BP, Chinese oil firm win first Iraq deals in decades

CRUDE TALK:: The Iraqi oil minister said that increasing oil production to 4 million barrels a day would pump an extra US$1.7 trillion into the country over 20 years


Wed, Jul 01, 2009 - Page 6

British energy giant BP and China’s CNPC International Ltd were unveiled yesterday as the first foreign firms in decades to win contracts to invest in and develop 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 former Iraqi president Saddam Hussein’s party nationalized the Iraqi energy sector.

The deals will provide the government with much-needed revenue as it struggles 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,” Prime Minister Nouri al-Maliki said at the opening of the bidding session in Baghdad. “They are for the benefit of Iraqis and the companies.”

The bidding process has attracted bids 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.

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.

“Our principal objective is to increase our oil production from 2.4 million barrels per day to more than 4 million in the next five years,” Oil Minister Hussein al-Shahristani said in an interview with Iraqi public TV.

Increasing production to that level will, he said, pump an extra US$1.7 trillion into government coffers over the next 20 years.

Shahristani has said that only US$30 billion of that sum will go to the companies that 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.

For energy firms, the appeal is the opportunity to plant a foot in the country, their first chance to do so since the Baath party nationalized the Iraq Petroleum Company in 1972, seven years before Saddam took power.

“Thanks to sanctions and war, no company has wanted or been able to invest,” said Ruba Husari, an energy expert and the founder of the Web site iraqoilforum.com. “Today, the country is stable, in both its security and its institutions.”

Not all energy firms are happy, though, with 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.

“This raises the question of the profitability of the contract,” said a source involved in the bidding, who spoke anonymously. “The companies are the ones investing, but have a big problem with the fact that management will be shared.”