have unprecedented influence over the oil fields in the short term. The Pentagon is drafting a team of American, foreign and Iraqi expatriates to guide the ministry in a transition period.

Leading the U.S. effort is Philip J. Carroll, a former Shell Oil Co. executive plucked from retirement by the Pentagon last year and scheduled to head to Iraq this week. He is modeling the team on a U.S. corporation: He will act like a chairman, with expatriate Iraqis and other advisers as a sort of board of directors. An Iraqi "chief executive" would answer to the board, according to officials. After top Baath party loyalists are weeded out, the U.S. plans to give management training to officials currently at the ministry and then, officials say, turn the keys over to an Iraqi CEO groomed by Mr. Carroll.

Foreign oil companies, eager to tap Iraq's oil wealth, have reason to be encouraged by the lineup, which is filling up with oil-industry veterans and others likely to recommend opening Iraq to foreign capital. Muhammad-Ali Zainy, an Iraqi-born American tapped late last week to serve on the advisory team, is an economist with experience at small U.S. oil companies. He supports competitive bidding for foreign investment in Iraq's oil sector, and served on a State Department-backed group that made similar recommendations. If Iraq opens up to large-scale foreign capital and technology, competitive pressure could prompt neighboring oil powers to follow.

Mr. Hussein had been in power so long that the Pentagon had only a short list of senior expatriate Iraqi oil managers young enough to be active and willing to work under U.S. occupation. People with knowledge of developments say at least two nominees have declined the job of chief executive, though they are willing to be part of the team. They are Fahdil Othman, a former head of Iraq's once well-regarded state oil-marketing organization; and Hashim al-Khersan, a geologist who once headed one of Iraq's state-run oil subsidiaries. Mr. Othman couldn't be reached for comment. Mr. Khersan, reached in Tunisia, declined to comment before a U.S. announcement identifying the team.

The Pentagon and Mr. Carroll's team face the difficult task of
sorting through Iraq's politicized oil ministry to choose future industry leaders. Amer Mohammed Rasheed, Mr. Hussein's long-serving oil minister, surrendered to coalition forces this week. A former Iraqi army general, Mr. Rasheed was dubbed "Missile Man" because he was once Saddam's point man on weapons-delivery systems. A deputy oil minister has also fled.

But two other deputies -- both senior appointees from the Baath Party regime -- are back at work at the ministry. Mazin Mohammad Ali Jumaa is a senior official from Iraq's education bureaucracy, while Hussain Suliaman Al-Hadithy is a longtime oil-ministry bureaucrat.

Mr. Jumaa yesterday led the first discussions with U.S. officials. Ministry officials have expressed hope that one of their own will take charge of the organization. "Such people suffered more" under Hussein's regime than Iraqi expatriates, Mr. Jumaa said in comments to reporters after the meeting.

Senior ministry officials say Mr. Jumaa and Mr. Hadithy are respected for their skills and should be kept on. "We are not looking at this from a political point of view," said Thamir Gadhban, another senior oil bureaucrat who has been coordinating the Iraqi side of the reorganization. "They are all our colleagues. We are all Iraqis," he said.

But U.S. officials will have to make tough calls on a number of people. One example is Abdul-Bari Shawkat, the South Oil director general who fled Basra shortly after the seizure of Iraq's southern fields. Mr. Shawkat shot to the top echelon of the oil ministry before turning 40, a rare accomplishment in Iraq's regimented bureaucracy.

Several middle managers in the south who worked for Mr. Shawkat said he rose quickly because of his close ties to the Baath Party. "He was a semiengineer," said one senior official in the south.

Mr. Shawkat has reemerged in Baghdad, showing up for work at the oil ministry. In an interview, he said he only joined the Baath Party after a relative -- a senior army official -- defected from Iraq, causing problems for his family. As punishment for the defection, he says he was transferred from his top job in the ministry in Baghdad and sent to Basra. "To protect myself, I said, `OK,'" he says. He used his party affiliation to help protect his company and workers from interference from the regime, he says, adding, "I never participated in any militia and I never wore a green uniform."

Musab Ahmad Bazie Al-Yaseen, a former top executive at the Kuwait Oil Co., who ran Kuwait's oil industry under Iraqi occupation in 1990-91, said it may be difficult to find pristine candidates in the top ranks of the Iraqi ministry. But after the most tainted figures are gone, Iraqi engineers will be easy to work with, he says. "This would be the first profession
to come forward and work for the new regime, as long as the embedded Baath party are gone."

The U.S. is also wooing Iraqis overseas to serve. But some expats have shied away from taking top posts with Mr. Carroll. The U.S. State Department sent out e-mails inviting nearly 30 Iraqi expatriates with oil-field experience to discuss the industry's future in Washington in December. Only 12 accepted.

Some of those who declined say they would be happy to heed a call from a new Iraqi government, even if it is provisional or under U.N. supervision. But expatriates are concerned that taking jobs would be explosive. Having spent the Saddam Hussein years abroad, with comfortable jobs, they may face the ire of colleagues who suffered in Iraq. This would be doubly problematic if they were seen to be brought back under U.S. auspices.

"Let those who stayed back have the jobs," said one expatriate Iraqi. "They deserve it."

In Baghdad, top ministry officials, who have been showing up for work for weeks, are frisked by U.S. soldiers at the ministry's entrance each morning. Some Iraqi engineers and workers have balked at appearing to work directly for the Americans. There have been minor cultural snafus, too. Packaged lunches the Americans hoped to bring up from Kuwait City for Iraqi workers contained tins of pork sausages, which would have offended the mostly Muslim staff. The lunches stayed behind.

Brig. Gen. Robert Crear, commander of the Southwestern Division of the Army Corps of Engineers, is responsible for repairing oil infrastructure. He visited a worker-recruiting center at a school in Rumeila, a town in the heart of Iraq's southern oil fields, earlier this month. There, private
contractors from Halliburton Co.'s Kellogg Brown & Root subsidiary were printing up new identification cards for Iraqi workers, and promising one-time payments of $20 for returning workers.

Gen. Crear's GMC Suburban pulled up to a large crowd of young Iraqi men swarming around British soldiers passing out instructions on how to register for jobs. "We got a good crowd," Gen. Crear said, as he slammed a clip of rounds into his pistol before wading into the group. Last week, those workers helped restart a modest amount of oil production in the southern fields, an early milestone in the rebuilding effort.

Tension persists, though. In the power vacuum that enveloped Iraq after the war, Mr. Leaby emerged as a force at South Oil. When he heard that American contractors were issuing new plastic photo-identification cards and handing out American dollars, he put the word out to workers that
Iraqi executives -- not the Americans -- were still in charge.

At a recent meeting in the office of the Red Cross in Basra, Mr. Leaby and senior Iraqi oil-company engineers sat on one side of a round wooden table, while Gen. Crear and military engineers in desert camouflage sat on the other. Waving off flies in the noon heat, Gen. Crear briefed Mr. Leaby on his team's assessment of the fields. Mr. Leaby volunteered to send his men out with the Army, promising Iraqi oil workers would cooperate with the Americans.

Mr. Leaby also had a few requests. Workers needed transportation because the company's fleet of buses had been driven off by looters. Iraqi oil-company managers also needed full reports about what work is going on in the fields, and Americans shouldn't be paying Iraqis, Mr. Leaby said. "Money is the responsibility of the management," he said.




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