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Iraqi Oil Auction Draws Strong Foreign Interest

Workers carry out checks at the Kirkuk oil field in northern Iraq.
Iraq is expected to disclose which foreign oil companies have won contracts to develop eight of its massive oil and gas fields.

Prime Minister Nuri al-Maliki opened the meeting in Baghdad, saying that foreign investment in Iraq's oil and gas sector is necessary for the rebuilding of the country.

He was speaking to executives of 31 oil companies, including ExxonMobil of the United States, Anglo-Dutch Shell, Sinopec of China, Total of France, and others from Russia, Indonesia, India and South Korea.

They are bidding for the right to share the long-term production of six key oil fields and two natural-gas fields, with the aim of nearly doubling Iraq's production to 4 million barrels per day in the next five years.

First word from the Baghdad meeting is that a BP-led consortium has accepted a contract to develop the biggest oil field, the southern Rumaila field.

Iraq has the world's third-largest proven oil reserves, but its production rate is low because of war, sanctions and neglect over many years, both before and after the U.S.-led invasion of 2003.

Disputed Entry

The reentry of foreign companies into the Iraqi oil industry is controversial, with some members of parliament and oilmen opposing the sale of Iraqi resources to foreigners as illegal. The legislature has failed to pass a new law regulating the industry because of disagreements between Iraq's Arabs and Kurds about who will control some northern fields.

Faruq Muhammad Sadiq, an executive of Iraq's South Oil Company, which produces most of the country's crude, says he opposes the plan because the fields on offer are already highly productive and could be developed further by local entities.

"These fields in particular, which are currently being talked and argued about and disputed over, are in fact productive fields and this means that they are the backbone of the Iraqi economy," Sadiq says.

"If we're producing 100 percent of oil, 80 percent of it is produced by these fields. Hence, we do not need a foreign company to come and develop these fields at a time when we are capable of doing this if we have financial and logistical support from the Ministries of Oil and Finance."

Sadiq also expressed fears that the return of international oil companies may also herald the return to the monopolies of the 1920s, when Iraq's huge reserves were first tapped.

Security too remains an issue. During the insurgency, militants set out to sabotage energy production, so as to deny revenue to the central or regional authorities. The country is quieter today, but it's impossible to predict whether the oil and gas facilities in foreign hands will continue to attract sabotage.

Paying To Get In

In addition, the terms of the deals being offered by Iraq are not considered very favorable. Winning companies must put down a deposit of $2.6 billion before even beginning their investment in the oil fields themselves.

They will also have to join a partnership with Iraqi government-owned companies, and share management of the fields despite fully financing their development.

Further, they will be paid a fixed fee per barrel, not a share of the profits, and the fee will only be paid once a production threshold set by the government is reached.

But the bidding companies will accept these conditions because they want to gain a toehold in the potentially highly lucrative Iraqi market for the future.

Ihsan Abdul Jabbar, head of the Energy Committee at the Basra Investment Commission, told Reuters television that in any case it's too late for objections from Iraqis as the country has to honor commitments it has made.

"The Oil Ministry has started working in this project for several months now, therefore those who have a different vision should have been more active in the past months because the foreign companies, the private foreign sector, foreign expertise and world companies view these days as important in shaping the nature of relations with the Iraqi government as represented by the Ministry of Oil," Jabbar says.

"The Oil Ministry insists on going on with its decision not only because of technical reason but, I think, it views the issue as a way to prove its ability to run its facilities."

The bidding is expected to continue into July 1.

compiled from agency material