Iraq Opens Bidding on Oil Field Contracts

By Mary Beth Sheridan
Washington Post Foreign Service
Tuesday, October 14, 2008

BAGHDAD, Oct. 13 -- Iraq opened bidding Monday on the first round of contracts to develop its oil fields since the fall of Saddam Hussein, a move intended to jump-start a sector crucial to the country's rebuilding.

Iraq has the world's third-largest oil reserves. But despite five years of efforts and $2.7 billion in U.S. reconstruction funds, Iraqi production is still well below the frequently cited U.S. goal of 3 million barrels per day.

Oil fields have been looted and attacked by insurgents since the 2003 U.S.-led invasion, technical experts have fled abroad because of violence and the infrastructure is creaky after years of international sanctions and neglect. Iraq needs billions of dollars of investment to increase production, experts say.

"Current production is by no means meeting demand for the reconstruction of the country," Iraq's oil minister, Hussein al-Shahristani, told reporters after meeting Monday in London with representatives of three dozen international oil companies. "International companies are needed to fast-track development. The response was fairly encouraging."

Vera de Ladoucette, director of Middle East research for Cambridge Energy Research Associates, noted that the first round of bidding involves fields representing a third of known Iraqi oil reserves.

"It's a huge step," she said.

Shahristani presented the oil companies with requirements for their bids on 20-year contracts to develop six major oil and two natural gas fields. Bids are due in six months and the government is expected to choose the winners in June, he said. Oil analysts estimate the contracts will lead to increases in production by 2011 or 2012.

Iraqi authorities are expected to soon announce a second round of bidding on other fields.

Oil is critical to Iraq's economy and generates more than 90 percent of government revenue. But bringing in foreign companies has been a touchy subject in this country, which nationalized its oil industry in 1972. Politicians have voiced suspicions that the U.S.-led invasion was aimed at giving Western companies access to oil.

Iraq's Oil Ministry scuttled an earlier attempt to award no-bid, short-term technical contracts to a handful of Western companies because it said talks had dragged on too long. Iraq signed a $3 billion oil development deal in August with China's state-owned oil company, reviving a moribund contract with the company from the 1990s.

Bob Fryklund, an oil expert with IHS, a research and consulting firm, said the kickoff of the bidding Monday "signifies really the meeting of the minds in the political realm that allows this to go forward."

Legislation aimed at establishing a new framework for the oil industry has been bogged down in parliament since last year. It would dictate how revenue is shared among regions and spell out the rights of foreign investors.

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