Iraq opens doors wider for oil firms

About 80% of proved reserves may be awarded to foreign oil companies for development.

Foreign companies are lining up for access to Iraq's vast oil reserves.

The lion's share of Iraq's proved oil reserves could be offered for development by December, when Baghdad plans to announce a second round of bidding for long-term oilfield services contracts. The country's oil ministry has also extended to next March the deadline for offers under its first round of bidding.

Between them, the two offerings could give foreign oil companies access to 90 billion barrels of reserves, analysts said. "It's a huge offering of about 80 per cent of Iraq's proven oil reserves," said Samuel Ciszuk, the business intelligence firm Global Insight's Middle East energy analyst. "If all goes well, contracts from both rounds could be awarded next summer." But even so, work on the contracts is not likely to start until next October or November, and results would not be apparent for another six months to a year.

"That means no production growth for Iraq until 2010," Mr Ciszuk said. Earlier this week, the Iraqi oil minister, Hussein al Shahristani, said the oil ministry planned to announce in December the names of the oilfields to be included in the second bidding round. "The list is not finalised. There is still a field or two that we have not decided on and we are still discussing. It's all going to be explored fields and giant fields," he told Reuters.

Next week in London, he is to meet executives of 35 oil companies qualified to participate in the first bidding round, which covers the Rumaila, Kirkuk, Zubair, Bai Hassan and Maysan oilfields, West Qurna Phase 1, and the Akkas and Mansuiya gas fields. He said he would present the companies with model contracts to help them prepare their offers. Iraqi oil experts have said they expect a number of southern Iraq's "super giant" oilfields, including Majnoon, Bin Umar, Halfaya, Nassiriya and possibly a second development phase for the West Qurna field, to be included in the second bidding round.

The development of additional fields in central northern Iraq and could also be up for grabs. In total, those oilfields contain more than 40 billion barrels of reserves with combined production potential of three million barrels per day (bpd), the sources said. According to industry estimates, the Majnoon field alone contains 12 billion barrels of oil, and could ultimately produce 600,000 bpd of crude, up from just 50,000 bpd currently.

Iraq previously tried unsuccessfully to negotiate short-term service contracts for oilfield development with a number of western oil companies that were not required to submit competitive bids. The service contracts were initially proposed as a stopgap measure to boost oil production while Iraq's government passed a new federal oil law that would allow production sharing. In August, with the oil law still bogged down, the oil ministry signed a US$3 billion (Dh11.02bn), 20-year service contract with China National Petroleum Corporation for development of Iraq's al Adhab oilfield, under what industry insiders said were tough terms.

Mr Shahristani said the deal would serve as a model for long-term oil development agreements in Iraq. But recently, he has talked about offering more attractive terms that might appeal to western oil producers, Mr Ciszuk said. "It's likely that every sizeable oil company will want to be in there. But we still have to remember that nothing is on paper." The close timing of the bidding competitions suggests Baghdad may be trying to attract as wide a range of foreign participants to its oil sector as possible, offsetting the deterrent effect of its oil ministry's decision to offer fee-for-service contracts rather than production-sharing agreements.

That runs against international oil companies' strong preference for the latter due to the potential for long-term profits from production-sharing deals. However, it appeases a number of increasingly vociferous political factions within Iraq that are calling for oil industry nationalisation. Last month, in his strongest statement on the issue to date, Mr Shahristani told al Jazeerah television that his ministry would never sign production-sharing contracts with international companies.

Iraq has 115 billion barrels of proved reserves of conventional oil, the third largest in the world after Saudi Arabia's and Iran's. It hopes to increase crude production to 4.5 million bpd in 2013 and six million bpd by 2018 from about 2.5 million bpd this year. @Email:[e-mail]