By Duncan Sutherland – Exclusive to Heavy Oil Investing News

The biggest news of the week was frenetic activity in the nascent Iraqi oil sector. It was confirmed that negotiations between Iraq’s government and ExxonMobil (NYSE:XOM), Shell (NYSE: RDS.A), BP (NYSE:BP), Chevron (NYSE:CVX) and Total (NYSE:TOT) to produce short-term technical support contracts and to boost production at southern fields like Rumaila, West Qurna, Zubayr, Maysan, as well as two major fields in Iraqi Kurdistan; Kirkuk and Bay Hassan had been concluded. It is expected that the contracts will be finalized and signed by the end of July.

Additionally, tenders for development of two natural gas (Mansuriya and Akkas) and the six aforementioned oil fields are being accepted by Iraq’s government. Oil minister Hussein al-Shahristani made it clear that the winning bidders would have to partner with Iraqi companies and bidding would be open to Western and non-Western oil companies. Iraq hopes to boost its production of oil by 1.5 million barrels a day, from current production of 2.5 m barrels.

The reintroduction of international oil companies to the country is widely being hailed as a portent of Iraq’s recovery and stabilization. Lost in the excitement has been the continuing inability of the parliament to pass a national oil law. Without a framework specifying how oil revenue is to be split between the national and muhafadhat (provincial) governments, exploration and extraction will be difficult. Adding to the complexity is the fact that Kirkuk and Bay Hassan fields are in the Kurdish region of Iraq, which has a separate layer of government.

In the Canadian oil sector, junior driller Grey Wolf Inc (AMEX:GW) announced it would reject a third takeover offer from Precision Drilling Trust (TSE:PD:UN). Grey Wolf maintained the $10/ share offer (almost $2.2 billion) was undervaluing the company, especially given its pending merger with Basic Energy Services Inc. (NYSE:BAS). This is likely to be Precision’s last attempt to acquire Grey Wolf. In early trading on Monday (June 30th) BAS and GW were trending upward, while PD.UN was softening.

ARC Energy Trust (TSE:AET.UN) saw an active week, rallying on projections of almost 10% more production over three years. ARC will increase the monthly dividend to investors by 17%.

EnCana (TSE:ECA) acquired properties in Louisiana. The play gives EnCana opportunity for the exploration and production of difficult natural gas sources from the Haynesville shale formations. Indigo Minerals LLC sold EnCana the properties for $457 million. Shale formations offer particularly problematic drilling, but quantities of gas are often well worth the increased input costs.

Oil sands companies were launching a publicity blitz touting their environmental efforts. This was partly in response to the federal Liberal party’s introduction of a carbon tax plan they would implement if elected. As well, environmental groups such as Greenpeace had started websites ridiculing oil sands producers as “greenwashing”.

Occidental Petroleum (NYSE:OXY) bought a 15% stake from Enerplus Resources Fund (NYSE:ERF) in the Joslyn project in Alberta’s oil sands, a higher price than expected. The purchase cost OXY $500 million Canadian, and was only the first play in a big week for the company. It also concluded exploration and production agreements with Libya’s National Oil Company for enhanced oil recovery in the Sirte basin.

Even though last weekend’s conference in Jeddah, Saudi Arabia saw Saudi Aramco commit to expanding production, a weak US dollar and continuing supply chain threats kept oil at its plateau through the last week. This week will see the World Petroleum Congress’s meeting in Madrid from Monday through Thursday. It is expected that the meeting will focus on trying to stabilize world energy markets, with some discussion of the role of speculators in high oil prices.

America’s House of Representatives reintroduced a bill that would require the Commodity Futures Trading Commission to adopt position limits regulating the number of contracts one trader could control in energy markets. Named the PUMP act (Prevent Unfair Manipulation of Prices), it also calls for international energy commodity trading to be subject to U.S. rules if the energy will be delivered to America or if the contract is negotiated from America. The bill will face tougher opposition in the Senate and a threatened Presidential veto.

Reports over the weekend that America was conducting clandestine operations in Iran aimed at destabilizing the government made crude oil for August delivery surge on the New York Mercantile Exchange on Monday morning.

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