Iraq's oil:Crude calculations
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Dec 15, 2009
Will a new auction of fields to foreign firms get Iraq’s oil flowing freely?
AP
A COUNTRY with a shaky economy that sits on huge oil reserves would usually be reckoned wise to pump as much as possible out of the ground as quickly as it can. Western oil companies, desperate for crude that is cheap to produce and refine, should be ready and waiting to help. But arranging such a deal in Iraq is no easy matter. Iraq’s second round of auctions for the rights to develop it oil fields concluded on Saturday December 12th. The first round in June, a televised extravaganza, resulted in the embarrassing outcome that just one of the eight contracts on the block found a taker. By the middle of the day on Friday two big oil fields had attracted winning bids from foreign companies.
On Friday Royal Dutch Shell, in partnership with Malaysia’s Petronas, won the right to develop Majnoon, one of the world’s biggest untapped oilfields. CNPC, China's largest oil and gas producer, with Petronas and France’s Total were also awarded a contract to extract oil from Halfaya beating off competition from other European, American and Asian oil companies. On Saturday Russia's Lukoil and Norway's Statoil got there hands on the biggets prze on offer, West Qurna-2. Although several of the fields under the hammer on Friday and Saturday failed to find buyers this latest auction of Iraq’s oil is already more successful than the previous effort.
Oil companies complained that the terms on offer in June’s auction were too tough. Iraq’s leaders, mindful of claims by nationalists in parliament that they would sell prized assets on the cheap, set terms that only one consortium of foreign oil companies felt able to meet. BP and CNPC won a contract to take over production of the Rumaila oilfield, one of Iraq’s largest oil fields.
Since then Iraq’s government has accepted that it needs to speed up a process that it hopes will lift output from 2.4m barrels a day now to 7m b/d by 2017. This has led to a “clarification” of the investment terms, in effect cutting taxes. This rewriting of the rules led to the acceptance of resubmitted first-round bids from an ENI-led group for the Zubair field and from Exxon Mobil and Shell for West Qurna-1.
The latest auction was always more likely to succeed. The assets on offer in June were oilfields currently in production that would require replacing or refitting antiquated Iraqi equipment and sorting out inefficient management. The fields on the block this time are untapped resources containing oil that is easy to reach and refine. But if big oil companies seem more enthusiastic it is hardly because the immediate rewards are so great.
The Majnoon field produces just 46,000 b/d at the moment but Shell has pledge to increase output to 1.8m b/d. Shell’s winning bid guarantees it a fee of just $1.39 a barrel. But it and the 44 other oil companies taking part in the auction must hope that getting a foot in the door will help when Iraq needs help later to develop other oil fields.
The oil companies’ optimism may be misplaced. Iraq still has no oil law to guarantee and protect foreign oil investment, and will not get one until after elections set for next March. At least the oil companies will not have to start investing before then. And virgin fields require huge infrastructure investments to get the oil from the ground to existing pipelines or coastal ports. Doubts still surround the ability of the Iraqi government to build more pipelines and roads or to repair infrastructure already in place and then keep it secure.
Shell’s investment in Majnoon, a southern field near the Persian Gulf, should make that less of a problem. The fields that attracted little or no interest were the ones located in the more dangerous eastern parts of Iraq, near Baghdad or near Mosul in the north of the country. The Iraqi government may now attempt to develop them without foreign help. At least these fields will not run into another trouble facing foreign oil companies in Iraq—the level of political opposition that persists to allowing foreigners to have access to prized oil fields.
--
Dec 15, 2009
Will a new auction of fields to foreign firms get Iraq’s oil flowing freely?
AP
A COUNTRY with a shaky economy that sits on huge oil reserves would usually be reckoned wise to pump as much as possible out of the ground as quickly as it can. Western oil companies, desperate for crude that is cheap to produce and refine, should be ready and waiting to help. But arranging such a deal in Iraq is no easy matter. Iraq’s second round of auctions for the rights to develop it oil fields concluded on Saturday December 12th. The first round in June, a televised extravaganza, resulted in the embarrassing outcome that just one of the eight contracts on the block found a taker. By the middle of the day on Friday two big oil fields had attracted winning bids from foreign companies.
On Friday Royal Dutch Shell, in partnership with Malaysia’s Petronas, won the right to develop Majnoon, one of the world’s biggest untapped oilfields. CNPC, China's largest oil and gas producer, with Petronas and France’s Total were also awarded a contract to extract oil from Halfaya beating off competition from other European, American and Asian oil companies. On Saturday Russia's Lukoil and Norway's Statoil got there hands on the biggets prze on offer, West Qurna-2. Although several of the fields under the hammer on Friday and Saturday failed to find buyers this latest auction of Iraq’s oil is already more successful than the previous effort.
Oil companies complained that the terms on offer in June’s auction were too tough. Iraq’s leaders, mindful of claims by nationalists in parliament that they would sell prized assets on the cheap, set terms that only one consortium of foreign oil companies felt able to meet. BP and CNPC won a contract to take over production of the Rumaila oilfield, one of Iraq’s largest oil fields.
Since then Iraq’s government has accepted that it needs to speed up a process that it hopes will lift output from 2.4m barrels a day now to 7m b/d by 2017. This has led to a “clarification” of the investment terms, in effect cutting taxes. This rewriting of the rules led to the acceptance of resubmitted first-round bids from an ENI-led group for the Zubair field and from Exxon Mobil and Shell for West Qurna-1.
The latest auction was always more likely to succeed. The assets on offer in June were oilfields currently in production that would require replacing or refitting antiquated Iraqi equipment and sorting out inefficient management. The fields on the block this time are untapped resources containing oil that is easy to reach and refine. But if big oil companies seem more enthusiastic it is hardly because the immediate rewards are so great.
The Majnoon field produces just 46,000 b/d at the moment but Shell has pledge to increase output to 1.8m b/d. Shell’s winning bid guarantees it a fee of just $1.39 a barrel. But it and the 44 other oil companies taking part in the auction must hope that getting a foot in the door will help when Iraq needs help later to develop other oil fields.
The oil companies’ optimism may be misplaced. Iraq still has no oil law to guarantee and protect foreign oil investment, and will not get one until after elections set for next March. At least the oil companies will not have to start investing before then. And virgin fields require huge infrastructure investments to get the oil from the ground to existing pipelines or coastal ports. Doubts still surround the ability of the Iraqi government to build more pipelines and roads or to repair infrastructure already in place and then keep it secure.
Shell’s investment in Majnoon, a southern field near the Persian Gulf, should make that less of a problem. The fields that attracted little or no interest were the ones located in the more dangerous eastern parts of Iraq, near Baghdad or near Mosul in the north of the country. The Iraqi government may now attempt to develop them without foreign help. At least these fields will not run into another trouble facing foreign oil companies in Iraq—the level of political opposition that persists to allowing foreigners to have access to prized oil fields.