Iraqi Oil Auction a Failure
Iraq’s momentous oil and gas auction was a complete failure. The auction was for blocks of land zoned for oil and natural gas exploration. However due to unfavorable terms in the contract and lack of supporting infrastructure to the auctioned land, very few plots were even bidded on.
This was the first competitive bidding process Iraq has organized for large oil and gas exploration since the fall of Saddam Hussein in 2003, and concluded with only 3 of the 12 blocks available being award — and 8 plots without a single bidder.
While Iraq’s western desert is expected to hold reserves of natural gas, no one bidded on any plots of zoned land. This is because firms awarded plots must specify their rates before thorough testing and exploration is conduded — making it impossible to operate with the Iraq Oil Ministry. Oil and gas found must be sold back to the Iraqi Oil Ministry at a predefined rate, which is based on many factors such as reserve sizes and associated production, administrative, and transportation costs. These figures cannot be calculated in advance.
There were also serious questions raised about the nation’s oil infrastructure which was a strong deterrent to many major international oil companies. Iraq is currently investing heavily in oil pipelines and export terminals, but little effort is being spent on oil production, refinement, and internal transportation.
As a result, only 3 plots of land were awarded to Pakistan Petroleum, and a group headed by Lukoil (Russia) and Kuwait Energy.
Iraq’s oil production levels are at 3 million barrels per day of crude oil, and export 2.5 million barrels daily. However they are aggressively working to increase their production and were hoping that the auction would significantly increase this. The outlook is not promising though given the lack of interest.
Iraq oil reserves stand at 143 billion barrels, and 3.2 trillion m3 of natural gas — some of the highest reserves in the world.
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