April 20, 2024

In Rebuilding Iraq’s Oil Industry, U.S. Subcontractors Hold Sway

It seemed a geopolitical victory for Lukoil. And because only one of the 11 fields that the Iraqis auctioned off  went to an American oil company — Exxon Mobil — it also seemed as if few petroleum benefits would flow to the country that took the lead role in the war, the United States.

The auction’s outcome helped defuse criticism in the Arab world that the United States had invaded Iraq for its oil. “No one, even the United States, can steal the oil,” the Iraqi government spokesman, Ali al-Dabbagh, said at the time.

But American companies can, apparently, drill for the oil.

In fact, American drilling companies stand to make tens of billions of dollars from the new petroleum activity in Iraq long before any of the oil producers start seeing any returns on their investments.

Lukoil and many of the other international oil companies that won fields in the auction are now subcontracting mostly with the four largely American oil services companies that are global leaders in their field: Halliburton, Baker Hughes, Weatherford International and Schlumberger. Those four have won the largest portion of the subcontracts to drill for oil, build wells and refurbish old equipment.

“Iraq is a huge opportunity for contractors,” Alex Munton, a Middle East analyst for Wood Mackenzie, a research and consulting firm based in Edinburgh, said by telephone.

Mr. Munton estimated that about half of the $150 billion the international majors are expected to invest at Iraqi oil fields over the next decade would go to drilling subcontractors — most of it to the big four operators, which all have ties to the Texas oil industry.

Halliburton and Baker Hughes are based in Houston, as is the drilling unit of Schlumberger, which is based in Paris. Weatherford, though now incorporated in Switzerland, was founded in Texas and still has big operations there.

Michael Klare, professor of peace and world security studies at Hampshire College and an authority on oil and conflict, said that American oil services companies were generally dominant both in the Middle East and globally because of their advanced drilling technology. So it is no surprise, he said, they came out on top in Iraq, too — whatever the initial diplomatic appearances.

United States officials have said that American experts who advised the Iraqi oil ministry about ways to restore and increase petroleum production did so without seeking any preferences for American companies.

And immediately after the 2009 auction round won by Lukoil, the United States Embassy spokesman in Baghdad, Philip Frayne, told Reuters that “the results of the bid round should lay to rest the old canard that the U.S. intervened in Iraq to secure Iraqi oil for American companies.”

But Professor Klare said that the American officials who had advised the Iraqi government on its contracting decisions almost certainly expected American oil services companies to win a good portion of the business there, regardless who won the primary contracts.

“There’s no question that they would assume as much,” he said.

The American oil services companies, which have been in Iraq for years on contract with the United States occupation authorities and military, are expanding their presence even as the American military prepares to pull out.

For example, Halliburton, once led by former Vice President Dick Cheney, has 600 employees in Iraq today and said in a statement that it intended to hire several hundred more before the end of the year. “We continue to win significant contracts in Iraq, and are investing heavily in our infrastructure,” Halliburton said.

The 11 contracts Iraq signed with oil majors, including the six for the largest fields, are intended to raise Iraqi output from about 2.5 million barrels of oil a day now to 12 million barrels daily in 2017. Some of the oil services contracts are for repairing currently productive fields, others to tap mostly unused sites.

Article source: http://feeds.nytimes.com/click.phdo?i=a6c26fae0a077809f9ebda7eb64b507e

Not a Flashy Investor, Just Successful

He snapped up his 1995 Donzi motorboat after it had been repossessed from its previous owner. He made a deeply discounted, 24-hour, take-it-or-leave-it offer for a home on Long Island that had been on the market for years, only to later discover he had bought Vincent Astor’s summer home.

And while the Midtown offices of his investment firm, M. D. Sass, are appointed in rich mahogany paneling with marble tables, Mr. Sass explains that not all is as it seems. He leased the office at a fire-sale price in the early 1990s after the previous tenant, Ensign Bank, went into receivership.

“I wouldn’t have put this stuff in,” Mr. Sass, 69, growled, sweeping his arm dismissively around the room. “But I got it for nothing.”

Mr. Sass’s bargain-hunting ways extend to his investment firm, which oversees a collection of investment funds, hedge funds and private equity partnerships with $8 billion in assets.

Earlier this year, as shares for oil-services stocks like Halliburton and Baker Hughes languished, Mr. Sass added to his stakes in his flagship M. D. Sass Relative Value Equity Strategy, a group of accounts that require a $10 million minimum investment.

And this spring when the earthquake, tsunami and nuclear crisis in Japan rocked global stock markets, and insurance companies tumbled on early estimates of billions in losses, Mr. Sass again went shopping, this time picking up shares of the insurance company MetLife.

“I went in as everyone else went out,” said Mr. Sass, perched on a chair in an office filled with figures of bulls and bears. “More bulls than bears,” he notes, laughing. In the mighty world of investment managers, Mr. Sass isn’t a big dog.

He does not make bold bets like John Paulson’s gold play, which personally netted Mr. Paulson $5 billion last year. Mr. Sass doesn’t buy stock in a company and agitate management to change its ways as the activist investor William A. Ackman of Pershing Square does. Nor are Mr. Sass’s offices staffed with mathematicians or physicists designing algorithmic trading models for high-speed computers like those of James H. Simons of Renaissance Technologies.

What Mr. Sass does is real meat-and-potatoes investing. He scans the markets for companies trading at prices that he thinks do not reflect their earnings potential. He applies his accounting background to company financials to root out cash flow.

Mr. Sass entered this year bullish, betting that the economy was going to improve and that stocks were undervalued. He thinks the S. P. 500-stock index could end the year closer to 1,500 from its current level of 1,331.

Aided by a small team of analysts, including his son, Ari, Mr. Sass develops broad investment themes and then digs for companies within those sectors that are positioned to benefit.

For instance, he built up his big stake in oil-services companies in the belief that they would gain once drilling resumed in the Gulf of Mexico. He has grabbed onto generic drug makers on the notion that large pharmaceutical companies are on the verge of losing critical patents on blockbuster drugs. And his firm took a sizable position in a company that makes slot machines, an area he argues will show tremendous growth as more states hope to address fiscal shortfalls through gambling.

Mr. Sass’s style has produced an annualized gain of 7.2 percent, after fees, over the past decade versus a 5.3 percent annualized return for an index of value stocks tracked by Chicago research firm Morningstar.

His recent bets in oil-services stocks have paid off, with Halliburton and Baker Hughes both trading about 22 percent above where he bought them. Shares of MetLife are hovering at just about the same price he paid in March.

While Mr. Sass’s funds do not produce eye-popping double-digit returns, neither are investors likely to face those sort of losses either, say people who know Mr. Sass and his investment style.

Article source: http://feeds.nytimes.com/click.phdo?i=98b453520f871f15b516e92880e594d5