< Back to Iraqi Dinar in the News June 16th, 2009

Iraq says it won't delay first postwar oil bidding

By SINAN SALAHEDDIN , 06.16.09, 11:05 AM EDT

BAGHDAD -- The Iraqi government on Tuesday rejected a parliamentary demand to delay the country's first postwar oil bidding round, which is due to be completed at the end of this month, a spokesman said.

The statement came a day after lawmakers said more discussion was needed about the entire process, stepping up pressure on Oil Minister Hussain al-Shahristani, who faces criticism that his policies have failed to boost production and exports.

The government stood by al-Shahristani's plans.

Spokesman Ali al-Dabbagh said the Cabinet had discussed the issue and decided to declare the names of the winners of bids to develop the fields in a two-day ceremony on June 29-30 as previously scheduled.

"The Cabinet calls on (oil) companies to submit their proposals, which will be subjected to fair and transparent standards," al-Dabbagh said in a brief statement.

Jabir Khalifa Jabir, the secretary of the parliament's oil and gas committee, said the lawmakers' request was motivated by appeals from senior oil officials in state-run South Oil Co., to stop the process because it "hurts the country's economy."

Jabir said the process "will chain the government with complex contractual terms," and will conflict with the state-run company's plans to increase oil production in some fields over a short period of time. The ministry's plan would produce results only after two to three years.

The South Oil Co. has sent a petition opposing the plan to al-Shahristani, Jabir said.

The need for production has taken on added urgency due to Iraq's budget crisis that was prompted by falling oil prices. Benchmark crude for July delivery rose above $72 a barrel Tuesday but remained well below last summer's high of $150.

The SOC, one of three state-run regional oil companies, runs the country's oil fields in the southern province of Basra, which produces nearly 80 percent of Iraq's daily production of about 2.4 million barrels a day.

Competitors include 32 international companies, giants Royal Dutch Shell PLC ( RDSA - news - people ), BP ( BP - news - people ) PLC, ExxonMobil Corp. ( XOM - news - people ), Chevron ( CVX - news - people ) Corp., Total and Lukoil. National oil companies from Turkey, Vietnam, Pakistan, Thailand, Angola and Algeria also were participating.

The fields on offer are Kirkuk and Bai Hassan in the country's north and Rumaila, Zubair, West Qurna Stage 1 and three Missan oil fields in the south. Also on the table are the Akkas gas field in western Iraq and the Mansouria gas field to the country's east.

The companies, which are bidding on 20-year service contracts, would be paid through a flat fee for their services instead of production-sharing contracts, which are considered preferable by oil companies because they give them a share of profits and allow them to book reserves.

In another development, executives from Lukoil, Russia's biggest independent oil producer, planned to visit Baghdad this week to resume talks on their efforts to revive a Saddam Hussein-era deal.

Lukoil President Vagit Alekperov will lead the delegation, which will meet senior Iraqi officials, according to the company's investor relations chief Gennady Krasovsky.

In 1997, Lukoil signed a $3.7 billion production sharing contract to develop West Qurna-2 oil field in Basra. But the deal was annulled by Saddam's regime nearly a year before the 2003 U.S.-led invasion to Iraq.

Since then, the company has been trying to reassert its rights to the acreage, saying it has a legal contract that cannot be canceled unilaterally. Hopes to revive the deal were increased last year when Moscow wrote off most of Iraq's $12.9 billion debt.

Talks over the issue have been complicated by the fact that the Oil Ministry has included the field in a second bidding round that is to be concluded by the end of the year.

Iraq sits on the world's third-largest known oil reserves, with at least 115 billion barrels, and oil revenues account for nearly 95 percent of its budget.

But decades of wars and sanctions have battered the country's oil industry, hindering its ability to quickly increase production. It exports about 1.9 million barrels per day.

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Associated Press Writer Nataliya Vasilyeva in Moscow contributed to this report.

 

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