Iraq To Limit No-Bid Deals With Big Oil

The Iraqi government is planning to limit no-bid contracts being negotiated with several major oil companies to one year to avoid overlap with longer-term deals expected to be signed next June, a senior Oil Ministry official said Thursday.

The no-bid contracts have sparked controversy because several major Western firms have been involved in the discussions. There are concerns that granting such contracts to Western oil companies could feed perceptions that U.S.-led forces toppled Saddam Hussein to grab the country's natural resources.

Iraqi officials have stressed that the contracts are only for technical advice and equipment and the companies will receive money in return, not a share of oil production. They say the deals are meant as a stopgap measure to boost oil production until the government completes a bidding process next June on the development of six major oil fields and two natural gas fields.

But some believe the no-bid deals could give the Western firms a bidding advantage in that process, which Oil Minister Hussain al-Shahristani said last month would include 35 foreign companies. The firms he named included seven from the U.S., three from Britain and others from countries like Russia and China.

Five of the oil fields up for longer-term development - Rumaila, Zubair, West Qurna 1, Maysan and Kirkuk - are also included in the no-bid contracts under negotiation, a senior oil official said Thursday. For this reason, the Iraqi government decided to limit those short-term deals to one year instead of two, he said.

"We want to avoid any overlap in this process," the official told The Associated Press, speaking on condition of anonymity because he was not authorized to talk to the media about this issue.

He said the government will soon ask the majors to submit one-year proposals.

Al-Shahristani was expected to announce the completed contracts at the end of last month. But he said the government was still negotiating the deals because the firms wanted to participate in oil field production rather than simply provide consultancy services for cash.

Neither al-Shahristani nor the senior oil official named the companies involved.

But Iraqi officials have said the government is negotiating short-term technical service contracts with Royal Dutch Shell PLC, BP PLC, Exxon Mobil Corp., Chevron and Total to boost oil production by 500,000 barrels per day.

The U.S. State Department has said it provided advisers to help draft these contracts, a subject that has generated controversy in Washington.

Four Democratic senators, including Senator Carl Levin, on Wednesday called on the State Department's inspector general to investigate whether agency employees encouraged oil deals between Iraq and Western companies.

The State Department insists it only provided technical advice and did not influence the process of granting contracts.

Iraq is currently producing about 2.5 million barrels of oil per day, its highest rate since the U.S.-led invasion in 2003. The government hopes to produce 4.5 million barrels per day by 2013.

Iraq sits on the world's third-largest oil reserves with more than 115 billion barrels, but its oil industry has been battered by years of war and U.N. sanctions.

As for the implications of Iraq's announcement to sign deals with major oil companies, "just announcing it is good news," said Leo Drollas, the senior oil analyst and forecaster at the Center for Global Energy Studies, who added that the move by Iraqi officials had been long-anticipated.

"The announcement would, on its own, without anything else, bring the prices down, the futures prices in particular, because it's a positive event. It will put more oil onto the market," Drollas told CBSNews.com last month, "and more oil is desperately needed."

Violence in Iraq is at its lowest level in four years, allowing a spike in production. But the process of awarding development contracts has been delayed by the inability to finalize a new law on how to divide the country's oil resources. Negotiations over the law have been stalled by political squabbles between the central government and the Kurds, who want more local control over their oil fields.

The Kurdish regional administration in northern Iraq has signed more than 20 oil deals with foreign firms to work in Kurdish-controlled fields since it drafted its own oil and gas law in August 2007.

The Shiite-led Iraqi central government says the deals are invalid with no national oil law in place.

A senior U.S. official in Baghdad said Thursday that Washington still hopes Iraqi lawmakers can pass a new oil law despite the current impasse over Kurdish objections. The official spoke on condition of anonymity because he was not authorized to make public statements.