Iraq auctions its oil reserves

Iraq’s oil ministry held a televised auction today for rights to develop some of the country’s most valuable energy reserves. It’s the first time such contracts have been up for bid in Iraq since the 1970′s. But as The World’s Katy Clark tells us, some oil companies weren’t willing to accept Iraq’s terms.
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LISA MULLINS:  I’m Lisa Mullins, and this is The World. Iraqis saw one group of outsiders step back today and invited others to step up. We reported earlier on the WITHDRAWAL of American and other foreign military forces from Iraqi cities and towns, well at the same time, Iraq asked Americans and other foreigners to enter the country’s economy. The World’s Katy Clark explains.

KATY CLARK:  For the first time in more than 30 years, international companies were allowed to bid today for the right to develop some of Iraq’s most valuable energy reserves. Dozens of oil companies participated in the auction, which was broadcast on Iraqi TV. The Chairman of the bidding committee announced the most appealing offers.

CHAIRMAN OF THE BIDDING COMMITTEE:  The bid offered by the consortium led by Eni scored 42.0, and the consortium led by CNPC scored 40.4.

KATY CLARK:  Iraq had hailed today’s auction as a milestone in post-war reconstruction, and the government is counting on the help of foreign companies to develop its vast reserves. But the bidding quickly faltered with many companies rejecting the terms being offered by the Iraqi Government. Mark Gregory is the BBC’s business reporter.

MARK GREGORY:  These are mostly fields that were already in production, but producing way below their level. And the companies are being offered what a good service contracts. Essentially they get paid a fee for boosting production at these fields. They don’t get to control the oil.

KATY CLARK:  Oil companies wanted four dollars a barrel to bring these fields back to optimum production; the Iraqi government wasn’t willing to pay that. By the end of the day, only one deal had been struck. A consortium involving BP and China National Petroleum Corporation agreed to run the Ruamila Field, with an estimated 17.8 billion barrels in crude reserves. In general, bit oil companies continue to have reservations about doing business in Iraq. For one thing, the country’s still at war, and for another, says Mark Gregory, Iraqis haven’t figure out how much foreign involvement they want in their one and only money making industry.

MARK GREGORY:  Even one of the country’s vice-presidents has said that these deals will be illegal. That’s partly because there is no oil law in Iraq. Attempts to get a new oil law have failed; it’s still stuck in Iraqi parliament. These been deals are being done under old laws dating back to Sadaam Hussein’s time. Essentially people think that if they bring the oil companies back in, Iraq will get ripped off and the oil companies will get the lion’s share of the wealth.

KATY CLARK:  But most Iraqis realize that the government run oil companies can’t do much without foreign assistance. Iraq has the world’s third largest proven oil reserves, but its oil industry has suffered under decades of conflict and international sanctions. Manouchehr Takin of The Center for Global Energy Studies says Iraq is a deal for oil developers willing to take the risk.

MANOUCHEHR TAKIN:  These Iraq oil fields could be developed at a few dollars a barrel. Whereas in other parts of the world, you’re talking about 20, 30 or so dollars a barrel.

KATY CLARK:  That’s because Iraq’s reserves are large and easy to get at. It wouldn’t take a lot of effort to extract the crude. Perhaps surprised by today’s meager auction results, Iraq’s oil minister has asked bidders to re-submit their proposals for the remaining seven contracts, chances are good they will. For The World, this is Katy Clark.

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