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Iraq to award oil contracts to foreign firms

Latest update : 2008-06-22

In an effort to reinvigorate oil extraction in Iraq, the country will allow 41 international energy firms to operate in its territory and tap underdeveloped oil fields, according to a ministry spokesman.

Iraq will award contracts to 41 foreign oil firms in a bid to boost production that could give multinationals a potentially lucrative foothold in huge but underdeveloped oil fields, an official said on Sunday.

"We chose 35 companies of international standard, according to their finances, environment and experience, and we granted them permission to extract oil," oil ministry spokesman Asim Jihad told AFP.

Six other state-owned oil firms from Algeria, Angola, Pakistan, Thailand, Turkey and Vietnam will also be awarded extraction deals, Jihad said.

The agreements, to be signed on June 30, are expected to be short-term arrangements although the ministry has yet to provide a timeframe.

The deal paves the way for global energy giants to return to Iraq 36 years after late dictator Saddam Hussein chased them out, and is seen as a first step to access the earth's third largest proven crude reserves.

"They will have the first right to develop the fields," said Jihad, adding that competitive bidding would come later once the nation's long-delayed hydrocarbon law is passed by parliament.

Iraq wants to ramp up production by 500,000 barrels per day from the current average production of 2.5 million barrels per day (bpd), a level about equal to before the US-led invasion in March 2003.

Monthly exports of 2.11 million bpd currently form the bulk of the war-torn nation's revenues, and the oil ministry is keen to raise capacity over the next five years to 4.5 million barrels per day.

Iraq's crude reserves are estimated at about 115 billion barrels, but it is sorely lacking in infrastructure and the latest technology to which it was denied access under years of international sanctions after the 1991 Gulf War.

Before major investment is injected, the Baghdad parliament would also first have to finalise a controversial oil law considered by Washington as a key step towards national reconciliation.

The proposed law stipulates a fair distribution of oil revenues between Iraq's 18 provinces, a sensitive matter in a country wracked by inter-ethnic violence.

Oil Minister Hussein al-Shahristani said in February that he hoped an oil law would be finalised this year, but officials have said little progress has been made.

One major concern is whether the autonomous Kurdish region of northern Iraq will share revenues.

The Kurdish regional government has signed 15 exploration and export contracts with 20 international companies since passing its own oil law last August, infuriating the Baghdad government.

Stipulating how foreign investment will be governed is also critical amid concerns that Iraqi oil revenues will be squeezed by large oil firms granted special treatment with the help of the US government.

Multinationals involved in the current deals will be focused on fields in the north and the south where wells already exist, thus requiring minimal additional investment, and skirting around the national oil law.

These agreements will be announced alongside technical support agreements (TSAs) with five foreign oil majors.

They cover Kirkuk field (Shell), Rumaila (BP), Al-Zubair (ExxonMobil), West Qurna Phase I (Chevron and Total), Maysan province development (Shell and BHP Billiton) and the Subba and Luhais fields (Anadarko, Vitol and the UAE's Dome), according to a previous media report.

"The execution will be carried out by Iraqi staff while companies will provide expertise and the machinery," said Jihad, who stressed that these were not investment contracts.


Date created : 2008-06-22