Iraq Opens Up Oil Fields, Runs Into Trouble

Iraq opened up some of its massive oil and gas fields to foreign firms on Tuesday but only one deal was struck by midmorning in a troubling sign for the country's hopes of reconstruction.

International oil companies were submitting bids for six oil and two gas fields 30 years after Saddam Hussein nationalized the oil sector and expelled foreign firms. The televised process coincided with Iraq assuming formal control over its cities — a step toward ending the U.S. combat role in the country.

But from the start, the licensing round appeared to be running into trouble.

Three fields were offered by midmorning but only one deal was struck, even as Iraq's prime minister sought to allay company concerns that poor security could damage business prospects and contracts could be voided by future governments.

The government was hoping that the high-profile licensing round — televised to prove its transparency — would help with budget woes while rebuilding Iraq's dilapidated oil industry.

Crude sales fund 90 percent of the government's budget, and the collapse of oil prices in the second half of 2008 hit Iraq hard.

The country's oil industry has suffered from years of neglect and sanction, and foreign firms are seen as offering the necessary expertise to help raise production from current levels of 2.4 million to 4 million barrels per day.

Some analysts have said companies may be unwilling to commit to major ventures in Iraq, opting to wait and see how the security situation develops after U.S. forces pulled out of urban areas.

Al-Maliki said at the start of the day's ceremony that the government would "offer security protection, offer all guarantees for their investments and offer all the facilities needed to ensure the success of this process."

Two consortiums submitted offers for the Rumaila oil field, which holds 17.8 billion barrels in crude reserves. British giant BP PLC and China's CNPC made up the first consortium while U.S. giant Exxon Mobil and Malaysia's Petronas comprised the second.

Under the service contracts, the companies would be paid a per barrel fee for any crude they produce in excess of a minimum production target. The Exxon Mobil-led consortium requested $4.8 per barrel for production over the minimum while BP wanted $3.99 per barrel, Oil Minister Hussain al-Shahristani said, while the ministry was willing to pay $2 per barrel.

BP agreed to match the ministry's price and won the contract for Rumaila, said al-Shahristani. Exxon Mobil had refused to revise its bid, he said.

No bids were offered on the second field on offer, Mansouria.

The field, located in the restive Diyala province, is an undeveloped gas field estimated to hold 3.3 trillion cubic feet of reserves with production potential of 330 million cubic feet a day. That province has weathered some of Iraq's worst violence.

The third field offered, the 2.4 billion barrel Bai Hassan field in the Kirkuk region in the north, drew interest from only one consortium grouping ConocoPhillips and China's CNOOC Ltd. The companies bid $26.7 per barrel for production over the minimum target of 230,000 barrels per day, while the ministry had estimated per barrel payments of about $4.

Al-Shahristani said they were asked to revise their bids.

Sabah al-Saidi, the oil ministry's legal adviser, told The Associated Press that the ministry was not willing to be flexible about the price it was seeking, and that any fields not awarded Tuesday would be re-offered at later rounds.

Iraq has not passed a new hydrocarbon law and some lawmakers have complained that al-Shahristani's insistence on sidestepping the parliament and having the cabinet of ministers ratify the deals will render them unconstitutional.

Iraqi officials have estimated that based on crude oil at $50 per barrel, the companies could earn around $16 billion in total. Iraq, meanwhile, would get over $1.7 trillion.

As part of the contracts, the companies have to provide so-called "soft-loan" signature bonuses to the government that total about $2.6 billion.