Iraqi Oil Ministry to Move Up Second License Bid Round

BAGHDAD (THE WALL STREET JOURNAL via Dow Jones Newswires), Jul. 2, 2009

Emboldened by what Iraqi oil officials are calling a successful first oil-licensing round this week, the oil ministry has moved up a second auction that was to be held at the end of this year for 11 oil and natural-gas fields.

Ministry spokesman Assem Jihad said Thursday that a new date for the second bid round hasn't been set, but it would be held as early as within the next few months. It had originally been scheduled for the end of this year. Unlike the first round this week, the oil fields on offer for the second round haven't yet been developed, or are only partially developed.

Most major oil companies balked at the ministry's terms for six oil fields and two gas fields that were part of a historic licensing round on Tuesday. The auction marked the first opening of Iraq's oil sector to Western oil firms in more than 30 years. The oil ministry often set a $2 per-barrel payout fee for any new production the oil companies were able to squeeze out of the fields. All but one consortium decided that the fee was too small to bid.

A BP PLC-led consortium that included China National Petroleum Co. was the only group that didn't walk away. It cut its proposed payout by half, however, to $2 a barrel from its original bid of $3.99 a barrel for the Rumaila field in southern Iraq, one of the world's largest fields.

Although oil companies complained about the ministry's aggressive pricing, the Iraqi government hailed the bid round as a success because it managed to get one successful bidder to cut its price so drastically. The BP-led consortium says it will raise production at Rumaila to 2.85 million barrels a day from the current 950,000 barrels a day.

"We wanted this work to be done at the lowest cost to Iraq, and we got that with the Rumaila field," Jihad said.

In Iraq, nationalistic sensitivities have haunted previous attempts at opening fields to foreign firms. While the bidding round only attracted one successful bidder, the tough terms could play well politically here. The ministry, in particular Oil Minister Hussain al-Shahristani, came out of the bidding round appearing tough and unwilling to give much ground to foreign firms.

The oil ministry said that two gas fields that were part of the first bid round won't be reoffered. Instead, they will be developed by a new national oil company the ministry intends to set up.

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