Iraq opens door to foreign bidding to increase oil output

Exxon Mobil, Chevron, and Shell are among the prequalified companies vying for contracts.

4.5 million barrels: An oil refinery opened in March in the southern Iraqi city of Najaf with a goal to pump 20,000 barrels per day. With major foreign companies bidding to develop other fields, Iraq hopes to boost production to 4.5 million barrels per day.

Iraq has invited 35 prequalified foreign companies to bid on contracts for the further development of six existing and operational oil fields and two gas fields. The Monday announcement, it says, is a bid to boost output levels by about 80 percent to 4.5 million barrels per day (b.p.d.) by 2013.

The move, while vitally important to rebuilding this country's war-shattered economy, is expected to stoke more controversy over the future of Iraq's oil industry and raise many questions regarding unresolved oil legislation, experts say.

Six of the prequalified companies – British Petroleum (BP), BHP Billiton, Chevron, Exxon Mobil, Shell, and Total – were already involved in noncompetitive negotiations with the Ministry of Oil to finalize service and consulting contracts seen as granting them a strong foothold in the country and a competitive edge over the others.

Major oil firms have been positioning themselves for years to gain access to Iraq's vast oil reserves, which are estimated at 115 billion barrels – the world's second largest after Saudi Arabia.

The news of those early negotiations between major oil and the government returned to the forefront here the debate that America's true motives for invading Iraq in 2003 were about oil.

A group of US senators wrote last week to Secretary of State Condoleezza Rice urging her to ask the Iraqi government to postpone signature of any oil contracts until there is agreement in Baghdad on a national oil law, stalled since late 2006.

"We fear that any such agreements signed … without an equitable revenue sharing agreement in place would simply add more fuel to Iraq's civil war," the senators wrote.

With the involvement of foreign firms, Iraq says it aims to add at least 500,000 b.p.d to its current production of 2.5 million b.p.d from these contracts.

But one major concern is that this move is likely to complicate efforts to reach an agreement on the stalled hydrocarbons law. The long-delayed legislation is designed to divide revenues among Iraq's feuding ethnic and sectarian groups. It's seen by many as an important condition for any meaningful process of national reconciliation.

Baghdad is already enmeshed in a bitter dispute with the semiautonomous Kurdish region over oil and gas deals it signed unilaterally with a slew of foreign companies including American firms.

"It's a milestone event for the new Iraq to announce the first round of licenses for the development of oil fields," a beaming Hussein al-Shahristani, Iraq's oil minister, said Monday. "All stages will be public, transparent, clear and competitive."

To be developed are the aging fields of Rumaila, Maysan, West Qurnah Phase 1, and Zubair in the south; Bai Hassan and Kirkuk in the north; as well as the two gas fields of Akkas and Mansuriyah, said Mr. Shahristani.

He said that there were 120 applicants for the contracts. The ministry will hold a conference in London in September to announce the start of the tender process, which will last until March 2009. The minister expected agreements to be signed by June of next year.

Shahristani stressed that a key criterion for winning the bid was willingness to maintain a staffed office and presence in Baghdad. So far, most foreign investors have been shying away from operating in Iraq because of security concerns.

"The security situation is improving and from now until these agreements come into effect in 2009, Iraqi forces will be able to provide adequate protection," said Shahristani.

Issam Chalabi, a veteran of Iraq's oil industry who served as minister from 1987 to 1990 during Saddam Hussein's rule and lives in Jordan, expressed concern and bewilderment at Iraq's decision to announce development and service deals with foreign companies for some of the country's oldest oil fields.

"We used to produce from these oil fields 4 million b.p.d in 1979 and 3.5 million b.p.d in 1990," says Mr. Chalabi, who says he is not opposed to foreign involvement in Iraq's oil industry.

He says a big question mark surrounds the technical support and service contracts that the government is negotiating separately with the big US, French, and British firms, which will also take part in the future bidding.

"They will be already in possession of the details and they would have studied the situation. There is no fairness," he says.

Shahristani was angered when prodded by reporters for details on the contracts.

He said negotiations are ongoing and no contracts have been signed yet adding that "time is running out."

He explained that the only reason Iraq wanted to rush with these noncompetitive service contracts is to be able to boost production right away to take advantage of surging oil prices that have surpassed $140 a barrel.

"These contracts will not interfere in any way with the licensing round and there will be no preference for any company … except via the competitive process we are speaking about now. The two issues are separate," he said.

Abdul-Mahdi al-Ameedi, an Oil Ministry official, said later that differences over "financial and contractual terms" were holding up these six short-term contracts. He refused to elaborate further.

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