Iraq hails 2nd Oil Auction but risky sites shunned

Iraq Hails 2nd Oil Auction but Risky Sites Shunned
Iraq hails oil auction `victory' but fear of violence limits bidding
By SINAN SALAHEDDIN Associated Press Writer
BAGHDAD December 12, 2009 (AP)
The Associated Press



Map shows 15 Iraqi oil fields that will be bid upon by foreign companies
(AP)

Iraq's oil minister began counting the money Saturday even before the first wells were drilled, dubbing the country's second postwar oil auction a triumph even as international oil companies largely snubbed the most violent regions in the Middle East's last major oil bonanza.

The two days of bidding produced deals on only seven of the 15 fields on offer. Of those, four were in the stable southern Shiite heartland while two in the north went to the only company that expressed interest: Angola's Sonogal. The last was in central Iraq, in a province where violence has remained low.

The auction was key for Iraq. Its oil bidding in June — the first in over three decades — largely failed, with only one giant field awarded out of eight offered. The hope was for a better showing this time. The deals are critical for boosting Iraq's oil exports — and bringing in revenue to help rebuild after the 2003 U.S.-led war and decades of neglect and international sanctions under Saddam Hussein.

Iraq has not been able to raise output to even close to pre-2003 levels and is limping along at roughly 2.5 million barrels per day using technology desperately needing an overhaul. That's well short of Iraq's goal of joining the ranks of other OPEC heavyweights and reaching 12 million barrels a day in six years.

On Saturday, Russian private oil giant Lukoil teamed up with Norway's Statoil ASA to snatch the crown jewel of the auction, the 12.88 billion barrel West Qurna Phase 2 field in southern Iraq. It was something of a coup for Lukoil, which won the contract in 1997 under Saddam, only to see the dictator rescind the deal five years later.

The U.S. companies at the auction, including Exxon Mobil Corp., stayed on the sidelines except for one failed bid by Occidental over the two days at the heavily fortified Oil Ministry.

The auction came after bombings Tuesday around Baghdad killed at least 127 people in a sobering reminder of the challenges the Baghdad government faces with the looming withdrawal of U.S. forces

Debate on the oil law — which Washington had called a "benchmark" for political progress in Iraq — has been delayed until the new parliament is seated after the election.

Lukoil and Norway's Statoil ASA took the biggest prize in the closing round of the two-day bidding: the 12.88 billion barrel West Qurna Phase 2 field in the Basra region. The deal was a coup for the Russian firm, which had been promised the field under Saddam Hussein's regime.


The latest auction may, at best, be a step in the right direction — a face-saving event that officials can say saw the two biggest fields snapped up.

The Lukoil-Statoil consortium beat out three other groups led by BP, France's Total SA and Malaysia's state-run Petronas, nabbing the field with an offer to accept $1.15 per barrel of oil produced and to raise output to 1.8 million barrels per day in 13 years. That is more than twice the targeted daily output set by Iraq.

"We are very happy today," said Lukoil representative Andrey Kuzyaev.

Deals were also reached on Gharraf, a small southern field that went to a Petronas-led consortium that included Japex. Russia's Gazprom claimed a small central Iraqi field. The final field, in the north, went to Sonogal, which earlier in the day made an about-face and accepted Iraq's terms on another small neighboring field near restive Mosul.

Even Gharraf's winners appeared concerned despite its location in the relatively calm south.

"It depends on the security situation," Katsuo Suzuki, Japex's vice president, said when asked when the companies would begin work. "We are in contact with several security companies to discuss the security situations and analyze carefully the situation to decide our program."

Three other central Iraqi fields were withdrawn from the bidding and Iraq said it would develop those alone.

A day earlier, a consortium led by Shell and Petronas won the rights to develop Majnoon, a 12.5 billion barrel southern field on which Total had bid. The French supermajor Total had eyed the field hungrily, also on the back of an earlier contract under Saddam that was also canceled.

A second major southern field was awarded Friday. Afterward, however, bidding tapered off and companies showed no interest in five fields offered in volatile eastern Iraq or near Baghdad

Three other central Iraqi fields were withdrawn from the bidding and Iraq said it would develop those alone.

A day earlier, a consortium led by Shell and Petronas won the rights to develop Majnoon, a 12.5 billion barrel southern field on which Total had bid. The French supermajor Total had eyed the field hungrily, also on the back of an earlier contract under Saddam that was also canceled.

A second major southern field was awarded Friday. Afterwards, however, bidding tapered off and companies showing no interest in five fields offered in volatile eastern Iraq or near Baghdad.

Those fields were also withdrawn, and will have to be developed by Iraq.