BAGHDAD — The Iraqi government stumbled once again on Tuesday in its frequently delayed effort to award development rights to its most valuable oil fields. In a public auction it largely failed to attract the lucrative offers it sought from dozens of international oil companies invited to the bidding.
After the daylong event, which was broadcast live on national television, the government came away with just a single deal struck from among the six giant oil fields and two gas fields it had put up for bid.
The single successful contract went to a joint venture of BP and the China National Petroleum Corporation for the largest field offered: Rumaila, near the southern city of Basra, which has proven reserves of more than 17 billion barrels.
The auction, celebrated by the Iraqi government as a milestone for the fledgling democracy, came on the same day as the deadline for American combat troops to pull out of Iraqi cities.
It is the most significant attempt to open up the country’s oil industry since it was nationalized by Saddam Hussein in 1972, and the centerpiece of a plan to raise oil production to 6 million barrels a day by 2015, from the current level of 2.4 million.
Instead of garnering an infusion of foreign cash to rebuild and to prop up its limping economy, however, the auction of fields that contain about 80 percent of Iraq’s oil output appeared to further polarize the country. Four of the eight oil and gas fields offered Tuesday received only a single bid from oil corporations, and an undeveloped gas field in violence-plagued Diyala Province in northwest Iraq received none.
“These oil companies want to make as much money as they can, so they submitted low bids,” Hussain al-Shahristani, the country’s embattled oil minister, said during a news conference following the auction. “But I sent them a message that there are people in Iraq who are protecting Iraq’s wealth.”
But observers said the event could be deemed a success only if viewed strictly in populist political terms, because foreign presence in Iraq’s oil industry is a contentious issue. Many believe the 2003 American-led invasion was carried out to wrest away Iraq’s enormous oil reserves, the third largest in the world after Saudi Arabia’s and Iran’s.
Ruba Husari, editor of the Iraq Oil Forum Web site, which covers the country’s oil industry, said what remained unresolved was how Iraq was to modernize its oil industry without giving in to the desires of oil companies, which prefer owning a share of the oil they pump. Iraq has so far rejected such arrangements, which are known as production sharing agreements.
Iraq has an estimated 9 percent of the world’s crude oil, but its pipelines and other infrastructure are aging. Many of its most productive fields, laced with water because of mismanagement, are no longer able to produce as much oil as they once did. The country lacks the money to rebuild the industry, which accounts for almost all of its foreign earnings.
The auction on Tuesday, held in a heavily secured ballroom at the Rashid Hotel in Baghdad’s Green Zone, was reminiscent of a professional sports draft lottery. Bids were placed inside a large plastic box that had been set up on a stage. The oil companies were given 20 minutes to mull over each oil and gas field, with the time shown counting down on a giant video screen.
The sight of executives walking onstage to drop sealed bids in the plastic box brought cheers of delight from Oil Ministry employees in the audience.
The executives themselves, representing Exxon Mobil, Lukoil, Japex, Royal Dutch Shell, Total and the Korea Gas Corporation, among others, then stood aside as their offers were displayed on a screen before the bids were compared to those of rival companies seeking the same contract.
The Oil Ministry said it chose to conduct its business on television and in front of an audience of reporters and others to combat allegations of widespread corruption in the ministry, which led it to cancel a group of no-bid oil contracts last year. Major oil companies had little interest in the terms of those contracts, either.
Because the financial risk of a 20-year investment in Iraq was considered to be too great for even the largest oil corporations, the companies for the most part formed joint ventures.
Throughout the day, clusters of men in dark suits spoke to each other in their common language: broken English, with Dutch, Chinese, Russian and Thai accents. A member of a Korean delegation wore a flak vest inside the hotel ballroom.
The only successful bidders, BP and the China National Petroleum Corporation, will negotiate with the Oil Ministry through the summer to complete a contract to revive the Rumaila oil field.
Iraq says only about a million barrels of oil a day are pumped from Rumaila — far less than the 1.75 million barrels the government believes that the field should be producing, and little more than one-third of the 2.85 million barrels that BP and the Chinese company say they can extract.
The companies had originally requested a premium of $3.99 for every barrel of oil they produced over an Iraqi government-established baseline, but the government offered only $2.
While the companies finally agreed to the government’s price, it was the only time all day that the usually wide gaps between what the government was willing to pay and what the companies said they needed to be paid were bridged.