BAGHDAD — When Iraq puts development rights to some of its largest oil fields up for auction to foreign companies on Monday, the bidding will be a watershed moment, representing the first chance for petroleum giants like ExxonMobil to tap into the resources of a country they were kicked out of almost 40 years ago.
Yet, there are widespread doubts about whether Iraq is ready for a sudden infusion of capital from international oil corporations. The country is still not safe. Parliament has not approved a law regulating the oil industry. And oil companies are wary of corruption within Iraq’s Oil Ministry.
The oil companies are also somewhat disgruntled, being forced to compete for 20-year service contracts and not the more lucrative production sharing agreements they would prefer. Such agreements would allow them to share directly in the profits from oil production, rather than getting fixed fees.
Still, all sides want to move ahead for one simple reason: money.
“Asking why oil companies are interested in Iraq is like asking why robbers rob banks: because that’s where the money is,” said Larry Goldstein, director of special projects at the Energy Policy Research Foundation, a Washington-based nonprofit that studies energy economics. “You can’t choose where the resources are. The risks are substantial, but everybody has to play by the same risks.”
The Iraqi government says that in order to maintain security and pay the salaries of the hundreds of thousands of its employees hired during the past two years, it has to try to exponentially raise oil production, which accounts for about 95 percent of the country’s foreign exchange earnings.
“We are determined to develop our massive hydrocarbon resources as quickly as possible to finance the reconstruction of the country,” Hussain al-Shahristani, Iraq’s oil minister, said recently. Mr. Shahristani said his goal was to increase production from the current level of about 2.4 million barrels a day to 6 million barrels in six years.
To do that, the government has estimated that its oil sector needs $50 billion in investment on top of the more than $8 billion it has spent during the past several years to try to increase capacity.
But production has been declining for years in southern Iraq, which contains about 80 percent of Iraq’s oil. Government officials blame crumbling infrastructure there, while others cite mismanagement.
Under the government of Saddam Hussein, many oil-sector employees who held technical jobs were members of the Baath Party. After the American invasion, many of them fled abroad, were arrested or were killed, leaving the ranks severely depleted. Iraqi oil officials acknowledge that as a result of that and mismanagement, oil production and the current bidding process have suffered.
Oil corporations have complained quietly about the corruption, mismanagement and continuing violence in Iraq, as well as rules that force them to become partners with Iraqi oil companies.
Another contractual requirement dictates that the oil companies that win fields in the auction make payments totaling $2.6 billion to the government. The Iraqi government has described the money as loans that will be paid back once production begins.
More ominously for the oil companies, stiff resistance to the coming auction has been building among members of Parliament, oil unions and even officials in the government of Prime Minister Nuri Kamal al-Maliki.
“The service contracts will put the Iraqi economy in chains and shackle its independence for the next 20 years,” said Fayad al-Nema, director of the South Oil Company, the state-owned company that produces most of the country’s crude oil.
Mr. Nema’s opinion is important because the South Oil Company is likely to be chosen as one of the partners in the joint ventures that will be created with foreign companies to operate the six oil fields and two gas fields that are up for bid.
Despite the drawbacks, international oil companies see Iraq as critical for business because few other places have as much oil that is untapped and relatively close to the surface, so it can be extracted relatively cheaply. With 115 billion barrels, the country has the world’s third largest proven reserves, trailing only Saudi Arabia and Iran.
Indeed, after months of lobbying by Mr. Maliki and other government officials, most of the world’s big oil companies, including ExxonMobil, Royal Dutch Shell, British Petroleum and Chevron, are expected to submit bids. The companies were expelled from Iraq in 1972, after Mr. Hussein nationalized the oil industry.
“My guess is that every international oil company in the world, knowing Iraq is blessed with terrific God-given natural resources, is interested in Iraq,” Daniel Nelson, a former ExxonMobil vice president, said recently. “I’m not giving any competitive secrets away here.”
Last year, an Iraqi plan to award six no-bid contracts to Western oil companies was voided amid sharp criticism from several United States senators.
In the meantime, the Kurdistan Regional Government signed about 30 contracts of its own with international oil companies, though the central government refuses to recognize them.
Each of the six fields open for bidding has more than five billion barrels of oil. Four of the fields are in the south and two are in the northern province of Kirkuk.
The auction is scheduled to begin on Monday, and the government hopes to finish subsequent contract negotiations by the end of August.
Abeer Mohammed contributed reporting.
Copyright 2009 The New York Times Company