Iraq holds major oil field auction

A worker turning a valve at the Shirawa oil field, where oil was first pumped in Iraq in, outside the northern city of Kirkuk. (File photo, 19 January, 2004)

Iraq began taking bids from major international energy companies yesterday in an auction of 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.
“The second round represents a new era in the history of the Iraqi oil industry,” Prime Minister Nuri al-Maliki said as he opened the auction.
He hailed the transparent fashion in which the bid round was being conducted, saying it was “very important because many international companies are participating, in public and on television.”
“The old way was in darkened rooms, behind closed doors. But today, it is clear to everyone,” Maliki said.
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.
“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.
The auction was to deal with one field at a time – five yesterday and five today.
Bidders submit their offers, which are then 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 then has 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 is awarded. If the bid is above the ceiling, the firm has 30 minutes to decide whether or not to lower its offer.
 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.