Iraq throws open door to foreign oil firms

Iraq threw open the world's third largest oil reserves to foreign firms on Monday, putting British and U.S. companies in pole position five years after U.S.-led troops invaded the country to oust Saddam Hussein.

The move to invite bids for the development of Iraq's largest producing oilfields should mark the return of the oil majors, whose cash and expertise Iraq needs to restore its oil infrastructure that has been hard hit by sanctions and war.

But any awards to U.S. and British firms could anger opponents of the invasion, who have said the 2003 war was designed to give Western oil companies control over Iraqi oil reserves. U.S. and British officials have denied the charges.

By allowing international firms to help raise output at its key producing oil fields, the Iraqi government is breaking with the policy of major oil-producing neighbours such as Saudi Arabia, Kuwait and the United Arab Emirates where national firms keep tight control of foreign investment in their oil sectors.

"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," Oil Minister Hussain al-Shahristani told a news conference.

"With its massive proven reserves, Iraq should not stay at its current level of production. Iraq should be the second or third largest oil producing country (in the world)."

Shahristani listed the fields as Rumaila, Kirkuk, Zubair, West Qurna Phase 1, Bai Hassan and Maysan - which comprises three separate fields: Bazargan, Abu Gharab and Fakka.

The Oil Ministry said they were open for long-term development contracts. Iraqi has prequalified 41 foreign firms.

Shahristani said he hoped contracts could be signed in June 2009 to raise output by a combined 1.5 million barrels per day at those fields. He added that Iraq aimed to raise output to 4.5 million bpd by 2013 from the current 2.5 million bpd.

He said any firm that wanted to bid must open an office in Baghdad. Currently, few foreign companies have any presence in Iraq because of the security situation.

FRUSTRATION OVER SHORT-TERM DEALS

Iraq said last week it also hoped to sign six short-term oil technical support contracts during the next month.

But Shahristani, showing frustration, said talks on deals that were supposed to quickly boost output at fields by utilising the technical expertise of majors were still going on.

He said the firms were reluctant to sign the technical support contracts because they would offer their advice from abroad and preferred to be hands on with the fields.

"We are losing time," Shahristani added.

Taken together, the short-term and long-term contracts should open the door to major foreign involvement in the OPEC member's oil sector for the first time in nearly four decades.

The majors have been positioning themselves for years in the hope of eventually gaining access to Iraq's oil reserves.

Its proven reserves, at 115 billion barrels, are the world's largest after Saudi Arabia and Iran. Deputy Prime Minister Barham Salih said in April that as-yet unproven reserves could make the overall total as much as 350 billion barrels.

The short-term technical deals, each worth about $500 million, are aimed at lifting output at Iraq's largest producing fields by a combined 500,000 barrels a day.

Five of the short-term deals that have been under discussion are with Royal Dutch Shell; Shell in partnership with BHP Billiton; BP; Exxon Mobil; and Chevron in partnership with Total.

Iraq has also been in talks with a consortium of Anadarko, Vitol and Dome for a sixth short-term contract.

Those talks on the short-term deals should give the majors concerned a head start in efforts to bid for future contracts, although Shahristani said no company would get any "privilege" in bidding for the fields announced on Monday.

RESENTMENT

Many Iraqis still bear a grudge after British, American and French oil companies controlled their oil industry for half a century through the Iraq Petroleum Co (IPC).

It was an era when Western majors working in the Middle East used oil output and prices as an economic and political tool, analysts said.

From the time it struck oil at the huge Kirkuk field in 1927 until nationalism forced it out in 1972, IPC - made up of BP, Exxon, Mobil, Shell, CFP (Total) and Partex - ruled the roost. That did not go well with Baghdad, which resented IPC's control.

Oil is Iraq's main source of income, and boosting output is key to earning the cash the country needs for reconstruction.

Iraq's cabinet agreed a draft oil law in February last year, but it has failed to get through parliament.

In the absence of the law, Baghdad has moved ahead with the contracts, saying this is in line with an old oil law in existence before the invasion that toppled Saddam.