By Anthony DiPaola
June 29 (Bloomberg) -- Iraq, holder of the world’s third- largest crude reserves, is set to receive offers to develop oil and natural gas fields tomorrow as the Middle Eastern state starts its first licensing round in more than three decades.
Eight of the world’s top 10 non-state oil producers, including Exxon Mobil Corp. and Royal Dutch Shell Plc, are vying for the right to help Iraq develop six oilfields and two gas deposits. The Oil Ministry delayed bidding and contract awards by one day until June 30 after sandstorms shut Baghdad airport.
Companies investing in Iraq will be looking to take a stake in the long-term potential the country’s 115 billion barrels of reserves hold after gaining a foothold through the service contracts for operational fields on offer now.
“Anybody serious about being an international oil company over the next few years has to enter Iraq,” Occidental Petroleum Corp. Chief Financial Officer Stephen Chazen said in a June 24 interview.
Oil companies are seeking access to new reserves as production declines at aging fields in the North Sea and resources like those in Saudi Arabia and Iran are restricted for foreign firms. Saudi Arabia is the world’s largest holder of reserves with 264 billion barrels, followed by Iran with almost 138 billion barrels.
More than 30 companies in total are qualified to bid for $16 billion worth of technical service contracts. Foreign companies will get a fee for developing the deposits without taking stakes in the fields, rather than signing production- sharing agreements, which would give them a direct share of barrels produced. The bidding and awards will be televised and may take two days.
Exxon, Shell
Irving, Texas-based Exxon is still deciding whether to bid, Chief Executive Officer Rex Tillerson said June 16. The Hague- based Shell was in talks with Chinese companies on bidding jointly, CEO Jeroen van der Veer said April 14.
Already the third-largest oil producer in OPEC, Iraq is seeking to raise crude output to 4 million barrels a day after the award of the contracts, from about 2.4 million barrels now, Oil Minister Hussain al-Shahristani said. The government aims to increase that to 6 million barrels a day by 2015 after a second licensing round helps the country’s industry recover from six years of conflict proceeded by sanctions that destroyed its economy and infrastructure.
Al-Shahristani last week assured potential investors the bidding would go ahead as scheduled after parliament and current and former Iraqi oil industry officials called for the round to be scrapped. Prime Minister Nuri al-Maliki’s government has been criticized by lawmakers for failure to raise oil production faster and over concern the deals proposed won’t benefit Iraq.
Oil Revenue
Iraq will earn 100 times more than the foreign companies it hires to develop the deposits, the minister told parliament in Baghdad on June 23. The deposits being offered in the first licensing round may yield $1.7 trillion in profit for the country, based on an oil price of $50 a barrel, while oil companies seeking service contracts will gain $16 billion over the 20-year life of the contracts, he said.
Oil has gained 55 percent this year, trading higher than $70 a barrel last week. Iraq is the only member of the Organization of Petroleum Exporting Countries not bound by production quotas as the group lowers output to bolster prices amid the global recession.
Companies including Heritage Oil Ltd. and DNO International ASA are already exploring for and producing crude in Iraq’s semi-autonomous Kurdish region in the north. The Kurdish government pursued development contracts on its own and began exporting crude earlier this month after resolving a dispute with the national government over how revenue would be divided.
Kurdish Region
The Kurdish government last week said contracts being offered in the round organized by the ministry in Baghdad run foul of Iraqi law and the economic interests of the nation. The award of the Kirkuk and Bai Hassan oilfields, lying in a zone of disputed control between the federal and regional administration, will need local approval, Kurdish leaders said.
“It’s tit for tat,” said Thamir Uqaili, an independent consultant and associate of the Centre for Global Energy Studies in London. “The Iraqi government has always been saying that Kurdish oil investments are illegal. And so the Kurds are also talking in the same manner.”
In 1972, Iraq nationalized concessions owned by companies now known as BP Plc, Shell and Exxon. Political opposition now is compounded by security threats that will face companies seeking to send workers into Iraq.
U.S. troops are due to pull out of Iraq’s cities tomorrow and the entire country by the end of 2011, and Iraqi officials have said the nation’s security forces will be able to cope alone. Iraq and Britain signed a draft agreement on June 3 for some U.K. troops to remain in the country to help Iraqi naval forces protect oil platforms.
To contact the reporter on this story: Anthony DiPaola in Dubai at .