Friday, December 11, 2009

First Day Of New Bidding Round On Iraqi Oil Fields

Beginning on December 11, 2009 Iraq’s Oil Ministry began two days of bids on ten partially developed oil fields. The first round occurred in June 2009 and only led to one successful contract being signed by British Petroleum and the China National Petroleum Corporation (CNPC) for the Rumaila field in southern Iraq. Since then, two tentative agreements have also been signed with Italy’s Eni, America’s Occidental Petroleum Oil, and South Korea’s KOGAS for the Zubayr field, and with Exxon Mobile and Royal Dutch Shell for West Qurna 1. The Iraqi government was hoping that this new round would go much better as international oil companies seem to be coming around to their terms, but today’s session only led to two deals.

Out of the forty-four companies participating in the December 11 proceedings, only four put in winning bids. First was a consortium of Shell and Malaysia’s Petronas for the Majnoon oilfield in southern Iraq. It was the largest in the round with a reserve of 12.88 billion barrels of oil. They agreed to be paid $1.39 per extra barrel they produce over a certain benchmark to be determined later, and promised to raise production from the current level of 45,900 barrels a day to 1.8 million a day in ten years. Another group made up of CNPC, Petronas, and France’s Total made a successful offer for the Halfaya field. They agreed to be paid $1.40 per extra barrel produced, and increase production from 3,100 barrels a day now to 535,000 barrels a day in thirteen years. Halfaya has a reserve of 4.1 billion barrels. The deals, if finalized, will be for 20 years and give the companies 75% ownership, and the Iraqi Oil Ministry 25%. The Eastern Fields, made up of Gilabat, Kashem al-Ahmar, Naudoman, and Qumar, and the North and Central East Baghdad fields, got no offers, and Qayara only got one bid by Angola’s Sonangol, which was rejected.

The Oil Ministry is moving ahead with these rounds even though they are raising political objections. The head of the oil and gas committee in parliament has demanded that the legislature approve all deals, and the Kurdistan Regional Government has said that they need to be included in any negotiations for oil fields in disputed territories in northern Iraq. The country’s oil workers and unions are also apprehensive about the entry of foreign companies into the industry, fearing that they will be fired. The Oil Ministry has ignored all of these complaints.

Those objections, along with the failure of the parliament to pass a new oil law, have left the oil corporations apprehensive about doing business in Iraq. The terms set by the Oil Ministry also offer limited profits, but the petroleum industry is tempted by Iraq’s 115 billion oil reserves, one of the largest in the world. If the deals go through, Iraq will also need billions of dollars in new oil equipment and services, and thousands of new workers only some of which will be paid for by the companies. Baghdad may not be able to provide the rest. Together, these are the reasons why only two possible contracts have come out of the December 11 round.



Fields Up For Bid On December 11, 2009
Majnoon – Winning bid by Shelland Petronas
Halfaya – Winning bid by CNPC, Petronas, Total
Qayara – Rejected bid by Sonogol
North and Central East Baghdad – No bids
Eastern Fields (Gilabat, Kashem al-Ahmar, Naudoman, Qumar) – No bids

Fields Up For Bid On December 12, 2009
Badra
Middle Furat (Kifl, West Kifl, Merjan)
Garraf
Najmah
West Qurna Phase 2

Oil Companies Participating (By Country)
Algeria – Sonatrach
Angola – Sonangol
Australia – BHP Billiton, Woodside
Canada – Nexen
China – CNOOC, CNPC, Sinochem
Denmark – Maersk
England – BG Group, BP, Cairn
France – Total
Germany – Wintershall BASF Group
India – Oil India, ONGC
Indonesia – Pertamina
Italy – Edison, Eni
Japan – Inpex, Japex, JOGMEC, Mitsubishi, Nippon
Kazakhstan – KazMunaiGas
Korea – Kogas
Malaysia – Petronas
Netherlands – Shell
Norway – Statoil Hydro
Pakistan – Pakistan Petroleum
Russia – Gazprom, Lukoil, Tatneft
Spain – Repsol
Turkey – Turkish Petroleum Corp
U.S. – Anadarko, Chevron, Conoco Phillips, Exxon Mobile, Hess Corp, Marathon,
    Occidental Petroleum
Vietnam – Petrovietnam

SOURCES

Hoyos, Carola, “Iraq set to be second in oil league table,” Financial Times, 12/11/09
- “Shell wins Iraq oil ‘gold rush’ auction,” Financial Times, 12/11/09

Lando, Ben, “Round 2 of the Iraq oil bidding battle begins,” Iraq Oil Report, 12/10/09

Mohammed, Aref and Abbas, Mohammed, “Job fears, hopes temper Iraq welcome for oil majors,” Retuers, 12/7/09

The National, “Iraq holds oil auction amid security fears,” 12/11/09

Al-Salhy, Suadad and Rasheed, Ahmed, “SCENARIOS-Will Iraq honour deals with oil majors after polls?” Reuters, 12/10/09

Yackley, Ayla Jean, “Iraqi oil deals mean reams of steel, miles of pipes,” Reuters, 12/10/09
- “UPDATE 2-Kurds say Iraqi oilfield auction is being rushed,” Reuters, 12/10/09

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