Iraq recently signed a number of new oil deals and has plans to move ahead with several others in the coming weeks. These are part of the Oil Ministry’s plans to open up Iraq’s resources to joint ventures with foreign companies to boost petroleum production to 7 million barrels a day in seven years. This is desperately needed as oil provides almost all of the Iraqi government’s revenue, and Iraq needs billions for development and reconstruction.
On November 5, 2009 the Iraqi Oil Ministry agreed to an initial deal with Exxon Mobile and Royal Dutch Shell for the West Qurna 1 oil field in Basra. It has reserves of 7.4 billion barrels of oil, and was placed up for auction in June 2009. Exxon Mobile and Shell were the top bidders then, but asked for $4 for each extra barrel they produced after production goals were met. The Oil Ministry was only willing to pay $1. In October the two sides agreed to a remuneration fee of $1.90, and the companies said they would increase production from the current level of 280,000 barrels a day to 2.1 million in seven years.
The day before, British Petroleum (BP) and the Chinese National Petroleum Company (CNPC) also finalized their contract for the Rumaila field in Basra. Rumaila has 17.8 billion barrels in reserves, and is Iraq’s largest producer at nearly 1 million barrels a day. BP and CNPC have agreed to boost production to 2.85 million barrels a day in six years, and be paid $2 for every extra barrel produced. BP and CNPC was the only consortium to win a bid in the June round.
On November 2, Eni of Italy, Occidental Petroleum Oil of the U.S., and KOGAS of South Korea signed a preliminary contract for the Zubayr field also in Basra. Like Exxon Mobile and Shell, the Eni led consortium were involved in the June auction, but failed to agree to terms with the Oil Ministry until now. Zubayr has reserves of 4 billion barrels of oil, and the oil companies have promised to boost production from 195,000 barrels a day to 1.125 million barrels in seven years. There still seems to be some disagreements as Eni said they expected to invest $10 billion, but the Oil Minister said he wanted $35 billion.
The Oil Ministry is also involved in negotiations with a Japanese group consisting of Nippon Oil Corp., Inpex Corp., and JGC Corp. for the Nassiriya field in Dhi Qar. Nassiriya was not part of the June bid round, and has reserves of 5 billion barrels. This deal is for $10 billion and is for engineering and construction work.
Together these contracts, if they come to fruition could almost double Iraq’s oil production. That’s desperately needed as Iraq is almost completely dependent upon petroleum for money. Currently, it has the third largest oil reserves, but is only the 11th largest producer in the world. As reported before, Iraq’s oil production has slowly increased since the 2003 invasion, but has consistently fluctuated up and down and is nowhere near its potential. In September 2009 for example, Iraq produced 2.5 million barrels of oil per day, and exported 1.94 million. That was down from the 2.0 million barrels exported in August. The Oil Ministry’s maneuvers have also been criticized by parliament. The oil and gas committee declared the recent wave of deals as illegal because they were not approved by the legislature, and they want to question the Oil Minister over his poor performance. That is only one small portion of the dispute over Iraq’s most valuable resource. Like so many major issues in Iraq, the country’s politicians have not been able to separate the short-term technical need to boost oil production, from the long-term debate over who has control over contracts and development. That has led to a debilitating set of arguments that have held up major legislation like a new oil law. Those differences could delay these deals from being completed. The companies also have to be aware of local needs, as Iraqis have sabotaged the work of the only other foreign oil corporation working in the Ahdab field in Wasit over lack of jobs and damage to their land. All of these reasons together are why the petroleum industry has been slow to enter the Iraqi market because there are so many uncertainties. At the same time, these preliminary deals are a sign of success for the Oil Ministry, which has seen so many failures in the past. Five oil companies have agreed to their stiff terms after rejecting them in the June bid round. This does create some optimism that Iraq’s petroleum industry will finally begin to get the investment that it needs, but there are still many hurdles ahead.
Alsumaria, “Iraq MPs stress on questioning Oil Minister,” 11/4/09
BBC, “Iraq in third overseas oil deal,” 11/5/09
Dow Jones Newswires, “Iraq Sep Oil Exports -2.7% On Month At 1.956 Million B/D – Ministry,” 10/27/09
EU News Network, “Iraqi Lawmaker Irked Over BP Oil Contract,” 11/4/09
Hafidh, Hassan, “Iraq to Award Oil Field To ExxonMobil, Shell,” Wall Street Journal, 11/4/09
Hoyos, Carola, Warrell, Helen, and Bernard, Steve, “Crude Competition,” Financial Times, 6/30/09
Rasheed, Ahmed, “UPDATE 2-Iraq,Eni-led group sign initial Zubair oil deal,” Reuters, 11/2/09
Reuters, “Q+A-Iraq’s oil contracts, scale and obstacles,” 10/16/09
Williams, Timothy, “Iraq Signs Contract to Develop Oil Field,” New York Times, 11/4/09
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