THE EVENT: The Iraqi government and numerous international oil
companies failed Tuesday to agree financial terms for all but one
of a series of new contracts to boost output at the country's
existing oil and gas fields, resulting in the failure of seven out
of eight of the tenders.
A consortium led by BP PLC (BP) and China National Petroleum Co.
(0135.HK) won the first contract awarded, to boost output at Iraq's
largest oil field, Rumaila, but consortia led by Exxon Mobil Corp.
(XOM), Eni SpA (E), CNOOC Ltd. (CEO) and ConocoPhillips (COP) all
rejected the Iraqi government's offers of payments for contracts on
other fields, saying the prices were too low.
The Iraqi government concluded the bidding process and asked the
companies to resubmit bids.
THE DETAIL: BP and CNPC initially asked the Iraqi government for
a payment of $3.99 for each additional barrel of oil they can
extract from the 17 billion barrel Rumaila field, but eventually
accepted $2 a barrel from the government. The consortium plans to
raise Rumaila's production from 1.1 million barrels of oil per day
currently to 2.85 million barrels a day.
Other companies were unable to reach a compromise.
ConocoPhillips rejected the government's offer of $4 per barrel of
extra output from the Bai Hassan oil field, which was far below the
$26.70 per barrel they were seeking.
The government's payment offers for the Missan, Zubair and West
Qurna Phase 1 fields also were rejected by the companies due to
similar gulfs in payment expectations between the two sides.
A joint Royal Dutch Shell PLC (RDSB.LN) and China Petroleum and
Petrochemical Corp. (SNP) for the Kirkuk oil contract and an Edison
SpA-led (EDN.MI) bid for the Akkas gas field were still under
consideration when the bidding process concluded.
THE BACKGROUND: This is Iraq's first oil and gas field tender
open to international companies in nearly three decades. The bid
round is expected to boost output by 1.5 million barrels a day by
improving recovery at massive fields deprived of the latest
technology by years of sanctions and insecurity.
Iraqi Prime Minister Nouri al-Maliki stood by Oil Minister
Hussein al-Shahristani and decided to go ahead with the bid round,
despite growing internal opposition. Shahristani has been under
fire from an oil and gas panel at the national parliament, which
blamed him for a sharp decline in production from Iraq's oil fields
in the south. The lack of success in Tuesday's bidding round will
not strengthen his position.
Panel members also oppose any long-term involvement by
international oil companies in the six producing oil fields -
Rumaila, Kirkuk, Bai Hassan, Missan, West Qurna Phase 1 and Zubair,
which are on offer under the first bidding round, as are the Akkas
and Mansuriya gas fields.
According to the 20-year service contracts, oil firms would have
a 75% stake in the joint venture, with state-owned Iraqi operators
at the field holding the remaining 25%.
COMMENT:
"This is a bit crazy that their prices are so different to
ours," one company official told the Wall Street Journal. "We
didn't think they would be so tough."
The award of the Rumaila contract to BP and CNPC is a good
starting point, said Edison Investment Research analyst Alessandro
Pozzi. "They will establish a presence in the country and establish
a relationship with the government," he said. In the future, if the
Iraqi government offers foreign companies the right to develop new
fields, "they can bid from a good position," he said.
"BP and its partner CNPC are very pleased to have participated
in the transparent and efficient process today. We are looking
forward to the next step towards finalising the service contract to
increase production of the Rumaila field," said a BP spokesman.
-By James Herron in London and Hassan Hafidh in Baghdad, Dow
Jones Newswires; +44 (0)20 7842 9317; james.herron@dowjones.com
(Gina Chon in Baghdad contributed to this article.)