Thirty contestants, only one winner in the Iraqi oil licence gameshow

There’s a lot of oil to be pumped and the government is desperate for the cash, so why did the major players walk away? David Strahan reports

The auction of Iraqi oil production licences last week was truly historic

The prize was far more valuable than an apprenticeship. Iraq not only has the world’s third-biggest official reserves at 115 billion barrels, but its giant fields are uniquely underexploited, following three decades of war, sanctions and insurgency. “Iraq is the last big, low-cost play in conventional oil anywhere in the world,” says Bill Farren-Price, a Middle East expert and energy director at Medley Global Advisors. The licence round was meant to raise Iraqi oil production from 2.4 million barrels a day to 4 million, and with so much to fight over, the Iraqis seem to have assumed the working title for their gameshow was “I’m an Oil Company, Get Me into Here!” But that’s not quite how it turned out.

One by one, the companies dropped sealed bids for each of the fields into a box, and then the government announced what it was prepared to pay. At that moment, “there was a collective dropping of jaws around the table”. Just one contract was awarded and seven failed, as the bidding exposed a massive gulf between the expectations of the companies and the government.

The contracts were designed to increase the output of some of Iraq’s biggest fields by rewarding the successful bidder for every barrel produced above a set target. But the companies wanted between two and 10 times more than the government was prepared to pay. To work on the Bai Hassan oil field, for instance, ConocoPhillips demanded $26.7 a barrel, whereas the government offered $4