Iraq auctions oil rights, but US bidders mostly absent
Monday, December 14, 2009 at 03:32PM Iraq auctioned the rights to develop several major oilfields in different parts of the country in its biggest post-war auction over the weekend. Roughly one-third of Iraq's 115 billion barrels of oil reserves were up for auction. The service contracts awarded over the past few days could boost the country's oil production from its current 2.5 billion barrels a day to twelve billion barrels a day "in a few years" according to oil minister Hussein al-Shaharistani.
Russian, European and Chinese companies won most of the contracts. Of the seven US companies registered to bid, only one, Exxon Mobil, emerged as the leading partner in a consortium, while a second US company, Occidental Petroleum, has a minority stake in one other. The Chinese National Petroleum Corporation bid on more contracts than any other company. Shell and Malaysia's Petronas won the rights to the huge Majnoon field's 12.58 billion barrels. Shell-Petronas said they would raise production from the current 45,900 barrels per day to 1.8 million barrels per day over ten years.
Under the terms of the 20-year service contracts, the Iraqi government will pay companies a fee in the range of $1.35–$1.50 for each barrel produced above the current output level.
The absence of strong US interest will likely surprise many. The US invasion of Iraq was widely seen to be driven by the desire for the country's oil, and since that invasion the United States has been heavily involved in advising and providing training to Iraq's oil ministry. Now, however, American oil companies have largely stayed away from the Iraqi oil.
Some of the US reluctance to invest in Iraq could be related to that country's instability, likely to become worse when the US military withdraws. Five oilfields put up for bidding received no bids at all because of their location in central and northern Iraq, areas contested by insurgents. The Kurdish chairman of the Iraqi parliament's oil and gas committee, warned that the contracts are illegal and that companies should think twice before signing. As well, American companies are at a disadvantage in relation to Chinese and Russian rivals, whose labour costs and risk are much lower, not having shareholders to answer to. The high costs of security for US companies would offset the relatively low per-barrel fee they would earn on the investment. Risk is further augmented because of the lack of legal protection for foreign investors in Iraq.
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