Tue, July 07, 2009
Business > Markets > Iraq oil auction

Britain's BP, Chinese oil firm win Iraq deals

2009-07-01 00:41:56 GMT2009-07-01 08:41:56 (Beijing Time)  SINA.com

An Iraqi oil worker at an oil field in the southern Rumaila area in 2007. Iraq said it has rejected further offers from foreign companies to work in the country's oil and gas sector and pledged that some sites will instead be solely exploited by state-owned firms.(AFP)

BAGHDAD – British energy giant BP and China's CNPC International Ltd were unveiled Tuesday as the first foreign firms in decades to win contracts to invest and develop in Iraq's war-battered energy sector.

The companies succeeded in their bid for the giant Rumaila oil field in southern Iraq, which has known reserves of 17.7 billion barrels, the oil ministry announced.

The contract was the first to be awarded in open tendering for six major oil fields and two gas fields, nearly four decades after Saddam Hussein's party nationalised the Iraqi energy sector.

"The companies accepted to be paid two dollars per barrel," said Oil Minister Hussein al-Shahristani.

Under the terms of the 20-year contract, BP and CNPC have six years to increase production at Rumaila to 2.85 million barrels per day.

However, several foreign companies rejected the terms laid down by the government and withdrew their offers for other smaller oil fields as well as a gas field.

China's CNOOC and Sinopec asked to be paid 25.4 dollars per barrel extracted from the Maysan oil field but the companies were offered only 2.3 dpb.

US energy giant ConocoPhillips, meanwhile, was offered four dollars per barrel to work in the Bai Hassan oil field whereas the company wanted 26.7 dpb from the Iraqi government.

Separately, no bids were received to work in the Mansuriya gas field, the largest of two unexploited sites offered under the tendering process.

Tuesday's bidding was the first opportunity for energy companies to plant a foot in the country since the Baath party nationalised the Iraq Petroleum Company in 1972, seven years before Saddam took power.

The process attracted offers from 31 firms including US and European giants ExxonMobil and Shell but also a swathe of Asian companies from China, India, South Korea and Indonesia.

Prime Minister Nuri al-Maliki underlined at the session's opening that Iraq needs oil 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," he said. "They are for the benefit of Iraqis and the companies."

The oil deposits, holding known reserves of 43 billion barrels of crude, are in southern and northern Iraq while the gas concessions are west and northeast of Baghdad.

Shahristani said earlier that the ministry's primary objective is to increase oil production from 2.4 million barrels per day to more than four million in the next five years.

Increasing production to that level will, according to him, pump an extra 1.7 trillion dollars into government coffers over the next 20 years.

Shahristani has said that only 30 billion dollars of that sum will go to the companies which have extracted the oil.

The rest "is a huge amount that would finance infrastructure projects across Iraq -- schools, roads, airports, housing, hospitals," he said, insisting that the country would retain control over its oil reserves.

Ahead of the bidding, however, some firms expressed doubts about the terms of the contracts being offered by Baghdad.

The foreign firms awarded deals will have to partner with Iraqi government-owned firms, principally the South Oil Company (SOC), and share management of the fields despite fully financing their development.

They will be paid a fixed fee per barrel, not a share of the profits, and the fee will only be paid once a production threshold set by the government is reached.

"This raises the question of the profitability of the contract," said a source involved in the bidding, who spoke on condition of anonymity.

"The companies are the ones investing, but have a big problem with the fact that management will be shared," the source said.

(Agencies)

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