Iraq auctions rights to develop oil fields

BAGHDAD – Chinese, Russian and European companies won the right this weekend to develop major oil fields in Iraq, while U.S. firms made a paltry showing at auctions that represent the first major incursion of foreign oil companies into Iraq in four decades.

The companies that secured 10 contracts in auctions held over the weekend and in June stand to profit handsomely, but they are taking a significant gamble.

Iraq has the third-largest proven crude reserves in the world, but it remains perilous; the country suffers from chronic corruption and acrimonious politics that have prevented the passing of new laws to regulate the sector.

Of the seven U.S. companies that registered for the auctions, only one emerged as the leading partner in a consortium that won a contract. Another U.S. company has a minority stake in a contract.

China’s state-owned oil company has a major stake in two contracts. Russian firms are parties in two others.

European firms made a strong showing. Royal Dutch Shell, Italy’s Eni, British Petroleum and Norway’s Statoil got deals.

Companies from Malaysia and Angola were parties to five winning bids.

Oil analysts say the outcome was surprising, considering that U.S. oil companies have long yearned to work in Iraq.

The analysts said it is ironic that U.S. companies do not appear poised to cash in on the aftermath of a war that many in the United States and the Middle East argued was motivated by a desire to tap into Iraq’s oil reserves.

After the invasion, the United States paid oil executives to advise Iraq’s Oil Ministry and set up large military and civilian task forces to boost the country’s ailing energy sector.

Security concerns, underscored by coordinated bombings Tuesday, and the threat of political instability as the U.S. military withdraws probably gave American oil executives pause, analysts said.

In some cases, U.S. companies were at a disadvantage because their rivals, particularly the Chinese and Russians, have lower labor costs and do not answer to shareholders, which might allow them to take more risks.

“U.S. companies report back to their shareholders, not to public opinion,” said Ruba Husari, editor of Iraq Oil Forum, a trade news site. Nonetheless, she said, “their low profile is intriguing,” considering that the auctions are widely seen as the last major opportunity for years for international oil firms wanting to do business in Iraq.

The state-owned Chinese National Petroleum Corp. bid on more contracts than any other company.

In marked contrast to the Americans, Chinese diplomats in Baghdad have kept a low profile in recent years, working out of a hotel and drawing little public attention. But Iraqi officials say they have been struck by the caliber of Chinese diplomats, many of whom speak flawless Arabic and have developed a nuanced understanding of Iraqi politics.

“We all know that China is on track to become a major economic as well as technological power,” Oil Ministry spokesman Assam Jihad said.

Under the 20-year service contracts, the Iraqi government will pay companies a set fee for each barrel produced above the current output level at each field.

The contracts also position the companies to play major roles in Iraq if the government loosens restrictions on foreign investment.

The contracts awarded at the auctions are service contracts, which do not give companies a share of profits.