BAGHDAD (Dow Jones), Dec. 14, 2009
Iraq has taken an important step to revive its struggling oil industry, battered by years of war and sanctions, by awarding some of its attractive oil fields to international companies that pledged to triple the country's oil output.
The Iraqi Oil Ministry concluded Saturday its second post-war licensing auction of 10 groups of oil fields located in different parts of the country. The seven oil fields awarded in the last two days would boost the country's production to 4.765 million barrels a day, the country's oil minister Hussein al-Shaharistani said.
"It is a very successful bid round," Shahristani said.
He said that Iraq would be able to produce up to 12 million barrels a day in a few years if contracts signed in the first bidding round held in June this year are added to those signed Friday and Saturday--a big challenge to the world's top producers, Russia and Saudi Arabia. Iraq is currently producing 2.5 million barrels a day.
Shahristani said that Iraq was ready to accept a production quota system set by the Organization of Petroleum Exporting Countries when the time is right.
All told, executives from more than 30 international oil companies came to Baghdad to bid for the oil fields, despite the volatile security situation.
Russia's Lukoil Holdings along with Statoil Hydro secured a deal Saturday to develop one of Iraq's supergiant oil fields, West Qurna Phase 2, which holds more than 12 billion barrels of oil reserves. They proposed a fee of $1.15 a barrel and a production plateau of 1.8 million barrels a day.
"We are going to make a profit out of West Qurna Phase 2," said Torgeir Kydland, Statoil Hydro's senior vice president for international exploration and production in the Middle East. "We are glad that we won the field," he said.
Oil companies from the U.S. weren't interested in the country's second bidding round as none of them submitted an offer, contrary to the view of many people who thought that American firms would win the bulk of Iraqi oil contracts as a result of the U.S.-led invasion in 2003.
Majnoon, a similar size oil field, was awarded Friday, the first day of the auction, to a consortium of Royal Dutch Shell and Malaysia's Petronas. They proposed a remuneration fee of $1.39 and pledged to increase output to 1.8 million barrels a day.
Halfaya, with proven reserves of 4.1 billion barrels, was won by China National Petroleum Corp., France's Total and Petronas proposing a fee of $1.4 a barrel and a production plateau of 535,000 barrels a day.
Garraf, a smaller oil field in Dhi Qar governorate in southern Iraq, was awarded to a consortium made up of Petronas and Japanese oil company Japex, with a fee of $1.49 a barrel and a production plateau target of 230,000 barrels a day.
But security remains an issue for the winning companies. Over the last few weeks, Baghdad has seen massive bomb explosions that claimed hundreds of lives. In the 20-year technical service contract the ministry is offering, the Iraqi government will provide protection to companies, but the companies can also hire international security firms.
"We are worrying about the security situation," said Katsuo Suzuki, executive vice president of Japex. "We are in discussions with several security companies in order to hire one of them."
Another winner was Angola's Sonangol, which was awarded the Najmah oil field near the city of Mosul in northern Iraq. On Friday, it also won nearby Qaiyarah oil field.
Two of five oil fields were awarded in Friday's session. On Saturday, four of five were awarded. None of the participating companies bid for Middle Furat, a cluster of smaller oil fields in Kerbala province 70 kilometers south of Baghdad.
Shahristani told the winning companies to come to Baghdad in two weeks to work out initial agreements, and then he will send the draft contracts to the cabinet for approval. He expects the final signing of these contracts to take place early next year.
Copyright (c) 2009 Dow Jones & Company, Inc.
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