Monday, December 14, 2009

2nd Round of Bidding On Iraq’s Oil Fields Ends As A Success

The second round of bidding on Iraq’s oil fields ended on December 12, 2009. It was much more successful than the first round that occurred in June 2009. That auction only produced one successful contract, although two more were negotiated afterward. This round garnered seven deals for the ten fields up for bid.

Initially, the second round did not get off to a good start. On the first day, December 11, only two bids were accepted. The next day went much better with five more. If all of the companies are able to meet their projections, Iraq has the potential to add 4,765,000 extra barrels to its production total, which is currently averaging 2.39 million barrels a day in 2009. The deals from the first round could add an additional 6,075,000. Within thirteen years these oil companies are promising Iraq up to 13.23 million barrels a day in capacity, which would make it the largest oil producer in the world. Oil Minister Hussain Shahristani was even more optimistic, claiming that Iraq could reach 12 million barrels a day in six years, while noting that actual production would be determined by demand.

There are many that doubt Iraq’s ability. Oil analysts believe that all of the new facilities required to develop this potential would set off inflation in services, and be hard for the government to complete. Iraq has also not had to follow OPEC production quotas since it was placed under international sanctions after the 1991 Gulf War. Iraq is working to ends those, and thus would eventually have to comply with the organization’s prescriptions again. Some Oil Ministry officials however, are talking like they would not have to. The CEO of France’s Total oil company said in November that 10-12 million barrels a day in Iraqi production was “crazy.” He believed a much more realistic potential was 7-8 million barrels a day. Other experts believe that Iraq’s increased production would hurt it in the long run. The Director of the Center for Global Energy Studies in London, England for example, believes that greater petroleum production would lead to a fall in prices and profits for Iraq in the long run. Even Prime Minister Nouri al-Maliki’s oil adviser said recently that Iraq could not reach the 10-12 million barrel plateau, and thought 6 million barrels was more achievable.

Whatever the final outcome is, Iraq is finally garnering the foreign investment and expertise it desperately needs to boost its oil production. Since the U.S. invasion the country has become more dependent upon petroleum than ever before as the other sectors of the economy have faltered due to American and government polices and violence. It needs to garner as much money as possible from its one major resource so that it can develop and sustain itself. As always, it’s up to the bureaucracy to fashion this into a successful venture. This may be a Catch 22, as other oil producing countries do not provide much hope. Few have diversified their economies, and remain tied to one industry that does not provide much employment. The development of petroleum could thus make Iraq even more reliant upon it.

First Day Deals December 11, 2009

Halfaya
Reserves: 4.098 billion barrels
Winner: China’s CNPC, Malaysia’s Petronas, and France’s Total
Terms: $1.40 for each extra barrel produced, will boost production to 535,000 barrels a day
Losing Bids:
1. Norway’s Statoil and Russia’s Lukoil – Asked for $1.53 per extra barrel and promised 600,000 barrels a day output
2. India’s ONGC and India Oil, and Turkey’s TPAO – Asked for $1.76 per extra barrel and promised 550,000 barrels a day output
3. Italy’s Eni, South Korea’s Kogas, U.S. Occidental Petroleum, Angola’s Sonangol, and China’s CNOOC – Asked for $12.50 per extra barrel and promised 400,000 barrels a day output

Majnoon
Reserves: 12.58 billion barrels
Winner: Anglo-Dutch Shell and Malaysia’s Petronas
Terms: $1.39 for each extra barrel produced, will boost production to 1.8 million barrels a day
Losing Bids: France’s Total and China’s CNPC – Asked for $1.75 per extra barrel and promised 1.405 million barrels a day output

Qayara
Reserves: 807 million barrels
Winner: Angola’s Sonangol
Terms: $5 per extra barrel produced, will boost production to 120,000 barrels a day
Losing Bids: None

Second Day Deals December 12, 2009

Badra
Reserves: 109 million barrels
Winner: Russia’s Gazprom, South Korea’s KoGas, Malaysia’s Petronas, and Turkey’s TPAO
Terms: $5.50 per extra barrel produced, will boost production to 170,000 barrels a day
Losing Bids: None

Gharraf
Reserves: 863 million barrels
Winner: Malaysia’s Petronas and Japan’s Japex
Terms: $1.49 per extra barrel produced, will boost production to 230,000 barrels a day
Losing Bids:
1. Turkey’s TPAO and India’s ONGC – Asked for $2.76 per extra barrel and promised 200,000 barrels a day output
2. Kazakhstan’s KazMunaiGas, South Korea’s KoGas and Italy’s Edison – Asked for $2.55 per extra barrel and promised 185,000 barrels a day output
3. Indonesia’s Pertamina – Asked for $7.50 per extra barrel and promised 150,000 barrels a day output

Najma
Reserves: 858 million barrels
Winner: Angola’s Sonangol
Terms: $6 for each extra barrel produced, will boost production to 110,000 barrels a day
Losing Bids: None

West Qurna 2
Reserves: 12.876 billion barrels
Winner: Russia’s Lukoil, Norway’s Statoil Hydro
Terms: $1.15 for each extra barrel produced, will boost production to 1.8 million barrels a day
Losing Bids:
1. Malaysia’s Petronas, Indonesia’s Pertamina, Vietnam’s Petro Vietnam – Asked for $1.25 per extra barrel and promised 1.2 million barrels a day output
2. France’s Total – Asked for $1.72 per extra barrel and promised 1.43 million barrels a day output
3. British Petroleum and China’s CNPC – Asked for $1.65 per extra barrel and promised 888,000 barrels a day output

Fields Receiving No Bids

East Baghdad
Eastern Fields
Middle Furat

SOURCES

BBC, “Iraq oil capacity ‘to reach 12m barrels per day,’” 12/12/09

Brock, Joe, “Firms overstate Iraq oil potential – govt adviser,” Reuters, 12/7/09

Bureau of Near Eastern Affairs, “Iraq Status Report,” U.S. Department of State, 12/9/09

Canty, Daniel, “12 million barrels a day is unrealistic for Iraq,” Arabian Oil and Gas, 11/17/09

The National, “Iraq oil deals,” 12/12/09

Williams, Timothy, “Oil Companies Look to the Future in Iraq,” New York Times, 12/1/09

Yackley, Ayla Jean, “Iraqi oil deals mean reams of steel, miles of pipes,” Reuters, 12/10/09

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