OilVoice - Iraq Auctions Oil Field Drilling Rights To Foreign Companies

Iraq Auctions Oil Field Drilling Rights To Foreign Companies

Tuesday, June 30, 2009

Bidding has begun in the oil-rich Iraq nation for drilling rights to massive quantities of its proven oil and gas reserves.

A score of international oil companies have entered into a landmark bidding round for the deposits, some three decades after the sector was nationalised by the Baath party in 1972 – some seven years before former President Saddam Hussein took power.

On Tuesday more than 30 firms, including U.S. and European giants ExxonMobil and Shell and companies from China, India and across Asia, were competing to secure 20-year-long service contracts to develop six oil and two gas fields. The fields are reported to hold in the region of 43 billion of Iraq’s 115 billion proven crude reserves.

It is easy to think of the agreements as being rather one-sided; but this is far from the case. Iraqi officials are hoping that the influx of foreign investment will help boost the production levels vitally needed in order for the country to rebuild, in the wake of the 2003 U.S.-lead invasion.

There is however a potential stumbling-block: some lawmakers have argued that the new contracts could be ruled unconstitutional since the Iraqi parliament does not have the power to approve them.

Already BP, along with China’s CNPC, have secured the contract for the Rumaila oil field – the nation’s largest on offer to foreign and state-owned companies.

The Rumaila field alone holds 3.3 trillion cubic feet of oil reserves, but lies in the Diyala province – an area of the country which has seen the highest levels of violence over the past few years.

Incumbent Iraqi Prime Minister, Nuri al-Maliki, has assured vying companies that the government would: “offer security protection, offer all guarantees for their investments and offer all the facilities needed to ensure the success of this process.”

Oil Minister Hussein al-Shahristani, has said that they are hoping to increase oil production up from 2.4 million barrels per day (bpd), to more than four million bpd within the next five years.

If the four million bpd target is reached, the proceeds are estimated to generate an extra $1.7 trillion in government funding over the coming two decades.

The contracts up for grabs are far from unconditional, by any stretch of the imagination. Companies successfully awarded deals will have to work in partnership with the Iraqi government-owned firms, principally the South Oil Company (SOC), and share management of the fields despite paying for their entire financing.

In addition, the contract winners will be paid only a fixed fee per barrel produces; not a share of the profits. The fee will only be paid once an as yet undetermined production threshold set by the government is reached.

Despite the vast oil reserves on offer, questions have begun to be raised about the potential profitability of the ventures.