By: Billy Fisher

Contributor, Stock Traders Daily

(La Jolla, CA) After more than thirty years of operating its oil industry on a nationalized basis, Iraq is preparing to open its doors to major integrated oil companies in an effort to increase production.

The Wall Street Journal has reported that next week, the Iraqi government intends to auction off oil contracts to foreign companies in hopes that big oil can help restore production at six developed oil fields that have deteriorated after years of military conflict and neglect. There has been some political opposition to this move within the country, but the auction currently appears as if it is indeed going to happen. 

It coincides with a strong rebound in crude prices off of their lows experienced back in February. Since then, the United States Oil Fund (NYSE: USO – Trading Report) has risen a staggering 64.9%. This upward trend is welcomed news for Iraq and major oil companies looking to make what might be viewed by some as being a risky investment. “Crude prices will ebb and flow with the perceived strength of the economy,” said Thomas H. Kee Jr., president and CEO of Stock Traders Daily. “Prices should increase or at least stay strong through Q1 of 2010.”    

It has been reported that more than 120 companies had initially expressed interest to bid on these contracts and thirty-five were found to have qualified for the auction. Exxon Mobil (NYSE: XOM – Trading Report) is among the most prominent U.S. companies that will be partaking in the auction. Royal Dutch Shell (NYSE: RDS-B Trading Report), Italy’s ENI (NYSE: E – Trading Report) and China Petroleum & Chemical (NYSE: SNP – Trading Report) comprise some of the international oil majors that will also be participating. 

Security is a risk to these companies, but the pay-off could be huge. Iraq has approximately 115 billion barrels in proven reserves. These new players will not have ownership stakes in the reserves, but rather will be paid to help the country ramp up its output. The country is looking to up its output from 2.4 million barrels per day to 4 million barrels over the course of the next 4 to 5 years.

The bidding for these oil contracts is set to take place on Monday and Tuesday of next week. It will be interesting to see what the final contract terms are for the winning bidders. The untapped potential in Iraq is huge. The question that remains is what will be the size of the pie that big oil will come away with. 

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