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

Iraq reviews oil tenders after foreign snub

2009-06-30 18:50:11 GMT2009-07-01 02:50:11 (Beijing Time)  SINA.com

BAGHDAD - Iraq's cabinet was reviewing on Wednesday new bids from foreign energy firms to develop the country's oil and gas reserves, a day after being widely snubbed by companies unhappy over the terms on offer.

"Ministers are meeting and discussing the issue," an official in Prime Minister Nuri al-Maliki's office said after a deal was struck on Tuesday to develop only one of six oil fields up for tender.

In the five other cases, and with two gas fields, companies balked because Iraq was offering far less per barrel of oil or oil equivalent produced than they considered acceptable.

But oil ministry spokesman Assem Jihad said "the top two consortiums for each field have made new proposals, and the cabinet will study them and decide what to do."

Service contracts offered by Baghdad are based on companies accepting a fixed fee for the oil or gas extracted rather than an equity stake.

Foreign companies raised doubts in the run-up to the bidding about having to partner with state-owned firms and the requirement to share management of the fields, despite fully financing their development.

In the end, British energy giant BP and China's CNPC International Ltd were the only bid winners, accepting two dollars per barrel to work in the giant Rumaila oil field in southern Iraq, which has known reserves of 17.7 billion barrels.

In contrast, China's CNOOC and Sinopec had wanted 25.40 dollars per barrel extracted from the Maysan field but the government offered them only 2.30 dollars.

US energy giant ConocoPhillips asked for 26.70 dollars per barrel to work in the Bai Hassan oil field but the government offered four dollars.

And a consortium featuring Sinopec, Italy's Eni Medio Orient SpA, America's Occidental Petroleum and South Korea's Korea Gas Corp (Kogas) withdrew from bidding for the Zubair oil field. It asked for 4.80 dollars per barrel but the oil ministry offered only two dollars.

Separately, no bids were received to work the Mansuriya gas field and an offer for the other gas site, from Italy's Edison SpA, was dropped.

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

Commenting on the impasse, Ruba Husari, editor of the Iraq Oil Forum, told AFP a compromise needs to be found.

The stand-off is between Iraq, "which wants to offer a poor return and is demanding increased output and... the needs of the oil companies, which must invest billions of dollars to hike production and also make a profit," she said.

She pointed out that, in the case of two dollars a barrel offered by Iraq, companies would only receive 95 cents after paying 35 percent in taxes and 25 percent of after-tax income to their associated Iraqi company.

Ministry spokesman Jihad denied that Tuesday's bidding had been a flop.

Indeed, he said it was a "success because the large foreign oil companies showed up, which shows their desire to invest in Iraq, and the procedure was transparent, which is unique in this region."

Oil Minister Hussein al-Shahristani had said on Tuesday that the Rumaila deal would take total production from 2.4 million barrels a day to more than four million in five years.

Jihad echoed that, and added that this had been done while also "imposing the principle of low return."

The extra production would pump an extra 1.7 trillion dollars into government coffers over the next 20 years, Shahristani said, but only 30 billion dollars of that would go to the oil companies.

The rest "is a huge amount that would finance infrastructure projects across Iraq -- schools, roads, airports, housing, hospitals."

(Agencies)

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