Iraq seeks plan B after auction

The government of Iraq had hoped to boost its oil output to lift its economy, devastated by years of war.

A trail of smoke rises from the flame of the Al Dora oil refinery complex in Bagdhad.

Iraq said yesterday its state oil companies would manage and exploit two gasfields and possibly one oilfield that failed to attract acceptable bids from foreign companies in the country's first post-war oil and gas licensing round. Baghdad also rejected further offers it received after the close on Tuesday of a televised auction of service contracts for work on six of the country's biggest oilfields and the two gasfields. "The offers from the foreign companies were rejected by the government," said Ali al Dabbagh, a government spokesman. "If they want the oilfields they have to match the prices offered by the ministry of oil." "The two gasfields of Mansuriya and Akkas, and maybe the oilfield of Kirkuk, will be exploited by national Iraqi companies," Mr al Dabbagh said. Bidders, which included most of the world's biggest international oil companies, left seven contracts on the table in Tuesday's auction, after declining to accept the maximum remuneration the ministry was willing to offer. In some cases, the bids asked for payments many times higher than the government's best offer. Only one deal, involving the British oil group BP and the state-owned China National Petroleum Corporation (CNPC), was reached during the high-profile event in Baghdad. Those companies cut their asking price by nearly 50 per cent to accept a government counter offer of US$2 a barrel for a 20-year contract to raise output at Rumaila, the biggest Iraqi oilfield, to 2.85 million barrels per day (bpd) from about one million bpd. Of that, BP and CNPC would receive less than $1 per barrel after income taxes of 35 per cent and another 25 per cent of after-tax income due to South Oil Company, the Iraqi state oil firm with which they are expected to form a partnership to develop the field. The ministry said it wanted to sign the contract as quickly as possible. The Iraqi oil minister, Dr Hussain al Shahristani, praised the deal as a great achievement for Iraq that would go a long way towards achieving the government's target of increasing the country's total oil output to four million bpd from 2.4 million bpd within five years. But in a research note yesterday, Samuel Ciszuk, the Middle East energy analyst for IHS Global Insight, the consulting firm, called the auction's outcome a nightmarish result that would wreak complete havoc on the ministry's oil development plan. "The expectations at the Iraqi oil ministry of a rush of supermajors and national oil companies with an international appetite fighting over each field no matter what terms Iraq would offer were deeply misplaced," he said. "Iraq's oil production development strategies are in tatters, with no clear 'Plan B' visible." Even the Rumaila deal is not assured. Ali Balou, the chairman of the Iraqi parliament's oil and gas committee, told reporters yesterday that he would challenge its legality, according to local media reports. [e-mail]