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Wood Mackenzie says the Iraq Oil Ministry’s award to BP and CNPC in the first Iraq International Licensing round is of global significance, and could see the Rumaila super-giant oil field become the second highest producer in the world, after the Ghawar field in Saudi Arabia.
Wood Mackenzie’s analysis of the licensing round concludes that it was not a failure, despite seven out of the eight contracts remaining unawarded. The award of the Rumaila field is of singular importance: “BP and CNPC have targeted a production plateau of 2.85 million barrels per day (mmb/d) over the next six years – a level of growth from a single field which is almost unparalleled in the history of the oil industry,” says Colin Lothian, Middle East upstream research analyst for Wood Mackenzie.
“Whilst the Iraqi Ministry will be disappointed to have awarded only one block from this initial offering, it should be encouraged by the extraordinary confidence which the bidding companies have shown in their oil fields. Plateau production forecasts for the six fields combined was between 5.7 million b/d and 8.2 million b/d, reflecting the unparalleled potential of Iraq’s oil reserves.”
Wood Mackenzie forecasts that if the Rumaila project alone is implemented as planned, Iraqi production capacity should exceed 4 mmb/d by the middle of the next decade, achieving the Oil Ministry’s capacity target.
Lothian adds that BP and CNPC are prepared for the challenge: “The respective attributes of BP and CNPC put the partnership in a strong position to make a success of the project. BP probably has a better knowledge of Rumaila than any other International Oil Company, having provided technical assistance to Iraq’s South Oil Company since 2003. Prior to the bidding round, it was involved in negotiations on a two-year Technical Service Agreement, and already has a 24-month well programme planned.”
“Improvements to water management facilities should provide a sharp increase in output from the main reservoir, whilst a giant scale waterflood in the Mishrif will utilise BP’s experience from fields such as Prudhoe Bay in Alaska and, more recently, the giant Samotlor field in West Siberia. The partnership will also benefit from CNPC’s experience and access to a skilled and cost-efficient service sector. And as the only successful bidders in the round, BP and CNPC have now established a ‘first-movers advantage’ for future opportunities in Iraq,” Lothian continues.
Awards in this licensing round are based on the newly-devised Iraqi Technical Service Contract (TSC): “Companies were invited to bid on two features of the TSC: the maximum remuneration fee and the plateau production target. The unexpected twist in the process was the Ministry’s imposition of a maximum expectation of this remuneration fee. This was between US$1.90/bbl and US$4.00/bbl for the oil contracts; and US$8.50/mcf for the gas contracts.
Lothian concludes: “The terms of this TSC provide the Iraqi government with around 95% of the revenue from the project and we expect the Iraqis to use this structure for further licence awards in the future. Whilst the format ensures that contractor value is more constrained than under most production-sharing and concession systems, we believe that the Rumaila project is economically viable, even with the reduced remuneration fee. It definitely stands comparison with other service-style contracts in OPEC Middle East, such as those in Iran, Abu Dhabi and proposed in Kuwait.”
