Foreign companies bid to boost Iraqi oil production

Iraq’s oil minister on Monday announced the start of bidding by foreign companies for contracts to boost the production of eight underperforming oil and gas fields.

The contracts, to be executed in about 18 months, would open Iraq’s oil fields to foreign companies for the first time since former dictator Saddam Hussein nationalized foreign concessions in the 1970s.

Oil Minister Hussein Shahristani said 35 companies had been selected to bid. Among them were seven from the U.S. and four each from China and Japan.

The bidding will proceed even though parliament has not yet ratified a national oil law to regulate foreign contracts. The measure has been stalled by disagreements over how to divide oil revenue among Iraq’s regions.

Shahristani said there had already been too long a delay in upgrading depleted fields, which require new technology and foreign expertise to tap hard-to-reach reserves.

Iraq has been unable to invest sufficiently in its oil operations over the last two decades because of international sanctions and war. Insurgents have frequently attacked oil sites since the U.S.-led invasion in 2003, though overall violence is down throughout the country since an increase in American troop levels last year.

The work put up for bid Monday would increase production by 1.5 million barrels per day by 2013, approaching the prewar level of 4.5 million barrels a day, Shahristani said.

At a sometimes testy news conference, Shahristani renewed his criticism of the Kurdish regional government for signing deals with foreign companies that offer them a share of the oil they extract. In contrast, he said, the national government was only offering contracts to service existing fields. Development of new resources would come later.

To further protect Iraqi interests, Shahristani said, companies bidding for the contracts would be required to set up offices in Baghdad. Those winning the bids would be required to open branches in Baghdad and to establish partnerships providing Iraqi companies at least a 25% ownership share, he said.

“We do not see the necessity to have anyone sharing the Iraqi people’s oil,” Shahristani said, criticizing the Kurdish deals. “The Iraqi oil will remain under complete Iraqi control under the auspices of the national oil company once it is established.”

The Oil Ministry itself has faced criticism over its efforts to retain four major oil companies as consultants.

The no-bid contracts were viewed as offering a foot in the door for those companies, which would then be in a good position to win contracts for larger projects.

Last week, three U.S. senators urged the Bush administration to try to stop the deals, which they said could lend credence to the perception that the U.S. went to war in Iraq over oil and could inflame sectarian tensions in Iraq.

“Iraq does not need their advice,” Shahristani said of the senators. “If they really had the interests of Iraq in mind, then they would have said something about the profit-sharing agreements that have been signed” in Kurdistan.

Nonetheless, he said the no-bid contracts had not been signed and indicated that he was not sure they would be. Their purpose was to raise production by 500,000 barrels a day in the short-term, but Iraqi engineers had been able to do that without help, he said.

A spokesman for Chevron Corp. said the company, which is also among those bidding on the service contracts, was still negotiating with the ministry and still hoped to close the deal for the no-bid contract.

The 35 companies invited to bid on the service contracts were chosen from 120 applicants based on a rating system that included technical, financial and legal tests. In addition to Chevron, the American companies bidding on the contracts include several other major corporations -- Occidental Petroleum, ExxonMobil and Conoco Phillips.

But any firm that has signed agreements with Kurdistan was automatically disqualified.

One disappointed potential bidder learned this after the news conference when he asked an oil official why his company, IGI Group, was spurned.

“I received your papers, but I didn’t look at them,” Abdul Hahdy Ameedi, deputy director general for licensing, told the man. “If you get out of your contract with Kurdistan, we will consider you.”

Iraq faces no pressing need to increase its oil revenue, which supports 95% of the national budget.

Even though dilapidated equipment and insurgent attacks have kept production below prewar levels, oil exports are generating more revenue than Baghdad’s bureaucracy can spend.

Nonetheless, oil production is seen as essential to creating employment, stimulating the economy and funding the huge public works projects needed to restore the country’s infrastructure.

Meanwhile Monday, the government said violent deaths were down slightly in June. The 510 Iraqis killed included 41 police officers and 21 soldiers. The May total was 563 people slain, including 27 police and 32 soldiers.

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doug.smith@latimes.com