Suitors keep knocking on the door of Iraq's oil ministry but the people inside are still coyly loath to say "come in."
Licenses to develop oil fields are being awarded at tortoise speed. The ministry has been telling companies looking for exploration and drilling contracts to give unusually large up-front loans before they can be considered for long-term deals.
Still, Iraq has the fourth-largest oil reserves in the world behind Saudi Arabia, Canada and Iran. With members of parliament in recess for the summer, technocrats in the ministry have quietly been taking some cautious steps toward turning Iraq into the global hydrocarbon giant it says it wants to be.
Oil ministry officials have recently tweaked plans for a long-awaited license auction in December, to make it more attractive. International bidders will be able to take part in several -- rather than just one -- of the 10 greenfield projects on offer, including Majnoon in the southeast, one of the country's two largest fields.
Officials met an array of oil bigwigs from around the world last month in Istanbul to discuss terms. Most of the prospective buyers were persuaded that they have a chance of winning contracts, with more than one-third of Iraq's reserves up for grabs. The U.S. Energy Information Administration, a statistical agency in the Department of Energy, reckons that oil in those 10 undeveloped Iraqi fields would fill about 41 billion barrels, worth nearly $3 trillion at today's price.
Yet Iraq's government is still discouraging foreign investment by insisting on offering rock-bottom fees to companies bidding to get the oil out. In June, at the first oil field auction since the U.S. invasion, the government offered $2 a barrel against the $4 proposed by the companies. As a result, only one field, Rumaila, was sold. Even so, BP and the China National Petroleum Corp., which won the contract, are still waiting for it to be signed. Meanwhile, no work at the field is going on.
Despite Iraq's long history as an oil producer, the country still sorely needs foreign help to explore and get the stuff out. Saudi Arabia can fend off the oil majors' demands because it has enough experts of its own. But most of Iraq's geologists and engineers have left the country in the past six years, either because they could not tolerate the insecurity or because the new establishment has chased them away. At 2.45 million barrels a day, latest production is still a shade down on its peak output before the U.S. invasion.
Last month, the cabinet agreed on a law to set up a national oil company. The ministry will be split into a regulator and a producer, embracing the 16 companies it now runs. Presently, North Oil Co., focusing on the area around Kirkuk, and South Oil Co., around Basra, produce most of the oil. But they do not drill, explore or refine the oil and process gas. Those activities fall to other companies supervised by the ministry, few of which cooperate with each other.
The latest idea is to bring them together under one management. That would be progress. Yet there are repeated setbacks. Royal Dutch Shell expected to clinch a deal this month to get natural gas from oil extracted in Basra province. But locals loath to let foreigners make profits have forced a delay until after the general election due in January.
Insecurity is no longer the biggest factor deterring foreigners. Most vociferously they complain about the new Iraqi establishment's lack of political will. A few months before the crucial election, politicians feeling obliged to beat a nationalist oil drum are unable to tell voters that the country will earn more from its oil only if foreigners are drawn in. If the second international oil auction flops as badly as the first one did, Iraq risks deterring investors for a long time.
