By Sudarsan Raghavan and Steven Mufson
Washington Post Foreign Service
Tuesday, July 1, 2008
BAGHDAD, June 30 -- Iraq's government invited foreign firms Monday to help boost the production of the country's major oil fields, beginning a global competition for access to the world's third-largest reserves.
Iraqi Oil Minister Hussain al-Shahristani said the government would seek to tap Western technology and capital to increase Iraqi oil production by about 60 percent, or approximately 1.5 million barrels a day, swelling Iraqi oil revenue and potentially easing tight petroleum markets where prices have doubled in the past year.
Shahristani said 35 companies -- including firms from the United States, Britain, France, Russia, China and India -- had been selected to bid on long-term contracts to provide services, equipment, training and advice on the country's biggest oil fields, which have suffered from age, technological neglect and mismanagement during years of war and economic sanctions.
"The six oil fields that have been announced today are the backbone of Iraq's oil production, and some of them are getting old and production is declining," Shahristani told reporters.
The invitation marked another step toward giving Western companies a significant role in Iraq's oil industry, which the Baathist government nationalized in 1972. But the opening is likely to cause controversy in a nation wary of Western influence over its largest source of wealth and among foreign critics who say the Bush administration wanted to depose Saddam Hussein to gain greater access to Iraqi oil.
Followers of Shiite cleric Moqtada al-Sadr, who opposes Western firms having any control over Iraq's oil, voiced suspicion. "Those agreements should be open and transparent," said Liwaa Smaism, a senior Sadrist lawmaker. "We do not know whether those contracts are ordinary technical contracts with foreign companies, or are they involved in the excavation and production of the oil?"
Other lawmakers said any deals should be made after parliament approves legislation governing Iraq's oil resources. "I do not believe that the companies should sign contracts in such a fragile political situation and confusing security situation," said Mohammed al-Daini, a Sunni lawmaker.
Daini added that "America has come over here to Iraq in order to first control the oil wealth and, second, the entire economical wealth." He said he and other lawmakers should review the contracts to ensure they don't allow Western firms to infringe on Iraq's sovereignty.
Oil experts and companies cautioned that Iraq's government must still approve a hydrocarbon law that would clarify revenue-sharing between Iraq's central and regional governments, the role of the Iraqi national oil company and the framework for paying foreign firms. In addition, foreign firms remain concerned about security.
"How this is going to be done is an open question, and I don't think anyone in the oil industry expects that's going to be resolved anytime soon," said an oil company official who spoke on the condition of anonymity because his company is in the midst of negotiations with Iraq.
Separately, the Iraqi government is finalizing at least five short-term no-bid service contracts with major U.S. and European companies. Iraqi Oil Ministry officials said Monday that the firms were selected because most had extensive experience in Iraq's oil industry before nationalization. The precursors of Exxon Mobil, Royal Dutch Shell, BP and Total were part of the Iraq Petroleum Co., which ran Iraq's oil industry for half a century. BP has information dating to the 1920s on Iraq's oil reservoirs.
"They have geographical studies and other analyses," said Asim Jehad, an Oil Ministry spokesman. "They can advise us, supply us with what we need and bring new technology." Chevron was also among the companies selected for the short-term contracts.
An official at one of the companies, who spoke on the condition of anonymity because negotiations were continuing, said each contract could be worth hundreds of millions of dollars, including the cost of some new equipment. Each of the five contracts would set a goal of increasing oil output by 100,000 barrels a day by late 2009 or mid-2010.
On Monday, Iraqi Oil Ministry and oil company officials said none of the short-term contracts, ranging from 18 months to two years in duration, had been signed yet. Oil industry sources said negotiations have bogged down over several issues, including whether the companies would be paid in oil or cash.
The companies have been providing training, analysis and advice for the past three years, without being paid. None of the companies has sent personnel because of security concerns.
More important than the size of the short-term contracts, however, is the prospect of getting a foot in the door in Iraq, whose proven reserves trail only those of Saudi Arabia and Iran. In an interview last week, Chevron's executive vice president for exploration and production, G.L. Kirkland, said the service contracts were "a starting place" and allowed the companies to "prove what we can do and hopefully open the door" for other oil development deals.
On Monday, the Bush administration denied a report in the New York Times that U.S. advisers to the Iraqi Oil Ministry had influenced the selection of companies for the short-term contracts.
"These are Iraqi contracts. They were made by Iraqis, for Iraqis," said Tom Casey, a State Department spokesman. "And they weren't done at the behest of the United States or with a wink or a nudge or any kind of influence on our part."
An official with one of the oil companies said the Oil Ministry had no model contract when it first asked for the companies to draw up short-term technical support agreements last November. He said that he wasn't surprised U.S. officials were advising the Oil Ministry on the contracts but that he didn't believe contracts had been steered or skewed toward his company. "I wish that were the case," he said.
But Antonia Juhasz, a critic of the administration and author of the forthcoming book "The Tyranny of Oil," said the short-term contracts "are a clear attempt to make an end run around the Iraqi parliament, which has refused passage of a new national oil law long sought by the Bush administration and U.S. oil companies."
Iraqi Oil Ministry officials said none of the short-term deals were "partnership contracts" that gave Western companies a stake in Iraq's oil production or a share in its profits. The officials said they decided to forge ahead despite the absence of an oil law. They said the contracts would be presented to Iraq's parliament for approval.
The oil fields to be developed under the longer-term contracts announced Monday are Kirkuk and Bai Hassan in the northern part of the country and Rumaila, Zubair, Maysan, and West Qurnah in southern Iraq. Two natural gas fields, Akkas and Mansuriyah, would also be opened for bidding, Shahristani said.
The contracts would range from five to 10 years, said Jehad, the ministry spokesman. The deadline for the bids is next March, and contracts could be signed by June 2009. Firms would be required to have an Iraqi partner and hire Iraqis, the officials said.
In recent months, sharp declines in violence have allowed Iraq to increase production levels to 2.5 million barrels a day, its highest since the U.S.-led invasion in 2003. With the new foreign deals, said Jehad, Iraq hopes to boost production to 4.5 million barrels a day within five years.
Ismael al-Hadidi, who works in an oil refinery in the city of Baiji, north of Baghdad, welcomed the foreign oil firms. "Iraq right now needs a lot of technical expertise to help it to move forward in oil," he said.
Abdul Kareem, 48, an engineer in oil-rich Maysan province, said foreign involvement would create new jobs and allow engineers like him to learn the latest technology and skills.
But Ali Khalid, a 39-year-old high school teacher in Fallujah, was convinced that the United States had pushed the Iraqi government's hand. "Americans have given a lot of sacrifices. They will not let it go," he said. "They came to Iraq not to get rid of Saddam, but for oil."
Mufson reported from Washington. Special correspondents Aziz Alwan and Saad al-Izzi in Baghdad and other Washington Post staff in Kirkuk, Najaf, Mosul, Fallujah and Tikrit contributed to this report.