IOCs mostly reject terms of Iraq's latest bid round

International oil companies (IOCs) have largely rejected terms offered by Iraq in the country’s first bidding process for more than 30 years, with one oil field bid awarded out of six offered and no awards given for two gas fields.

Jun 30th, 2009

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, June 30 -- International oil companies (IOCs) have largely rejected terms offered by Iraq in the country’s first bidding process for more than 30 years, with one oil field bid awarded out of six offered and no awards given for two gas fields.

BP PLC and China's CNPC International Ltd. were the only bid winners, accepting a $2/bbl agreement to work in Rumaila oil field in southern Iraq, which has known reserves of 17.7 billion bbl.

"BP and its partner CNPC are very pleased to have participated in the transparent and efficient process today,” said a BP spokesperson. “We are looking forward to the next step towards finalizing the service contract to increase production of the Rumaila field.”

Better terms sought
Iraq offered bids for a total of eight oil and gas fields in the auction, hoping that IOCs would help the country boost output to 4 million b/d and bring in revenues needed for postwar reconstruction.

However, the bid round floundered as IOCs sought better terms than the service contracts offered by Baghdad, which were based on companies accepting a fixed fee per barrel of oil instead of an equity stake.

IOCs also raised doubts about having to partner with Iraqi state-owned firms along with a requirement to share management of the fields, despite being required to provide full financing of the fields’ development.

The tender process initially attracted offers from 31 IOCs including BP PLC, CNPC, Royal Dutch Shell PLC, and ExxonMobil Corp. in addition to a host of other companies from China, India, South Korea, and Indonesia.

However, after a day of bidding there were, apart from the BP-CNPC bid, no other successful tenders for the remaining five oil fields due to the gap between what the IOCs wanted and what the government was willing to pay.

China's CNOOC and Sinopec wanted $25.40/bbl for oil from Maysan field in southern Iraq, while Baghdad offered just $2.30/bbl. ConocoPhillips wanted $26.70/bbl to work in Bai Hassan oil field, while the government offered just $4/bbl.

A consortium comprised of Sinopec, Eni Medio Orient SPA, Occidental Petroleum Corp., and Korea Gas Corp. withdrew from bidding for Zubair oil field after its request of $4.80/bbl was met with an Iraqi government response of $2/bbl.

‘Near farce’ bidding
According to one observer, the bidding descended into “near farce” when Iraq’s Oil Minister Hussein al-Shahristani asked IOCs to resubmit their bids after the initial offers were rejected by Chinese, American, Italian, British, Dutch, and South Korean energy firms.

"The companies can submit a new offer until 6 p.m. (1500 GMT) and these offers will be reviewed by the cabinet, who will take the final decision," said al-Shahristani. But representatives of several IOCs said the minister’s invitation was impractical due to the lack of time to prepare a new offer.

Al-Shahristani denied that the bidding had been a failure, saying, "Our numbers were not far from reality, and proof of that is that BP accepted our price for Rumaila.”

The minister also insisted that Iraq would still meet its primary objective of increasing production to 4 million b/d from 2.4 million b/d in the next 5 years. "I am very satisfied because of Rumaila we will produce more than 4 million b/d," he said.

But Samuel Ciszuk, Middle East energy analyst with IHS Global Insight viewed the bidding as disastrous for the country, saying, "It puts Iraq back on square one.”

Contact Eric Watkins at hippalus@yahoo.com.

More in Exploration & Development