Iraq wraps up energy auction after slow first day

Iraq will hold the second and final day of an auction for a dozen oil and gas exploration blocks on Thursday, after hopes for the sale were dampened when just one deal was made on the first day. The bid round, the fourth such auction to be organised by Iraq since mid-2009, comes amid progress in ramping up oil exports, which account for the vast majority of government income, and as Baghdad eyes higher gas production to increase woefully inadequate power supplies. But unlike the three previous sales, which offered contracts to foreign energy firms to raise output at existing oil and gas fields, Iraq has this time showcased areas earmarked for exploration. Eight blocks are to be offered on Thursday -- two thought to hold oil, and six believed to hold gas. Two of the gas blocks were offered on Wednesday, but Abdel Mehdi al-Amidi, the director general of the oil ministry's petroleum contracting and licensing directorate, said that they would be on offer again on Thursday at the request of interested companies that could not attend on the first day. Of the three oil and three gas blocks offered on Wednesday, however, just two received bids and only one -- Block 9, an area near Iraq's border with Iran that is thought to contain oil -- was accepted by Baghdad. A consortium led by Kuwait Energy that also includes Turkey's TPAO and Dubai-based Dragon Oil won the 900 square kilometre (347 square mile) block in the southern province of Basra, for a service fee of $6.24 per barrel of oil. Another exploration block in south Iraq thought to contain oil received a bid from a consortium comprised of PetroVietnam, Britain's Premier Oil and Russia's Bashneft. But it did not meet the oil ministry's asking price and so was not awarded."I think it was expected, and it's certainly a disappointment for the oil ministry, but it should give them a reason to rethink the terms that they offered, and the model," Ruba Husari, an analyst and editor of the www.iraqoilforum.com website, said of the first day of the auction. "Exploration is too risky, and no one was going to bid big money on something that is not even guaranteed to secure the rate of return." Asked what caused the lack of interest from the companies, Amidi said: "Our estimations do not allow us to (offer remuneration) that we believe could harm the national interest. "The estimations of the two sides are not in agreement, resulting in a lack of interest from the companies," he said. As in previous auctions, Iraq required foreign firms that agree to explore the blocks to work under fixed-price service contracts, rather than production-sharing agreements that are common elsewhere and more popular with major energy firms. Baghdad is also now mandating that firms that win contracts agree not to sign deals with the autonomous Kurdish region northern Iraq, or any other sub-national authority, without the central government's approval. Kurdistan has signed dozens of contracts with foreign energy firms, but Baghdad regards them as illegal because they were not approved by the federal oil ministry. Iraq is looking to ramp up its exports from its current level of around 2.5 million barrels per day. The country has proven reserves of 143.1 billion barrels of oil and 3.2 trillion cubic metres (111.9 trillion cubic feet) of gas, both of which are among the highest such deposits in the world.