BAGHDAD, Iraq — Iraq literally rolled out the red carpet for foreign oil executives Friday at a bidding round that auctioned off the rights to develop some of the world’s last known giant reserves of cheap oil.
After the first oil auction in June, when international oil companies were asking up to 10 times more profit what the Iraqi government was offering, Friday’s winning bids made clear that European and Asian firms at least were willing to settle for a lot less to get in on the market.
American companies were noticeably absent from the aggressive bidding while the French, despite being courted by Iraqi officials who had told them Iraq would favor them in oil deals, lost the biggest prize, the super-giant Majnoon field, to Anglo-Dutch Shell and Malaysia’s state-owned oil company.
The auction, only the second since the 2003 invasion, was conducted like a high-stakes game show. To ensure transparency, oil company representatives brought their bids to the stage in sealed envelopes. The figures were then put up on giant screens with the winner announced to polite applause from the other bidders.
Outside, roads around the ministry were sealed to traffic while rings of soldiers and police surrounded the building. Inside the newly renovated auditorium, the potential of billions of dollars of profit was won and lost in a single calculation.
The French company Total lost its bid for Majnoon, which it helped develop, when Royal Dutch Shell offered higher increased production at 36 cents less profit per barrel.
“Surprising figures,” said one Iraqi oil adviser to a European executive of the morning’s bidding. The executive agreed.
“Due to the lessons learned of the first bid, the second bid was very competitive and they are very, very aggressive with their offers,” said France’s new ambassador to Iraq, Boris Boillon. “Total made tremendous efforts to present a very aggressive and good offer and they did so but they found in front of a company that did even better so it’s too bad for them.”
The oil companies seemed to have made the calculation that the rewards of developing fields in Iraq’s relatively stable south were worth the risks. Majnoon, with almost 13 billion barrels of reserves, like the rest of the southern fields has some of the most accessible, lowest-cost oil in the world.
The north though was a different story. Three oil fields in the north and on the edge of Baghdad’s Sadr City attracted only one bid — from Angola’s state oil company. Sonangol offered to develop the Qaiyarah field in Ninevah province, one of the most turbulent provinces in the country, for $12.50 profit per barrel.
Officials conducting the auction asked if they’d like to revise it to the maximum $5 per barrel profit the oil ministry was willing to pay. “That’s not in our plans,” a bewildered Sonangol representative responded. The bid was rejected.
The oil companies also seemingly discounted the risk of a less Western-friendly Iraqi government in the future.
Shell’s Middle East vice president Mounir Bouaziz said he was not concerned that any successive Iraqi leaders could renege on the terms of the contracts.
“We have faith in the government,” he said.
With many Iraqis convinced that the war was fought over oil, the contracts are designed to retain Iraqi ownership of the oil and provide foreign firms a fee per barrel for reaching production targets.