- The Washington Times - Sunday, December 13, 2009

BAGHDAD | Iraq’s oil minister began counting the money Saturday even before the first wells were drilled, dubbing the country’s second postwar oil auction a triumph even as international oil companies largely snubbed the most violent regions in the Middle East’s last major oil bonanza.

The two days of bidding produced deals on only seven of the 15 fields on offer. Of those, four were in the stable southern Shi’ite heartland while two in the north went to the only company that expressed interest: Angola’s Sonogal. The last was in central Iraq, in a province where violence has remained low.

The auction was key for Iraq. Its oil bidding in June - the first in more than three decades - largely failed, with only one giant field awarded out of eight offered. The hope was for a better showing this time. The deals are critical for boosting Iraq’s oil exports - and bringing in revenue to help rebuild after the 2003 U.S.-led war and decades of neglect and international sanctions under Saddam Hussein.

Iraq has not been able to raise output to even close to pre-2003 levels and is limping along at roughly 2.5 million barrels per day using technology desperately needing an overhaul. That’s well short of Iraq’s goal of joining the ranks of other OPEC heavyweights and reaching 12 million barrels a day in six years.

On Saturday, Russian private oil giant Lukoil teamed up with Norway’s Statoil ASA to snatch the crown jewel of the auction, the 12.88 billion barrel West Qurna Phase 2 field in southern Iraq. It was something of a coup for Lukoil, which won the contract in 1997 under Saddam, only to see the dictator rescind the deal five years later.

The U.S. companies at the auction, including Exxon Mobil Corp., stayed on the sidelines except for one failed bid by Occidental over the two days at the heavily fortified Oil Ministry.

The auction came after bombings Tuesday around Baghdad killed at least 127 people in a sobering reminder of the challenges the Baghdad government faces with the looming withdrawal of U.S. forces.

“It is a big victory for Iraq,” Oil Minister Hussain al-Shahristani told reporters after the final field was auctioned. “It is a big achievement for Iraq to win such contracts at the current prices.”

He estimated the two bidding rounds could eventually bring in $200 billion per year - more than three times Iraq’s current annual budget, which is 90 percent built on oil revenue. Mr. al-Shahristani and Prime Minister Nouri al-Maliki have both staked their political futures on promises of boosting oil output and improving security.

The size of the windfall, however, may be a case of wishful thinking.

Iraq exports between 1.8 million and 2 million barrels a day in any given month, and is not even included in the output restrictions on members of the Organization of Petroleum Exporting Countries.

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