Monday, April 5, 2010

Work From New Oil Deals Finally Begins

In June and December 2009 Iraq’s Oil Ministry held two auctions for 18 un- and underdeveloped oil and gas fields. After the first round, only one contract was signed. The second round went much better with seven deals. The government also negotiated two other deals for a total of ten with international oil corporations. Word is now out that work will begin on some of those fields before the end of the year.

Six different companies have recently stated that they have plans to start work on four fields this year. On March 30, 2010 British Petroleum (BP) and the China National Petroleum Company (CNPC) awarded China’s Daqing Oil Field Company, Weatherford, and the state-run Iraq Drilling Co. with Schlumberger $500 million worth of drilling work on the South Rumaila field in Basra. BP and CNPC were the only ones to win contracts in the first round of bidding in June. Rumaila currently produces 1.07 million barrels  day, and the two companies want to increase that to 1.23 million barrels within twelve months. They promised to raise production overall to 2.85 million barrels a day with a commission of $2 per extra barrel of oil produced past an initial amount to be determined with the Oil Ministry. Rumaila has reserves of 7.3 billion barrels. On March 25, 2010 Malaysia’s Petronas and Japan’s Japex announced that they were in the process of beginning work at the Garraf field in Dhi Qar within a month. Garraf has reserves of 863 million barrels of oil, and Petronas and Japex have promised to boost production to 230,000 barrels with a commission of $1.49 per extra barrel produced. Russia’s Lukoil and Norway’s Statoil Hydro have also just declared that by the end of 2010 they will begin work at West Qurna 2 in Basra as well. That is a much larger field with reserves of 12.876 billion barrels of petroleum. The Russian-Norwegian consortium has promised to produce 1.8 million barrels there per day within six years, while being paid $1.15 for each extra barrel. At the beginning of March, CNPC declared that work would begin at the Halfaya field by late 2010. It has reserves of 4.098 billion barrels, and the Chinese company, along with its partners, Malaysia’s Petronas and France’s Total, said that they could produce 535,000 barrels a day there for a fee of $1.40 for each extra barrel. It’s unknown when the other companies will begin work on the other six fields, but hopefully it will be within the year.

As reported before, Iraq’s oil industry has hit a plateau. Since mid-2009, overall production has averaged 2.45 million barrels a day, exports have averaged 1.94 million barrels, while earnings have hovered around $4 billion a month. Iraq needs these international companies to repair and improve Iraq’s aging and deteriorating petroleum infrastructure, and bring much needed money and know how to an industry that has basically been unchanged for almost 30 years now due to wars and sanctions. The increased earnings, would also go a long way to improving services as well as Iraq is an oil dependent country, with almost all government revenue coming from that one business.

June 2009 1st Bidding Round Oil Deals

South Rumaila Oil Field
Reserves: 7.3 billion barrels
Winning Bid: British Petroleum, China’s CNPC
Terms: $2 per extra barrel produced, will boost production to 2.85 million barrels a day
Start: 2010

December 2009 2nd Bidding Round Oil Deals

Garraf
Reserves: 863 million barrels
Winning Bid: Malaysia’s Petronas, Japan’s Japex
Terms: $1.49 per extra barrel produced, will boost production to 230,000 barrels a day
Start: April 2010

Halfaya
Reserves: 4.098 billion barrels
Winning Bid: China’s CNPC, Malaysia’s Petronas, France’s Total
Terms: $1.40 per extra barrel produced, will boost production to 535,000 barrels a day
Start: Second half of 2010

West Qurna 2
Reserves: 12.876 billion barrels
Winning Bid: Russia’s Lukoil, Norway’s Statoil Hydro
Terms: $1.15 per extra barrel produced, will boost production to 1.8 million barrels a day
Start: End of 2010

Badra
Reserves: 109 million barrels
Winning Bid: Russia’s Gazprom, South Korea’s KoGas, Malaysia’s Petronas, Turkey’s TPAO
Terms: $5.50 per extra barrel produced, will boost production to 170,000 barrels a day
Start: Unknown

Majnoon
Reserves: 12.58 billion barrels
Winning Bid: Anglo-Dutch Royal Shell and Malaysia’s Petronas
Terms: $1.39 per extra barrel produced, will boost production to 1.8 million barrels a day
Start: Unknown

Najmah
Reserves: 858 million barrels
Winner: Angola’s Sonangol
Terms: $6 per extra barrel produced, will boost production to 110,000 barrels a day
Start: Unknown

Qayara
Reserves: 807 million barrels
Winning Bid: Angola’s Sonangol
Terms: $5 per extra barrel produced, will boost production to 120,000 barrels a day
Start: Unknown

Additional Oil Deals


Nasiriyah
Reserves: 4.4 billion barrels
Winning Bid: Japan’s Nippon Oil, Japan’s Inpex, Japan’s JGC Corporation
Terms: Will boost production to 150,000-200,000 barrels a day within two years
Start: Unknown

Zubayr
Reserves: 4 billion barrels
Winning Bid: Italy’s Eni
Terms: Will boost production to 1.125 million barrels a day within six years
Start: Unknown

SOURCES

Aswat al-Iraq, “Malaysian-Japanese consortium embarks on developing Gharraf oilfield,” 3/25/10

Iraq-Business News, “BP Awards $500 mn Oil Services Contracts in Iraq,” 3/30/10
- “Russian Lukoil to start drilling Iraqi oil fields before the end of this year,” 3/22/10

Reuters, “CNPC Iraqi Halfaya Work to Start in H2-PetroChina,” 3/5/10

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

2 comments:

Maury said...

I don't see these guys doing much for the infrastructure with their $1.15 a barrel bounty. Sure,they can sink some wells. But,how will they get the oil to market if the pipelines are shot? I wish Iraq had thrown its oil fields on the open market and simply taxed the proceeds at whatever rate it chose. Even a 90% tax rate would be better than what's in place now.

Joel Wing said...

Maury,

There are huge questions about how these deals will work out and whether they will reach their production marks. Many think that Iraq will only produce half of what it wants because the infrastructure is so bad and decrepit, and so many things will have to be started from scratch, not to mention the lack of trained Iraqis.

As for the companies they're going to be sinking in billions of their own money to get these projects up and running. It's like an early investment in the hopes that they will get more fields and better deals in the future.

And Iraq was never going to open everything up. They still have a state-run economy and they almost had a political revolt when they proposed the current deals. Members of the Oil Ministry, oil unions, and Maliki's opposition in parliament were all talking abut suing the government, strikes, hearings, etc, etc. etc.

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