Iraq oil auction flops after single contract award

In what will be seen as a major embarrassment for Iraq’s Oil Minister, Hussain al-Shahristani, most major oil companies rejected the opportunity to work in the country after it became apparent that the payment terms on offer from Baghdad were world’s apart from what the supermajors expected from the 20-year fixed-fee contracts that were being offered. 

Both analysts and the watching media were united in calling the auction a ‘farce’ and many believe that time is now running out for Shahristani, especially as it is now the widely held belief in Baghdad that the central government, especially the Oil Ministry,  is being upstaged by the semi-autonomous region Iraqi Kurdistan in regards to attracting major oil companies to develop its fields.

Indeed this may be the final straw as far as some of Shahristani’s more vociferous opponents in the Iraqi parliament are concerned. However, Shahristani could earn the respect of others for his tough negotiating and refusal to back down from the world’s largest oil companies. Shahristani would have fared far worse if he had been seen to capitulate immediately and sold off Iraq’s major energy assets on the cheap.

The embattled oil minister also was at pains to remind the world’s press that awarding the contract for the Rumaila field should almost double the country’s oil production to around 4 million barrels per day (bpd). Shahristani has also asked the consortia involved in the auction to reconsider their initial bids. These bids will be offered to the Iraqi cabinet for consideration. 

The full auction results

Rumaila
Bidders: Two consortia led by BP and ExxonMobil
Result: Awarded to BP

The super giant field in southern Iraq has reserves of 17 billion barrels and ended up being the only contract awarded during the two-day auction. 

The consortium headed by British supermajor BP and backed by the China National Petroleum Corporation (CNPC ) had initially wanted $3.99 for every extra barrel produced over the minimum plateau production target set by Baghdad while the consortium headed by ExxonMobil asked for $4.50.

Both of these offers were declined by the Iraq Oil Ministry, who had themselves offered $2 for every extra barrel produced.

After some deliberation the BP consortium accepted the $2 offer, while ExxonMobil walked away from the deal.

BP’s decision to accept the $2 fee was met with widespread disbelief from experts within the industry. Many believed that even at $2 a barrel there was still money to be made from Rumaila, but most agreed that profit margins would be tight when measured against the amount of investment capital required to develop the field.   

Bai Hassan
Bidder: Consortium led by Conoco-Phillips
Result: No award made.

The Bai Hassan field has reserves of 2.3 billion barrels and current output currently stands at between 140,000-150,000 barrels per day (bpd). Iraq is hoping for increased production to at least 220,000 bpd, an initial fee of $300 million as well as a minimum of $150 million being spent on developing the field.

The Conoco-Phillips led consortium included Chinese oil giants Sinopec and China National Offshore Oil Corp (CNOOC) had intended to increase production at Bai Hassan to 390,00 bpd.

However, Conoco-Phillips wanted a fee of US$26.70 for each extra barrel of oil produced while Iraq had offered $4. Agreement could not be reached so the consortium withdrew its bid.

Maysan
Bidder: Consortium led by and CNOOC
Result: No award made.

The Maysan oilfield has a current production of 100,000 bpd, but is expected to produce at least 275,000 when fully developed. The initial fee was $300 million and minimum expenditure on developing the field was set at $200 million.

The consortium led by CNOOC and Sinochem was the sole bidder for three oilfields that make up the 2.5 billion barrel Maysan field in northern Iraq, but again demanded a much higher fee than Iraq’s Oil Ministry was willing pay. The consortium wanted $21.40 for each extra barrel of oil produced, while Iraq was offering $2.30.

Kirkuk
Bidder: Consortium led by Royal Dutch Shell
Result: No award made.

The Shell consortium bidding for the 8.7 billion barrel Kirkuk field included CNPC and  Turkish national oil company TPAO.

The Kirkuk field lies in an area of Iraq contested by Iraqi Kurdistan and the central government in Iraq.

The consortium intended to increase production to 800,000 barrels per day and was asking for $7.89 for every extra barrel while the Iraq Oil Ministry offered $2.

Neither party could agree on an acceptable figure so Shell declined the offer and pulled out of the bidding process.

Zubair
Bidders: Constia led by Eni, CNPC, ONGC (India), ExxonMobil
Result: No award made. 

Four groups of oil companies bid for the 4.1 billion barrel Zubair oilfield with the consortium headed by Italian oil giant Eni securing the most votes from the committee overseeing the auction. 

The consortium included Occidental from the US, Korea Gas and Sinopec and had asked for a fee of $4.80 for every extra barrel based on production estimates of 1.125 barrels per day.

The Iraq Oil Ministry offered the consortium $2 for ever extra barrel. The Eni consortium was asked to reconsider its offer.

West Qurna Stage 1
Bidders: Five consortia led by Total , Lukoil, Repsol, ExxonMobil and CNPC.
Result: No award made.

The highly sought after 7.4 billion barrel West Qurna field drew the most interest in the auction, but again the difference between how much Iraq wanted to pay compared to how much the consortia bidding wanted differed massively.

The Iraq Oil Ministry offered $1.90 a barrel and the ExxonMovbil bid cam closest with an offer of $4. Bids from the other consortia were as much as ten times higher than what Iraq was prepared to pay.

Akkas
Bidder: Consortium led by Edison (Italy)
Result: No award made.

The 2.1 trillion cubic feet (tcf) Akkas gas field received one bid for a consortium headed by Edison and including Malaysia’s Petronas, CNPC,  Korea Gas and the Turkish Petroleum Corp.

The consortium wanted $38 for every barrel of oil equivalent produced based on an estimated output of 425 million cubic feet of gas per day.

The consortium was told to reconsider its other or withdraw from the auction.

Mansuriyah
Bidder: No bidders

The 3.3 tcf gas field drew no bidders.