Iraq oil execs rebel over contract tenders

BAGHDAD (Reuters) - The head of the unit that produces most of Iraq’s crude said Sunday he opposed Baghdad’s plan to auction off oil field service contracts, joining an apparently broad revolt against the country’s first major foreign oil deals in 30 years.

A worker walks at Khor al-Amaya oil terminal off the coast of Basra April 30, 2009. REUTERS/May Naji

South Oil Co. Director General Fayad al-Nema said the service contracts were “detrimental to the Iraqi economy” and asked Oil Minister Hussain al-Shahristani to cancel the first tender results, which are due to be announced June 29-30.

The protest by senior executives in the state-run industry added to growing discord around Shahristani, who faces criticism from parliament for not having boosted Iraq’s oil output to beyond the level it was at before the 2003 U.S. invasion.

“We in the South Oil Company, all of its leadership, reject the first bidding round (for oil service contracts) because it is against the interests of Iraq’s oil industry,” Nema told Reuters from Egypt, where he was traveling.

“The service contracts will put the Iraqi economy in chains and shackle its independence for the next 20 years. They squander Iraq’s revenues,” Nema said.

Nema said he had sent a memo to Shahristani explaining his opposition and that his two predecessors, Jabbar Louaibi and Kifah Numan, had done likewise.

Nema was only appointed to lead the South Oil Co. last month, and was perceived as being loyal to Shahristani.

Another senior South Oil Co executive, Chief Engineer Mahmoud Abbas, told Reuters that he was collecting signatures from other engineers opposed to the tenders. He said more than 100 had already signed the protest and it would be sent to Prime Minister Nuri al-Maliki in a week.

The fixed-fee oil field service contracts mark Iraq’s first major push for foreign investment in its dilapidated oil sector in decades. The semi-autonomous Kurdish authorities in the north of Iraq have signed independent deals with around 30 private companies, but those have not been ratified by Baghdad.

Iraq sits on the world’s third-largest oil reserves, but they are severely underexploited after decades of war, sanctions, underinvestment and most recently sabotage during the sectarian slaughter and insurgency that followed the invasion.

In order to boost flagging oil production of 2.3 million to 2.4 million barrels per day to 6 million bpd within five years, as planned, the Iraqi Oil Ministry is offering up service contracts to foreign oil majors in two rounds of tenders.

The first round consists of six older, already producing oil fields, including Zubair, West Qurna, and North and South Rumaila, all of which are super giants with more than 5 billion barrels of oil in reserves, and two natural gas fields.

“I don’t have any comment,” Shahristani told Reuters on Sunday when asked about the revolt against the tenders.

“The decisions of the Oil Ministry are clear and everybody can express their opinions. We are moving forward with carrying out the first bidding round on schedule,” he said.

Nema said he did not oppose the second bidding round, which involves undeveloped oil fields and the results of which are expected to be announced at the end of the year.

But he said the fields in the first bidding round are currently under the control of the South Oil Co and the North Oil Co, and transferring them to international oil companies was against the law and unconstitutional.

He said the Iraqi government had spent about $8 billion since 2003 on new equipment, crude processing facilities and new oil wells in the fields, and they should not be handed over before the fruits of that investment can be enjoyed.

“What’s the point of giving these producing fields to the international oil companies at a time when we’re carrying out an urgent plan to raise output by 500,000 barrels per day in two years?” Nema said.

Nema said he preferred engineering, procurement and construction contracts, such as ones the Oil Ministry has been inviting select global oil companies to bid for in the Nassiriya and Nahr Bin Umar oil fields.

Nema said the model contracts devised by the Oil Ministry for the service contracts contained dangerous ambiguities.

“The devil is in the details and foreign companies, after signing the contracts, will face serious issues, which would take years to resolve,” Nema said.

Abbas, the chief engineer, said more than 100 oil engineers had signed a document protesting the bidding round.

“We have the expertise to run these fields and to raise output, and awarding them to foreign companies is a waste of our crude resources and revenues,” Abbas said.

Additional reporting by Aref Mohammed in Basra; Editing by Michael Christie and Martin Golan