HOUSTON – International oil companies poised for a return to Iraq find themselves in an unfamiliar spot, preparing to assist rather than lord over drilling operations and taking risks that at first glance don't appear worth the effort.
The bigger risk, however, might be failing to seize whatever opportunity presents itself in a country with the third-largest petroleum reserves in the world.
Iraq desperately needs oil revenue for reconstruction, and it wants to double its daily crude output within four to five years.
On Monday, the country's Oil Ministry is set to auction off service contracts that in total may pay up to $16 billion over 20 years to the dozens of oil companies that have qualified to bid.
To put the potential payout into context, Exxon Mobil Corp. on its own posted a $45.2 billion profit last year, earnings generated largely by extracting oil and gas, not taking fees to help others produce it.
When international oil companies agree to work in a country, they're typically awarded a portion of the oil that's pulled from the ground. That's how they produce profits and increase reserves, a vital asset. They don't normally work for fees alone.
In Iraq, however, the goal will be to get their foot in the door and eventually use their vast sums of capital and know-how to wrangle a greater stake in the developments — namely, a share of the production.
"Right now, they'll take whatever is available," said Fadel Gheit, an energy analyst at Oppenheimer & Co. "But this is not their business. Their business is to be in charge. They're not spectators. They're players."
With an estimated 115 billion barrels of proven reserves — behind only Saudi Arabia and Iran — Iraq could provide a rare opportunity for international producers that are finding it harder and more expensive to gain access to new oil.
"The bigger picture is this could lead to other things," said Brian Youngberg, an analyst at Edward Jones. "I'd think that's what their plans are: to get more of a piece of the action down the road."
The technical-service contracts that are likely to be sought by Exxon, Royal Dutch Shell PLC, Chevron Corp. and 30 other oil companies hardly seem worth the risk, at least for the largest producers.
And the risks could be great, both political and physical.
American troops are slated to pull out of cities in four days, and there are new questions about the ability of Iraqi troops to maintain stability.
In the last week alone, a wave of violence has left more than 200 people dead.
There are already warnings from some Iraqi lawmakers about the dangers of allowing oil companies back into Iraq. Some of the same companies expected to bid on contracts Monday were kicked out of the country more than 30 years ago, after holding a tight grip on the nation's oil industry since the 1920s.
There's still no law governing oil revenue in Iraq. There's also a serious rift between the semiautonomous Kurdish region, which has two of the six oil fields up for bid, and the central government in Baghdad.
Each has accused the other of setting up illegal contracts with overseas oil companies.
"How the security situation materializes is of great importance," Ray Irani, the chairman of Occidental Petroleum Corp., said on a conference call in April.