BAGHDAD — The long-awaited auction of licenses to develop Iraq’s huge oil reserves began Tuesday amid unusual contentiousness, as multinational companies demanded far more revenue from every barrel of increased production than the authorities were willing to allow.
Scores of Chinese, Russian, American and British oil executives, representing 8 of the world’s top 10 non-state oil companies, gathered in a hotel meeting room in the Green Zone. They listened closely on headphones to translations as bids for six oil fields and two natural gas fields were read out and then rushed into consultations.
But only one contract was agreed to on Tuesday. That went to a pairing of BP and the China National Petroleum Corporation for the largest field on offer: Rumaila, near the southern city of Basra, which has proven reserves of 17 billion barrels. Once the bid is accepted by the oil minister, Hussain al-Shahristani, Parliament must issue final approval.
The auction is of huge economic importance to Iraq, which hopes to raise oil production within five years to 4 million barrels a day from the current level of 2.4 million. It also carries major symbolic weight, coinciding with the formal American handover of urban security to Iraqi forces.
Iraq’s oil fields were nationalized under Saddam Hussein and were closed to foreigners for decades. The industry’s infrastructure crumbled under international sanctions imposed after the invasion of Kuwait in 1990. The Bush administration had planned for Iraq to finance its post-invasion rebirth with oil revenues, but that idea failed in the face of technical problems and sabotage.
According to reporters watching the auction, the first round of bidding for the Rumaila field stalled when Exxon Mobil and a consortium of BP and the China National Petroleum Corp. both wanted more than the government’s offer of $2 for each barrel above a guaranteed minimum production level. Exxon said it would produce 3.1 million barrels daily with each additional barrel at a fee of $4.80, news reports said. The BP consortium, which eventually won, said it would produce 2.85 million barrels a day and originally wanted $3.99 per additional barrel. Currently, the field is pumping around a million barrels a day.
There were no bids on Tuesday for the undeveloped Mansuriya gas field in violence-prone Diyala Province. A group led by ConocoPhillips bid for the Bai Hassan oil field in Kirkuk Province, but Mr. Shahristani said the offer did not meet the ministry’s minimum bid requirements. With companies refusing to come down to the Iraqi government’s maximum remuneration fees, there were no deals on the West Qurna, Missan, Kirkuk, Bai Hassan and Zubair oil fields, nor on the Akkas natural gas field.
Last week, Sinopec, China’s refining giant, offered $7.22 billion to buy Addax Petroleum, a Swiss-Canadian company with operations in the Kurdistan region of Iraq and in West Africa. If Addax’s shareholders and Canadian regulators approve the deal, which Addax’s board is recommending, it would be China’s largest overseas energy acquisition.
The Iraqi government originally tried last year to award oil fields to Western companies through a no-bid process. That prompted objections from a group of United States senators, who wanted greater transparency, and the plan was replaced with the auction, which had the effect of letting Chinese companies play a much larger role.
As the day drew to a close, companies were revisiting their bids to come up with final offers. The Ministry of Oil would turn these over to Iraq’s cabinet to consider.