Iraq expects more from second energy auction

BAGHDAD Sat Jul 4, 2009 12:27pm EDT

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BAGHDAD (Reuters) - The Iraqi government is hoping that a second major auction of oil and gas fields later this year will help revive a struggling oil industry where a first auction this week fell short, a government spokesman said.

"We think that the first (bidding) round didn't achieve the full objectives of the Ministry of Oil," government spokesman Ali al-Dabbagh told Reuters on Saturday.

"At the same time, it was a good achievement especially in Rumaila oilfield ... With that level of production, we have compensated for the less(er) achievement of the first round. Generally we are happy with what we achieved," he said.

The auction last Tuesday, Iraq's first major competitive energy tender in decades and one of the biggest in history, stunned industry insiders when a wide gap between the government and oil majors over payment terms resulted in the sale of just one of eight fields put on the block.

Oil Minister Hussain al-Shahristani brushed aside criticism it was a flop, saying the deal reached with a BP-led (BP.L) group for the country's largest explored oilfield, Rumaila, would on its own provide a bigger production boost than they had been hoping for from the first round.

While plans to quickly increase output from 2.4 million barrels per day were dealt a blow, the government's rejection of more pricy deals may play well among critics who oppose anything that could be seen as selling off Iraq's prized asset cheaply.

"The Iraqi government is careful not to waste oil wealth, but at the same time there is a balance between this point and Iraq's needs to develop the oil industry," Dabbagh said earlier in a meeting with reporters.

After the auction Iraq said it would move up the date for the second round of tenders, expected to be more lucrative because the 11 fields to be offered are still undeveloped and could double current production.

"The Iraqi government and Oil Ministry is trying to make use of the results of the first round so that the second round would be more effective," he said, adding a panel had been established to learn lessons from the first tender.

No decision has been made on the fields that were not awarded to foreign firms this week, Dabbagh said.

The government has said the fields may be included in the second bidding round, put out for bids again separately or perhaps developed by Iraq on its own once a new National Oil Company, which does not yet exist, is formed.

Dabbagh said the auction marked a turning point for China, eager to get a crack at the world's third largest oil reserves no matter the cost. Chinese firms were included in groups competing for all seven oil and gas fields that received bids.

"China is decisive about entering this sector ... even if not making profit ... This opportunity for them in Iraq will never (occur) again in any place in the world," he said.

Still unclear is what the auction's results mean for Shahristani, a nuclear scientist who has staked his political future on boosting oil output and, thus, coming to the rescue of a government reliant on oil for over 95 percent of its income.

There have been suggestions Shahristani, who is already under pressure over low output and summoned to parliament to face criticism last month, may be pushed out of his job.

Dabbagh said it was up to parliament "to decide the performance of any minister. The government will definitely feel that this is part of their job, monitoring all the activities of the ministers."

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