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Iraq set to award contracts in new oil field auction

BAGHDAD - Iraq was poised Friday to begin taking bids from major international energy companies for 10 oil fields as it seeks to ramp up output and become one of the world’s biggest crude producers.

The two-day award of contracts comes after coordinated bombings struck the capital this week, killing 127 people and underlining the fragile security situation in a country still recovering from years of war and sanctions.

Iraq relies massively on oil sales for its economic growth and government income, and it will be hoping the auction generates positive headlines ahead of a parliamentary election scheduled for March 7.

“It involves several of Iraq’s undeveloped or underdeveloped fields so from that standpoint it has very substantial implications for Iraq’s oil industry and the country as a whole,” Alex Munton, a Middle East analyst at research group Wood Mackenzie, told AFP.

“Economically, it has tremendous significance ... This is a very important event.”

The biggest oil fields on offer in the bid round, which follows a similar auction in June, are the West Qurna-2 and Majnoon fields, which have estimated reserves of 12.9 and 12.6 billion barrels of oil respectively.

West Qurna-2 lies in southern Iraq, while Majnoon is slightly further east, near the Iranian border.

Among the 44 companies involved are energy giants BP, ExxonMobil, Chevron, Total and Shell, along with an array of Chinese and Indian firms, a sign of the Asian giants’ growing hunger for natural resources.

Successful companies will be paid a fixed fee per barrel, not a share of the profits, and it will only be paid once an agreed production threshold has been reached.

The auction, which will kick off at 0500 GMT, will deal with one field at a time, five on Friday and five on Saturday.

Bidders will submit their offers which will then be assigned a score, depending on the fee per barrel each firm seeks and the output it says it can produce from the field.

The firm with the highest score will then have its fee compared to the maximum fee the ministry is willing to pay.

If the bid matches, or is lower than, Baghdad’s designated fee, the contract will be awarded. If the bid is above the ceiling, the firm will have 30 minutes to decide whether or not to lower its offer.

The auction comes just three days after five co-ordinated bombings struck Baghdad, mostly targeting government ministries, the third such attack since August.

Bombers have also repeatedly hit Iraq’s oil infrastructure, most recently sabotaging the main export pipeline from northern Iraq to the Turkish Mediterranean port of Ceyhan in November.

In the first bid round in June, only one deal was reached — with Britain’s BP and China’s CNPC — because of the perceived low return on investment being offered by the Iraqi government.

Since then, however, two other foreign consortiums have agreed to the tough terms and signed agreements with Baghdad, which wants to boost its oil production to seven million barrels per day (bpd) within six years, from the current level of 2.5 million barrels.

In the longer term, Oil Minister Hussein al-Shahristani is targeting 10 to 12 million bpd, which would rival Saudi Arabia in terms of overall output.

At 115 billion barrels, Iraq has the world’s third-largest proven oil reserves, behind only Saudi Arabia and Iran. Oil sales provide 85 percent of government revenues.

There are fears that the country’s targets for oil production will cause tensions within oil cartel OPEC, which assigns individual output quotas for member countries.