MSNBC : Iraq opens big slice of oil riches to outside bids

Iraq opens big slice of oil riches to outside bids
Despite lingering security fears, 44 companies will make pitch for 15 fields

updated 10:12 a.m. PT, Wed., Dec . 9, 2009

BAGHDAD - It's been a strained courtship between Iraq and oil companies jockeying for its untapped riches — complicated by jitters about insecurity, lack of a legal rule book to govern investments and Baghdad's tightfisted bargaining that turned last summer's much-hyped bidding round into a failure.

Even as the same security and political concerns remain unresolved, they appear ready to give it another go.

For the companies, the prize is too big to ignore: 15 fields that represent the largest cut of Iraq's oil wealth available to outside companies in decades. For Iraq, it means access to technical expertise and hard cash, with oil sales accounting for 95 percent of its budget.

A successful auction this time could set the tone for future deals as Iraq opens up the world's third-largest oil reserves to companies for whom cheap oil is becoming increasingly a thing of the past.

"The volumes," Samuel Ciszuk, an oil expert with London-based consultancy IHS Global Insight, said, summing up simply the incentive for the companies despite the political uncertainties and the security risks.

"It's the huge volumes involved and access to the oil flows."

A total of 44 companies will make their pitch this week, vying for the 15 fields — the largest of the reserves located in Iraq's relatively calm Shiite-dominated south.

They include giants Exxon Mobil Corp., Britain's BP Group PLC, Chevron, ConocoPhillips and Total SA, as well as a range of state-backed companies from countries such as Russia, Angola, India and Kazakhstan.

Bidding location held under tight security
While they represent the best — if not only — option for Iraq's hope to rebuild an oil sector suffering alternately from decades of neglect, war and sabotage, what remains to be seen is whether these firms are willing to accept less lucrative contract provisions to stake their claim to a piece of the Middle East's last major oil and gas bonanza.

"Iraq has huge oil and gas reserves and all the world companies are interested in having even a small piece of the cake," said Kamel A. al-Harami, an independent oil analyst based in Kuwait and former president of Q8, the retail arm of the Kuwait Petroleum Co. "I do not think that security fears would play a major role in the decisions of the oil companies."

But extra precautions will certainly be on display after Tuesday's wave of deadly bombings that targeted government offices for the third time since August.

The last bidding round was held at a hotel in the Iraqi-guarded Green Zone. Friday's event was moved to the Oil Ministry building, which is under even tighter protection.

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While the list of pre-approved bidders includes many of the same names — at least on the part of the international majors — that were present at the last bidding round, there was one significant snub.

Iraq's oil ministry dropped China's state-owned Sinopec Group for its $7.5 billion acquisition of Addax Petroleum, which has assets in the semiautonomous Kurdish region in northern Iraq.

The blow to Sinopec, which was among the more aggressive participants in the earlier auction, reflects the political dance which companies must concede to in order to tap into Iraq's oil.

The Kurds and Iraq's central government have been at odds over nearly two dozen deals signed by the Kurds with foreign companies after the U.S.-led invasion in 2003. Kurdish officials say they have the authority to deal directly with outside oil companies. But the government of Prime Minister Nouri al-Maliki says it is the only legitimate channel for oil deals.

The dispute has held up passage of a new oil law to govern the process. Washington had called the oil law one of its "benchmarks" for political reconciliation in Iraq, but debate has been further delayed until after parliamentary elections in March.

More of the story : http://www.msnbc.msn.com/id/34347753/ns/business-oil_and_energy/