The world's oil majors will compete in an extraordinary scramble for the right to develop the country's oilfields.
It has been three decades since the big drills of the oil giants bored into the sands of Iraq. But, on Monday, an extraordinary televised auction will see the multi-national majors from BP and Shell to China's Sinopec conduct an unseemly scramble for the right to develop the country's fields of black gold.
Iraqi politicians have been squabbling over how best to tap the world's third largest proven reserves ever since the post-Saddam Hussein government came to power in 2005. At its peak in 1979, Iraqi oil production hit 3.5m barrels per day, but this fell to around 300,000 after the dictator's failed invasion of Kuwait, which sparked the first Gulf War.
The US Energy Information Administration estimates that there are still 112bn barrels underneath the desert dunes, but there is a significant chance this forecast barely scratches the surface of Iraq's true oil wealth.
Unexplored regions could hold four times that amount: only about 2,000 wells have been drilled in Iraq, compared to 1m wells in Texas alone.
The target is to boost production from 2.4m to 6m barrels a day by 2015, but the government has slowly begun to realise how far it is from achieving this goal without the help of foreign experts.
"Saddam invested very little in the oil industry, particularly the Kurdish regions in the north," says Samuel Ciszuk of IHS Global Insight. "Nobody knew exactly how large the oil reserves were. We still don't ."
Sanctions, conflict and poor infrastructure have wrecked Iraq's private sector over the past few decades, leaving it with an unbridgeable skills shortage. As a result, the government has resorted to an unusual public bidding war between the energy companies for contracts to drill six oil and two gas fields that will be beamed to television sets across Iraq.
It is the mission of Hussein al-Shahristani, the abrasive Iraqi oil minister, to negotiate a fine line between tapping the expertise and equipment of the multinational oil companies and retaining the bulk of the profits for his own country.
Analysts estimate that the contracts could yield $1 trillion for Iraq over the next 20 years, with much poorer spoils in the low billions – $16bn (£9.7bn) – for the oil companies. This has not discouraged the multinationals – Total, ConocoPhillips, ExxonMobil and others – from frantic negotiations and shifting alliances in the run-up to the contest.
Shell appears close to forming a pact with Chinese state energy giants. BP is considering a number of consortia. It could all change, though, over the next 48 hours in the cut-throat auction room, where last-minute tie-ups will have to be thrashed out in public as each service contract is put on the block.
"It's like a Eurovision song contest or a game show for energy companies," an executive at a top-three global oil giant told The Daily Telegraph. "If some companies find themselves disappointed on one contract they may have to make deals with other partners on the spot."
It will be a humiliating loss for Britain's Shell and BP if they walk away empty-handed. Michael Thomas, founder of the Iraq-Britain Business Council, warned: "Other countries are already there − from China to Japan, Italy, France, Germany and even the US. Iraqis really like the British, but we have to move quickly to maximise our position."
One further schism threatens to tear apart the country's oil industry before it has even begun. Iraq's ultimate prize might be the semi-autonomous Kurdish regions in its northern provinces, which is largely unexplored. The Kurdistan regional government has been much more progressive in opening its fields to foreigners, but this has angered the establishment in Baghdad. The two sides are now teetering on the brink of outright war over disputed fields in the border territories.
For the brave, there could be rich rewards, though. A number of smaller, often UK-listed oil explorers – from Rift Oil to Addax – have already struck lucky in the region.
Iraqi politicians have been squabbling over how best to tap the world's third largest proven reserves ever since the post-Saddam Hussein government came to power in 2005. At its peak in 1979, Iraqi oil production hit 3.5m barrels per day, but this fell to around 300,000 after the dictator's failed invasion of Kuwait, which sparked the first Gulf War.
The US Energy Information Administration estimates that there are still 112bn barrels underneath the desert dunes, but there is a significant chance this forecast barely scratches the surface of Iraq's true oil wealth.
Unexplored regions could hold four times that amount: only about 2,000 wells have been drilled in Iraq, compared to 1m wells in Texas alone.
The target is to boost production from 2.4m to 6m barrels a day by 2015, but the government has slowly begun to realise how far it is from achieving this goal without the help of foreign experts.
"Saddam invested very little in the oil industry, particularly the Kurdish regions in the north," says Samuel Ciszuk of IHS Global Insight. "Nobody knew exactly how large the oil reserves were. We still don't ."
Sanctions, conflict and poor infrastructure have wrecked Iraq's private sector over the past few decades, leaving it with an unbridgeable skills shortage. As a result, the government has resorted to an unusual public bidding war between the energy companies for contracts to drill six oil and two gas fields that will be beamed to television sets across Iraq.
It is the mission of Hussein al-Shahristani, the abrasive Iraqi oil minister, to negotiate a fine line between tapping the expertise and equipment of the multinational oil companies and retaining the bulk of the profits for his own country.
Analysts estimate that the contracts could yield $1 trillion for Iraq over the next 20 years, with much poorer spoils in the low billions – $16bn (£9.7bn) – for the oil companies. This has not discouraged the multinationals – Total, ConocoPhillips, ExxonMobil and others – from frantic negotiations and shifting alliances in the run-up to the contest.
Shell appears close to forming a pact with Chinese state energy giants. BP is considering a number of consortia. It could all change, though, over the next 48 hours in the cut-throat auction room, where last-minute tie-ups will have to be thrashed out in public as each service contract is put on the block.
"It's like a Eurovision song contest or a game show for energy companies," an executive at a top-three global oil giant told The Daily Telegraph. "If some companies find themselves disappointed on one contract they may have to make deals with other partners on the spot."
It will be a humiliating loss for Britain's Shell and BP if they walk away empty-handed. Michael Thomas, founder of the Iraq-Britain Business Council, warned: "Other countries are already there − from China to Japan, Italy, France, Germany and even the US. Iraqis really like the British, but we have to move quickly to maximise our position."
One further schism threatens to tear apart the country's oil industry before it has even begun. Iraq's ultimate prize might be the semi-autonomous Kurdish regions in its northern provinces, which is largely unexplored. The Kurdistan regional government has been much more progressive in opening its fields to foreigners, but this has angered the establishment in Baghdad. The two sides are now teetering on the brink of outright war over disputed fields in the border territories.
For the brave, there could be rich rewards, though. A number of smaller, often UK-listed oil explorers – from Rift Oil to Addax – have already struck lucky in the region.
Source: The Daily Telegraph
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