Iraq Rejects No-Bid Contracts

Iraq Rejects No-Bid Contracts
Talks Over Short-Term Oil Deals Lasted Too Long, Officials Say

By Ernesto Londoño

Washington Post Foreign Service

Friday, September 12, 2008

BAGHDAD, Sept. 11 -- The Iraqi government has decided to scrap plans to award no-bid short-term advisory and technical support contracts to a handful of Western oil companies, Iraqi officials said this week.

The companies -- including Chevron, Exxon Mobil, Royal Dutch Shell, France's Total and British Petroleum -- are expected to submit bids in coming weeks for deals that the Iraqi government hopes will boost exploration and output in its oil fields, which have been hampered by years of war. Industry analysts said the short-term contracts could have helped companies win more lucrative exploration and development deals.

The Iraqi government informed the companies about its decision this month, said Assem Jihad, a spokesman for Iraq's Oil Ministry.

He said the ministry decided to end the talks because they had dragged on for too long. But he said Iraq looks forward to working with those companies in the future.

"We don't have a negative attitude toward any company," he said. "The ministry decided that due to the delay, it was better to cancel this idea."

The oil companies were not surprised by the Iraqi decision, given the political sensitivities raised by the issue, according to an executive at one of the five companies. Speaking on the condition that he not be identified further, the executive said the deals had become less attractive because Iraqi officials had shortened the proposed length of the contracts from two years to one in response to criticism.

China's national oil company last month became the first company to sign a major oil deal with Iraq since the war began in 2003. The 20-year deal with China's National Petroleum Corp., which revives a similar contract negotiated while Saddam Hussein was in power, is expected to increase output in one of Iraq's largest oil fields.

This week, Iraqi officials announced that they intend to sign a contract with Shell to capture and make use of natural gas that is now burned off during oil production in southern Iraq. The deal, which could be worth as much as $4 billion, has been approved by Iraq's parliament and could be signed as early as next week, Jihad said.

According to the proposed agreement, Iraq would keep 51 percent of the proceeds, and Shell would keep the rest.

Iraq is enormously attractive to oil companies, as the price of the resource has soared and oil-rich countries such as Venezuela and Russia have increasingly nationalized their oil industries. But violence and political turmoil -- Iraqi lawmakers have yet to agree on a hydrocarbon law-- have given oil executives pause.

Staff writer Steven Mufson in Washington and special correspondents K.I. Ibrahim and Zaid Sabah in Baghdad contributed to this report