US to solicit competitive bids for Iraq oil field upgrades

Maureen Lorenzetti
Washington Editor

WASHINGTON, DC, Apr. 15 -- With Iraq's oil fields now officially secure, Pentagon officials are planning to solicit competitive bids to upgrade infrastructure and expand production to pre-Gulf War I levels and beyond, US military officials said Tuesday.

Bids may be announced as soon as late April, but more likely in May with awards in June or July, US officials said. It is too soon to predict how much the contracts will be for, the US Army Corps of Engineers said. But a spokesman stressed that bids would be open to qualified oil service companies both inside and outside the US.

The corps is currently administering a controversial sole-source contract with Halliburton Co.'s Kellogg Brown & Root subsidiary for emergency war repairs and related environmental clean-ups.
KBR has performed about $50 million of work on a contract that could be as much as $600 million over a 2-year span. But given that war-related oil field damage has been minimal, the final cost of the project is unlikely to be that high, US government sources predicted. A Halliburton spokesman said the company may make bids on future contracts "if it makes good business sense to do so."

Production timetables
The northern fields may start producing as much as 1 million b/d within a few weeks, while production restart in the southern fields may take several months.

US Army officials said they see no evidence of sabotage in the northern region, but four wells in the south were set ablaze and several other wells were wired with explosives.

US military officials said the damage could have been far worse if not for Iraqi oil workers who turned off key valves and pumps to protect critical infrastructures before hostilities began.

Preconflict
Before the war, Pentagon officials feared that Iraqi President Saddam Hussein might try to disable all of the country's 2.5 million b/d of oil production for months or years by setting the fields ablaze.

Some analysts and even the Pentagon at one point warned that as much as $7 billion in damage could be inflicted if the Iraqi dictator repeated what he had done in Kuwait during Gulf War I.

Anticipating the worst, the US government in March awarded KBR, already a large military contractor, a noncompetitive "bridge" contract. US officials said they needed to forgo the typical 45-day competitive bidding process so the oil service company could start fixing sabotaged wells quickly.

But because Vice-President Dick Cheney served as chief executive of Halliburton until 2000, some Congressional Democrats immediately alleged the award was politically motivated.

Reps. Henry Waxman of California and John Dingell of Michigan called on the General Accounting Office to determine if the Pentagon offered preferential treatment to the oil services company. In a related effort, the two lawmakers now want GAO to investigate Department of Defense contracts awarded to Halliburton over the past 2 years and to review the process by which the Bush administration has signed or intends to sign contracts with private firms for development work in Iraq.

In an Apr 10 correspondence with the corps, Waxman acknowledged that the Bush administration may have had valid reasons for granting a sole-source contract for emergency work during armed hostilities. But he said it was harder to understand why the corps wrote a multiyear contract potentially worth billions of dollars.
Waxman also questioned the Army's earlier assertion that KBR was the only company that could perform the work because it possessed the requisite security clearances.

Contractor reaction
Meanwhile, a contractor trade group defended the military's conduct, saying proper procedure was followed.

Associated General Contractors of America CEO Stephen Sandherr said in a letter to Waxman and Dingell that "while it appears that the GAO may conduct an in-depth investigation of concerns raised in your letter, our initial observation is that appropriate procurement policies have been followed and that the unique national security concerns of this procurement in wartime Iraq protected lives, resources, and the environment."

Sandherr further stated with regard to the contract awarded to KBR to arrest the oil fires in Iraq, "AGC is satisfied that the contract was properly awarded."

Sandherr said that KBR had an existing contract with the corps to provide construction and base logistics services to the DOD in the Persian Gulf region prior to coalition forces entering Iraq.
"In that capacity, KBR was already privy to classified military plans regarding the mission to enter Iraq, as well as intended targets. "

AGC also called on the administration to give US firms a preference in all future contracts and subcontracts in Iraq.

Next steps
Decisions over longer-term reconstruction contracts and related matters may fall under the direct jurisdiction of a yet-to be named interim government.

Industry sources say the Pentagon wants Phillip Carroll, formerly a top executive with Shell Oil Co. and Fluor Corp., to oversee the oil industry during the transitional government stage, but there are many unanswered questions over what the scope of his authority would be.

There is about 9 million bbl of Iraqi oil in storage at the Turkish port of Ceyhan that the United Nations maintains is part of its oil-for-food humanitarian program.

US officials, meanwhile, have suggested that the Bush administration will have the authority to execute oil contracts in a post-Saddam political environment.

UN officials also want to be involved in any process concerning Iraq's reconstruction, including the rebuilding of the nation's oil sector.