RENEE MONTAGNE, host:
It's a big day in Iraq, with American combat troops officially withdrawing from cities there. June 30th has been designated a holiday, honoring that countries sovereignty. Also today, Iraq officially opened its oil fields to foreign companies for the first time in nearly 40 years. More than 30 big oil companies are competing in an auction for long-term service contracts. Iraq is believed to have the second-largest oil reserves in the world behind Saudi Arabia, and the auction has generated tremendous interest.
NPR's Tom Gjelten reports.
TOM GJELTEN: The oil companies are so eager for a crack at Iraq's vast oil wealth they're willing to overlook some big negatives. It is a country still at war; there's a lot of political opposition to foreign oil companies; it's not guaranteed the contracts awarded at this auction will even be honored - and yet more than 30 companies submitted bids.
Energy experts say it's because there hasn't been an opportunity like this for big oil in decades. No one knows how much oil is in Iraq. Roger Diwan, a partner at the consulting firm PFC Energy, says there hasn't been much exploration there in decades because of all the political turmoil.
Mr. PETER DIWAN (PFC Energy): The Iraq-Iran war, the embargo, sanctions and the second Gulf War here. So, in a way, we haven't really had the good look at what's in Iraq since the late '60s.
GJELTEN: Diwan says Iraq is probably just behind Saudi Arabia in its oil reserves. And it's not hard to get Iraqi oil out of the ground. Peter Zeihan is an energy analyst at the global intelligence firm STRATFOR.
Mr. PETER ZEIHAN (Energy Analyst, STRATFOR): They're large, shallow, relatively high-quality fields with relatively high pressure. You don't have to be an Exxon Mobil or a Royal Dutch Shell in order to work in Iraq.
GJELTEN: But you may need good government contacts. When Saddam Hussein kicked the foreign oil companies out of Iraq in 1972, many Iraqis supported the move. And there is still opposition to any sharing of the country's oil wealth with foreign companies. The withdrawal of U.S. combat troops from Iraqi cities and towns this week has only reinforced Iraqi nationalism. David Gordon, head of global research at the Eurasia Group, says Iraqi politicians could even try to overturn foreign oil contracts.
Mr. DAVID GORDON (Eurasia Group): There's still a lot of political risk involved in Iraq in the energy sector. On the other hand, it is this enormous opportunity. So I think what companies want to do is to get in the game without making a big investment. What Iraq wants to do as a country is try to force them to put some money on the table.
GJELTEN: Oil is being pumped in Iraq right now, but production is far below its potential because the country has not invested much in its oil infrastructure. For today's auction, oil companies selected which fields they're interested in. They submitted bids detailing how much they could increase production.
In return for a contract, the companies have to be willing to make loans to the Iraqi government, which the government would repay with oil earnings. Any oil produced would still belong to the Iraqis.
Such deals won't necessarily be highly profitable for the oil companies, but in the next phase the Iraqi government is expected to open its undeveloped fields. The companies that win the right to explore for oil might then be able to take a share of what they find. Peter Zeihan of STRATFOR says it's that competition — not this one — that would mean big money for the companies.
Mr. ZEIHAN: This is just everybody kind of wanting to get their foot in the door for the bigger prizes that will be here in a year or two.
GJELTEN: So, Iraq is more a potential opportunity than a real one to the big international oil companies. But Roger Diwan says no one wants to be left out.
MR. DIWAN: What makes Iraq special, is there's room for all the big oil companies at the same time, and for all of them to have sizable projects. Everybody will get something fairly large.
GJELTEN: Iraq is currently pumping about two-and-a-half million barrels of oil a day. With modern technology and foreign expertise, experts say, the country could produce four times as much. That would be a bonanza for Iraqis, even if they have to share the wealth with foreign companies.
Tom Gjelten, NPR News, Washington.
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