JUNE 29, 2009, 10:45 A.M. ET
FOCUS: Oil Majors Line Up For Iraq's First Bid Round
BAGHDAD (Dow Jones)--International oil companies, seeking stakes in the world's most lucrative oil and gas industry, are in Baghdad preparing to bid on a series of multibillion-dollar oil and gas deals Tuesday, Iraqi oil officials said Monday.
Once announced and approved by the Iraqi government, the 20-year service contracts would mark the return of the international oil firms that were thrown out of Iraq more than 30 years ago when the industry was nationalized.
Representatives of 32 international companies have arrived in Baghdad, including major oil companies such as Royal Dutch Shell PLC (RDSA), Exxon Mobil Corp. (XOM), Chevron Corp. (CVX) and BP PLC (BP) as well as Total SA (TOT), Italy's Edison SpA (ID-EDS) and Russia's Lukoil Holdings (LUKOY) . They are expected to take part in the bidding round, with winners giving the Iraqi government a total of $2.6 billion in soft loans after the awards are made.
"The first bid round is on time and will be held as scheduled Tuesday," Assem Jihad, the oil ministry's spokesman, told Dow Jones Newswires.
Companies' bid envelopes are to be opened publicly by a special committee set up by the oil ministry, he added. The bid round was planned to take place Monday, but the ministry postponed the first session to Tuesday because of a sandstorm that prevented airplanes carrying international companies' officials from landing at Baghdad airport. The awards were supposed to be announced in two sessions, one on Monday and one on Tuesday.
"We will try to complete the entire process on Tuesday but, if need be, it will be extended into Wednesday," said Abdul Mehdy al-Ameedi, deputy head of the oil ministry's Petroleum Contracts and Licensing Directorate, or PCLD.
Iraqi Prime Minister Nouri al-Maliki stood by Oil Minister Hussein al-Shahristani and decided to go ahead with the bid round, despite growing internal opposition to Baghdad's first postwar licensing program. Shahristani has been under fire from an oil and gas panel at the national parliament, which blamed him for a sharp decline in production from Iraq's oil fields in the south.
Panel members also oppose any long-term involvement by international oil companies in the six producing oil fields - Rumaila, Kirkuk, Bai Hassan, Missan, West Qurna Phase 1 and Zubair, which are on offer under the first bidding round, as are the Akkas and Mansuriya gas fields.
Shahristani said preparations to hold the first bid round started more than a year ago, and would bring to Iraq a profit of $1.7 trillion over 20 years, while foreign companies would make only $16 billion out of the eight contracts.
The bid round is expected to boost output by 1.5 million barrels a day at giant producing oil fields such as Rumaila in southern Iraq and Kirkuk in the north.
Rumaila Comes First
The super-giant Rumaila field, Iraq's - and maybe the world's - largest with proven oil reserves of 17 billion barrels, will be the first to be auctioned on Tuesday at around 0900 local time or 0600 GMT, an Iraqi oil official said. Bai Hassan and Zubair oil fields and Mansuriya gas field come next.
According to a schedule set up by the PCDL each field would take two hours to be awarded from the start of handing in the bid envelope to the announcement of the winner. Results of the bidding for the super-giant Kirkuk, Missan and West Qurna Phase 1 oil fields and the Akkas gas field would also be announced Tuesday.
According to the 20-year service contracts, oil firms would have a 75% stake in the joint venture, with state-owned Iraqi operators at the field holding the remaining 25%.
Winning companies will be determined according to parameters already laid out by the oil ministry. They call for an incremental remuneration fee for each barrel and an enhanced production target above a predefined baseline. The company that charges the least for each extra barrel and commits to the highest increase in output would be most likely to win a contract.
Rumaila oil field, for example, is currently producing 1.1 million barrels a day, while its potential is 1.75 million barrels a day. So the bidding company should state in its bid how much it would increase above that level and how much it would charge for each extra produced barrel.
If the awards process goes well, the cabinet needs to approve the contracts, which oil ministry officials expect it to do by the end of July, with final agreements being signed in August.
http://online.wsj.com/article/BT-CO-20090629-708733.html