Firms snub Iraq oil contracts

A contract to develop Iraq's biggest oilfield has gone to a consortium headed by BP, but other other companies have walked away.

A worker checks an oil pipe gauge in Tawke oil field near Dahuk, 400 km north of Baghdad

The Iraqi oil ministry's bold initiative to boost crude output by auctioning contracts to develop six of the country's biggest oilfieds is turning into a rout, as international companies that were vying for the licenses snub government requests for lower bids. So far, the ministry has awarded just one contract, albeit for Iraq's biggest field. It has failed to auction off contracts for four other oilfields, leaving just one more in contention. That is the Kirkuk field in northern Iraq, which contains 9 million barrels of proved reserves. The ministry has received just one bid for the field, located in territory disputed between Baghdad and Iraq's semiautonomous Kurdish region. Royal Dutch Shell, has teamed up with China's state-owned Sinopec and the Turkish Petroleum Corporation to bid on the field. The consortium has offered to raise output by 800,000 bpd for $7.89 per barrel, but Baghdad wants to pay only $2 per barrel. In the latest disappointment, US-based Exxon Mobil had teamed up with Shell to bid on the 8.7 billion barrel West Qurna field, but rejected the government's terms after the ministry set a maximum remuneration of US$1.90 (Dh6.97) per barrel for raising output, and gave the companies 45 minutes to consider the offer. The Iraqi oil minister, Dr Hussein al Shahristani, said the Exxon/Shell bid was the best of five it had received for the West Qurna contract, but the alliance of the world's two biggest oil firms had asked to be paid $4 for each extra barrel produced. The companies rejecting government counter-offers for work on four other oilfields included big most of the world's biggest international oil firms, as well as state-owned Chinese and South Korean companies, after their bids were deemed too rich. A contract to develop Iraq's biggest oilfield was awarded to a consortium headed by BP, after the big British oil group and its partner, the state-owned Chinese National Petroleum Corporation (CNPC), agreed at the last minute to drop their price for developing southern Iraq's Rumaila field to $2 from $3.99 per barrel. BP and CNPC accepted Baghdad's terms for developing Rumaila - a behemoth field with 17 billion barrels of proved reserves - after an alliance led by Exxon Mobil withdrew a rival bid. Alessandro Pozzi, an analyst with Edison Investment Research, said the contract was a good starting point for BP in Iraq, which has the world's third biggest proved oil reserves and immense potential for further discoveries. Other terms of the service contracts offered by the ministry have proved so unpopular that two oilfields attracted only one bid each, at prices far above what the ministry was prepared to offer. Even a consortium consisting of only Chinese state-owned companies has walked away from the auction, although national oil companies based in oil consuming countries have traditionally undercut their private-sector rivals in bidding on large international oil projects. Dr al Shahristani said the ministry's principal objective in holding the televised auction for licenses to develop six of Iraq's biggest oilfields and two gasfields was to raise the country's oil production by two thirds to more than 4 million bpd from 2.4 million bpd within five years. Nouri al Maliki, the Iraqi prime minister, said Iraq needs money to rebuild the country after three wars and more than a decade of debilitating economic sanctions. "These contracts are needed for the reconstruction of Iraq. They are for the benefit of Iraqis and the companies," he said today at the auction's opening. But the foreign firms bidding on the projects are seeking payment commensurate with the risks they would take on to operate in the country. Two gasfields were also offered in the auction, but the ministry withdrew one field after it failed to attract any bids. The remaining gasfield, Akkas in western Iraq, received one bid from a consortium led by US-based Edison International(. The field contains 2.1 trillion cubic feet of reserves, which Baghdad had earmarked for exports to Europe through the proposed Nabucco pipeline. [e-mail]