Iraq holds 4th postwar oil and gas auction

AP News
Posted: May 30, 2012 4:42 AM
Iraq holds 4th postwar oil and gas auction

A Kuwaiti-led energy consortium on Wednesday won the right to search for oil and gas in southern Iraq as part of the country's fourth postwar energy auction. Two natural gas exploration deals meanwhile attracted no bidders.

Exploration rights in a dozen areas of the country are on offer in the two-day auction, with 39 foreign energy companies registered to compete.

The Iraqi government seeks foreign investment to build up an energy sector hit by years of neglect and violence, including the turmoil following Saddam Hussein's 2003 ouster. Iraq holds the world's fourth largest oil reserves and oil revenues make up nearly 95 percent of the country's budget.

In an opening speech, Iraqi Oil Minister Abdul-Karim Elaibi said exploration of the areas up for bidding will increase Iraq's oil reserves and help the country develop its natural gas industry. The ministry will "spare no efforts to help and support the companies as partners to achieve the common interests," he said.

Still, conditions appeared less attractive than in the three previous rounds held since 2009.

Only areas with undetermined hydrocarbon resources are on offer, while previously the rights to known big and medium oil and gas fields were being auctioned off. Operating costs for energy companies could be high because most of the 12 exploration blocks are in remote and unsafe areas and lack infrastructure.

The government also added a clause for the first time that prevents companies from signing deals with regional authorities without the approval of the central government in Baghdad. Companies that violate the clause will have their contracts terminated, said Sabah al-Saidi, the deputy head of the Oil Ministry's Licensing and Petroleum Contracts department.

The new clause came in response to Exxon Mobil's bold move last year to sign six deals with Iraq's northern self-ruled Kurdish region without Baghdad's approval. In return, Baghdad banned the Texas-based company from taking part in the current bidding, but kept a deal to develop the 8.6-billion-barrel West Qurna Phase One oil field in the south.

Wednesday's auction started with no one bidding for an 8,000-square-kilometer (3,100-square-mile) block in northwestern Iraq with presumed natural gas fields. Another potential natural gas lot covering 9,000 square kilometers (3,500 square miles) of southwestern Iraq also found no interest.

Government officials said the two blocks would be offered again Thursday, saying companies interested in those areas couldn't make it to Baghdad. He did not name the companies.

In a third bid, Kuwait Energy and its partners, Turkey's TPAO and the UAE's Dragon Oil, won the rights to explore a 900-square-kilometer (350-square-mile) area in Iraq's oil-rich southern Basra province. The group will be paid $6.24 for each barrel of oil equivalent they find.

The Iraqi Oil Ministry had approved 47 international energy companies to participate, but only 39 companies paid the participation fee.

Top among the approved companies are the Anglo-Dutch Royal Dutch Shell, UK's BP, Chevron and Occidental of the U.S., China's CNOOC and CNPC, Japan's Japex, Russia's Lukoil and others.

A Russian Ham Sandwich
Derek Hunter

The blocks are expected to add about 29 trillion cubic feet of natural gas to the current 126.7 trillion cubic feet in reserves, and about 10 billion barrels of oil to the current proven 143.1 billion barrels of proven reserves.

Nearly 70 percent of them hold natural gas and the rest a combination of oil and gas.

Five of the blocks are in Iraq's western Anbar province or shared between Anbar and neighboring provinces; two are in the northern Ninevah province; one is shared between central Diyala province and neighboring Wasit province while the rest are scattered throughout southern Iraq.

The bidders are vying for service contracts in which they will be paid a flat fee, rather than the more lucrative production-sharing contracts in which they receive a share of the hydrocarbons found.

Since 2008, Iraq has awarded 15 oil and gas deals to international energy companies, the first major investments in the country's energy industry in more than three decades.

The goal was to boost daily production from about 3 million barrels now to 12 million barrels by 2017. But Iraq is mulling whether the target should be revised downward to fewer than 10 million barrels, considering a possible drop in demand on oil in the international market and infrastructure bottlenecks.