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Iraq auctions off three major gas fields

BAGHDAD (Reuters) - Iraq auctioned off three major natural gas fields to international companies on Wednesday, part of its strategy to shake off a legacy of war and isolation by opening up the lucrative sector.

Iraq's Oil Minister Hussain al-Shahristani (C) speaks during the third bidding round for gas fields at the Oil Ministry in Baghdad October 20, 2010. REUTERS/Mohammed Ameen

Iraq wants to jump into the league of top energy producers by tapping its vast oil and gas riches but foreign bidders face tough terms and shaky security in a country still fighting to tame a stubborn Islamist insurgency.

International oil majors braved ongoing violence and political uncertainty to attend Iraq’s third energy auction since the 2003 U.S.-led invasion, but Western companies either did not compete or failed to place the winning bids.

The bidding round was delayed twice to give companies more time to study contract terms.

South Korea’s Kogas and Kazakhstan’s No. 2 oil producer KazMunaiGas Exploration & Production won the first deal to develop western Akkas gas field in Iraq’s third energy auction since the 2003 U.S.-led invasion.

A group led by Kuwait Energy won the bid for Siba gas field in Iraq’s relatively peaceful southern oil hub of Basra, while Turkey’s TPAO, Kuwait Energy and Kogas won the third gas field, Mansuriyah, near the Iranian border in volatile Diyala province.

Speaking at the auction, TPAO vice president Besim Sisman said his company and its partners expected to invest $2.5 billion (1.5 billion pounds) to develop the deposit.

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The fields have estimated combined reserves of 11.23 trillion cubic feet of gas, about 10 percent of Iraq’s total 112 trillion cubic feet of proven natural gas reserves, the world’s 10th largest.

Kogas and KazMunaiGas, which bid against a consortium of French oil major Total and Turkey’s TPAO, set a remuneration fee of $5.50 per barrel of oil equivalent.

Its proposed plateau production target was 400 million standard cubic feet per day.

“I expect to sign the contract in two to three months,” Kogas vice president and head of its Iraq project group, Kim Myeong Nam, told Reuters.

He declined to comment on investment in the field but said he expected the deal to be profitable.

Thirteen companies registered for the auction including Italy’s ENI, Edison, Norway’s Statoil and Russia’s TNK-BP, but not all registered firms bid on Wednesday.

Speaking in Ankara, TPAO chief executive Mehmet Uysal said the company would bid in future oil and gas tenders, saying it wanted to initiate investments in Iraq quickly and reach the stage of natural gas production rapidly.

Winning bidders have to build almost non-existing gas infrastructure and a pipeline network from scratch and brave the risks of operating in violent areas where some provincial opposition against the auction is already ramping up.

Kuwait Energy CEO Sara Akbar, speaking on the sidelines of the auction, said she hoped to sign a preliminary contract on Siba within a month. She added that the gas produced at the deposit would be sold on the Iraqi domestic market.

The group set a remuneration fee of $7.50 per barrel of oil equivalent for Siba and its plateau output target was 100 million cubic feet per day of gas.

Baghdad had said the priority for the gas on offer was for domestic consumption, but some firms bidding for the auction also eye exports to neighbouring countries.

Writing by Rania El Gamal and Serena Chaudhry; Editing by Maria Golovnina and Jon Hemming