Tuesday, October 14, 2008

Iraq kicks off first oil bid round


Iraqi oil officials on Monday set the conditions under which foreign energy companies will be allowed to share in the country's enormous oil and gas wealth.

The rules, detailed at talks that involved executives from 34 international oil companies, stipulate that Iraqis will keep overall control of any future joint venture but underscored the need for boosting foreign investment.

"This is a very important milestone in the history of the Iraqi oil industry," said Natik al-Bayati, the director-general of Iraq's Petroleum Licensing Directorate and one of Iraq's top oil negotiators.

Foreign investment in Iraq's energy infrastructure is politically sensitive because of accusations that the 2003 U.S.-led invasion that toppled Saddam Hussein was fought in part to exploit Iraq's vast oil reserves.

While Iraq's oil industry badly needs outside help, Iraqi officials don't want to be seen as bowing to Western multinationals, some of whom are still resented for the stranglehold they once had on the country's oil industry.

"We are trying to balance our past experience with our present needs," al-Bayati said.

Under rules outlined Monday, energy companies could bid for 20-year contracts at the country's biggest oil and gas fields but only after satisfying several conditions.

The companies would have to form joint ventures with an Iraqi state-run partner, with Iraqis retaining a majority stake. Joint boards -- composed mostly of Iraqis -- would oversee the venture's progress, including the appointment of an external auditor, approval of subcontractors, health, safety and environmental issues.

It wasn't immediately clear how companies invited to meet with the Iraqis in London felt about the conditions -- the conference itself was closed to journalists and most representatives had left by the time the Iraqis addressed the media.

Earlier, some taking a break outside the conference expressed frustration over the lack of details being given.

Iraq's Oil Ministry has given the companies six months to submit their bids -- a deadline Oil Minister Hussain al-Shahristani acknowledged was short. But he said the energy companies "seem to happy and they promise to try their best to meet these deadlines. We don't think the country can afford any further delays."

Iraq plans to announce winners by the end of next June.

Successful bidders would have to employ a mostly Iraqi field staff, al-Bayati said, adding that while Iraq lacked skilled technicians and managers, he expected the venture's top tier to have a strong Iraqi component too.

"We don't need much supervisory staff," he said. "We are not going to fill our top posts with expats, (although) neither will we hide our heads in the sand and pretend we can do it all ourselves."

Payment agreements would be linked to how well the companies improved each oil or gas field. Al-Bayati said companies would have to prove they had done a minimum amount of work and spent a predetermined amount of money, although he did not say what would happen if they failed.

Foreign companies would be reimbursed "dollar for dollar" for their efforts, but only once production at the oil field in question had been upgraded to a level agreed to in advance.

Thereafter, al-Bayati said, the company would get revenue based on how well they had worked to increase production.

He said the foreign company's profits would be taxed at 35 percent.

Addressing Iraq's still-fragile security situation, al-Bayati said conditions were safe enough that his country would not accept it as an excuse for not starting work.

"We will not have a situation where a contractor pockets the contract and then claims force majeure," he said, referring to a clause in contracts which frees both parties from their liabilities in cases of war or other disaster.

The full details of the conditions imposed by the Iraqis were not immediately clear. Al-Shahristani said the sample contract drawn up for the conference would not be made publicly available until after further negotiations with the energy companies.

Even if Iraq's conditions are restrictive, oil industry experts say the size of its proven reserves -- 115 billion barrels of oil -- make it too hard to ignore. And companies may be hoping bids on service contracts could lead to more lucrative prizes down the line, according to Omar Al-Saadoon, a senior associate at the Iraq practice group of Dubai, United Arab Emirates-based law firm Al Tamimi & Company.

"It basically gives the companies a foot in the door at Iraq's Oil Ministry," Al-Saadoon said.


Associated Press Writer Sinan Salaheddin in Baghdad and Gregory Katz in London contributed to this story.

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