Published on
The Times (London)

Iraq Opens Oilfields to International Deals

James Hider

BAGHDAD - Iraq opened its main oilfields to exploitation by international companies yesterday in a first step towards reintegrating its massive reserves into a market hitting staggering prices.

Hussain al-Shahristani, the Oil Minister, said that he was keen to use international finance and expertise to allow Iraq to realise its full oil potential, an important step to boosting reconstruction and ultimately ending the violence. He said that the Government had drawn up a list of 35 companies and six state-owned oil firms that would be allowed to bid for long-term contracts in six oilfields.

But the long-awaited news was soured by the revelation that five big Western oil companies had refused to sign smaller, short-term service contracts to renovate the country's dilapidated oil infrastructure unless they were guaranteed a slice of the massive oil-pumping deal.

Iraq has some of the world's largest proven oil reserves, behind only Saudi Arabia and Iran. Some Iraqi leaders claim that the real figure could be almost three times higher.

Mr al-Shahristani said: "The six oilfields that have been announced today are the backbone of Iraq's oil production, and some of them are getting old and production is declining." He said he hoped that the contracts would be signed within a year.

In a sign of the high stakes involved, however, Mr al-Shahristani said that six smaller deals also expected to be signed with Western oil giants yesterday had stalled at the last minute because the companies were demanding a share of the oil production in return for revamping the country's infrastructure, rather than a flat rate.

The deals, worth $500,000 (£250,000) each and expected to last about two years, were meant to lift Iraq's oil production rapidly by 500,000 barrels a day. The agreements were to have been signed with Shell, BP, Exxon Mobil, Chevron and Total.

Mr al-Shahristani said: "We did not finalise any agreement with them because they refused to offer consultancy based on fees as they wanted a share of the oil."

Analysts had said that the five companies, four of which operated the Iraq Petroleum Company before it was nationalised by Saddam Hussein's Baath Party almost four decades ago, were hoping to sign the relatively small deals in the hope of winning favour from the oil ministry for the bigger contracts.

But Mr al-Shahristani, a Shia nuclear scientist who was sent to one of Saddam's worst jails for refusing to build nuclear weapons in the 1980s, said that there would be no favours granted in the main bids for one of the most lucrative oilfields in the world.

With suspicions still swirling that the 2003 invasion was started to gain access to Iraq's oilfields, the ministry wanted to impose strict conditions on the contracts, which it hoped would raise production by 1.5 million barrels a day from the current 2.5 million.

Foreign companies would have to take on a local partner, with a minimum 25 per cent stake. They would also have to open a branch in Baghdad, which they have been loath to do because of the security situation.

Iraq has been slow to exploit its hydrocarbon potential, which US war planners had hoped would finance the country's post-conflict reconstruction. Insurgents have frequently attacked vulnerable pipelines.

Analysts have given warning that billions of dollars would be needed to boost capacity to a level where it could have an impact on record global oil prices of more than $140 a barrel.

© Copyright 2008 Times Newspapers Ltd.

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