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Foreign Oil Giants Bid on Iraq's Resources

In this July 3, 2008 file photo, a worker controls a valve on a pipeline at the Zubair Moshrif oil field, 372 miles southeast of Baghdad, Iraq.
AP Photo/Nabil al-Jurani
Iraq opened up some of its massive oil and gas fields to foreign firms on Tuesday, kicking off a landmark licensing round it hopes will help fuel its postwar reconstruction efforts.

In a televised ceremony, international oil companies were invited to submit bids for six oil and two gas fields, a process that marked their return to the country over 30 years after Saddam Hussein nationalized the oil sector and expelled the foreign firms.

The licensing round coincided with Iraq's assuming formal control over its cities - a defining step toward ending the U.S.'s combat role in the country. That has raised worries about a new escalation of violence that could complicate business for oil companies, already concerned about some lawmakers' objections to the bidding process.

Iraqi Prime Minister Nouri al-Maliki sought to allay companies' concerns, telling executives from the more than 30 international firms vying for the 20-year service contracts that the government would do all it can to secure their interests.

Al-Maliki said the government would "offer security protection, offer all guarantees for their investments and offer all the facilities needed to ensure the success of this process."

The fields on offer hold about 43 billion of Iraq's 115 billion barrels of crude reserves - among the largest in the world.

The process seemed to run into difficulties for the first two fields on offer.

Two consortiums submitted offers for the Rumaila oil field, which holds 17.8 billion barrels in crude reserves. British giant BP PLC and China's CNPC made up the first consortium while U.S. giant Exxon Mobil and Malaysia's Petronas comprised the second.

Under the service contracts, the companies would be paid a per barrel fee for any crude they produce in excess of a minimum production target.

Both groups were asked to revise their bids, said Oil Minister Hussain al-Shahristani, because they were asking for more money per barrel than the government wanted.

No bids were offered on the second field on offer, Mansouri.

The field, located in the restive Diyala province, is an undeveloped gas field estimated to hold 3.3 trillion cubic feet of reserves with production potential of 330 million cubic feet a day. That province has weathered some of Iraq's worst violence.

Iraqi officials have estimated that based on crude oil at $50 per barrel, the companies could earn around $16 billion in total while Iraq would bring in over $1.7 trillion.

The process, however, has been mired in controversy linked to Iraq's ethnic and sectarian political divides. Lawmakers opposing the licensing round say the contracts would be unconstitutional since the parliament will not be allowed to ratify them.

Al-Shahristani has said he wants the cabinet of ministers to approve the deals instead, and that the process will be completely transparent.

But much of the ire basically stems from the country's various groups vying for a slice of the oil revenue, with the Kurds in the semiautonomous north particularly disgruntled at the central government's insistence that the deals they signed earlier with international oil companies are illegal.

Further complicating the effort is the lack of a national oil law. Some analysts have said this could leave oil companies vulnerable to having their contracts voided by a subsequent government.

As part of the contracts, the companies have to provide so-called "soft-loan" signature bonuses to the government which total about $2.6 billion.

Al-Shahristani seemed to touch on those concerns at the start of the ceremony, saying that "we will face a number challenges, and all parties will need to work hard to overcome them."