BAGHDAD (AP) — Iraq's fourth postwar energy auction drew a cool response from foreign energy companies Wednesday, dealing a setback to the country's hopes to dig out from years of conflict and sanctions and develop its vast untapped hydrocarbon reserves.
On the first day of sales, four proposed oil and natural gas exploration deals found no bidders and a fifth was withdrawn after a British-led group refused to accept the Iraqi government's price. Only a Kuwaiti-led energy consortium made a successful bid.
The bidding will continue Thursday for other six blocks.
Seven of the 12 areas are believed to hold natural gas, and the rest both natural gas and oil. Boosting natural gas production is seen as key to ending a crippling electricity shortage and rebuilding the country, particularly the industrial sector.
In the current auction, conditions appeared less attractive for foreign firms than in three previous rounds held since 2009.
Only areas with undetermined hydrocarbon resources were on offer, while previously the rights to known large and medium oil and gas fields were being auctioned off. All along, Iraq has offered only service contracts in which companies are paid a flat fee, rather than deals in which they receive a share of the hydrocarbons found.
In the past, companies were willing to accept those terms because they were bidding for fields that were ready to produce or where hydrocarbons had been discovered, said Ruba Husari, an Iraqi oil analyst.
In the current round, companies were being asked to take a bigger gamble. "No one is going to take a risk and put money that he's not going to get back immediately for something that is not even definite they would find," Husari said.
More than a year in the making, the current licensing round was touted by Oil Minister Abdul-Karim Elaibi as a key step to boosting Iraq's energy sector. In his opening remarks Wednesday, Elaibi tried to lure bidders with a promise that his ministry will "spare no efforts to help and support the companies as partners to achieve the common interests."
But out of 39 companies registered for the auction, only six teamed up in two groups to submit bids.
The only successful bid was made by Kuwait Energy and its partners, Turkey's TPAO and the UAE's Dragon Oil. The group won the rights to explore a 900-square-kilometer (350-square-mile) area in oil-rich southern Basra province. It will be paid $6.24 for each barrel of oil equivalent it finds.
An unsuccessful bid was made for oil exploration in an 8,000-square-kilometer (3,100-square-mile) area in the southern Muthana and Najaf provinces. A consortium led by UK's Premier sought $9.85 for each barrel of oil equivalent, but the government offered to pay only $5 per barrel and withdrew the lot. The consortium also included Vietnam's PetroVietnam and Russia's Bashneft.
Four other blocks attracted no bidders.
Two of those lots, believed to contain natural gas, will be offered again on Thursday, said Abdul-Mahdi al-Ameedi, who heads the Oil Ministry's Licensing and Petroleum Contracts department. Interested companies couldn't make it to Baghdad, he said, but he did not name them.
The oil minister said that if Thursday's auction also attracts little interest, Iraqi companies would explore those lots, ruling out the possibility that contract terms would be revised.
In this sales round, the government also introduced a clause to ban companies from signing deals with regional authorities without the approval of the central government in Baghdad. Companies that violate the clause will lose their contracts, said Sabah al-Saidi, a senior Oil Ministry official.
The new clause came in response to Exxon Mobil's bold move last year to sign six deals with Iraq's northern self-ruled Kurdish region without Baghdad's approval. In return, Baghdad banned the Texas-based company from taking part in the current bidding, while maintaining a deal to develop the 8.6-billion-barrel West Qurna Phase One oil field in the south.
Top among the approved companies for this bidding round were the Anglo-Dutch Royal Dutch Shell, UK's BP, Chevron and Occidental of the U.S., China's CNOOC and CNPC, Japan's Japex, Russia's Lukoil and others.
Since 2008, Iraq has awarded 15 oil and gas deals to international energy companies, the first major investments in the country's energy industry in more than three decades.
The goal was to boost daily production from about 3 million barrels now to 12 million barrels by 2017. But Iraq is mulling whether the target should be revised downward to fewer than 10 million barrels, considering a possible drop in demand on oil in the international market and infrastructure bottlenecks.