Iraq's oil bids fall short of expectations

BAGHDAD — A much ballyhooed effort by Iraq to lure foreign investment and expertise to help its battered oil industry fizzled Tuesday after it became clear that the government is not prepared to pay the prices being asked by international oil companies for their services.

Iraq was seeking bids from firms to develop eight of its existing oil and gas fields, but only one contract was awarded to work one oil field at a public auction televised live from Baghdad's al-Rasheed Hotel.

"It's pretty much a total disaster," said Peter Kemp of the New York-based Energy Intelligence publishing group. "It seems the Iraqis totally miscalculated the commercial realities of this process."

The sole contract was awarded to a consortium led by Britain's BP that included China's CNPC International, marking the first time any foreign companies have been permitted to invest in Iraqi oil since 1972, when the country's oil industry was nationalized. Iraqi Oil Minister Hussein Shahristani called it a "historic day" that coincided with the withdrawal of U.S. troops from Iraq's cities.

The auction drew dozens of executives from the world's top oil firms and was being closely watched for signs of how the new Iraq is likely to go about developing its vast proven oil reserves.

But as the bids were unsealed, it quickly became clear that there was a wide gulf between the maximum price the Iraqi government was prepared to pay investors to develop the oil fields and the minimum price oil companies were prepared to accept.

Under the contracts, oil companies would be paid a fixed fee per unit of oil or gas produced, above a certain threshold, in return for much-needed technical expertise and investment in infrastructure to increase production at the fields.