Friday, November 06, 2009
Exxon Group Wins Iraq Oil Contract
Deal Would Pay Set Fee for Developing Giant Field With Royal Dutch Shell By GINA CHON BAGHDAD—The Iraqi Oil Ministry on Thursday said it has awarded a consortium led by Exxon Mobil Corp. and Royal Dutch Shell PLC the right to develop the West Qurna-1 oil field, representing the first American-led team gaining access to the country's oil patch. The pact is the latest in a series of deals Iraq has recently signed or initialed with some of the world's biggest oil companies. Earlier this week, Iraqi officials completed a final agreement with BP PLC and China National Petroleum Corp. and an initial agreement with a consortium led by Italy's Eni SpA. U.S. oil company Occidental Petroleum Corp. participated as a junior partner in the Eni-led team. An employee works at the Tawke oil field near the town of Zacho in Iraq. The Exxon-Shell team, combining two of the world's biggest publicly listed oil companies, had been seen as the favorite to win the contract, which calls for the consortium to boost production at the already-pumping field in southern Iraq in exchange for a per-barrel fee. Among the three competitors, it offered the highest production target for the field, the Oil Ministry said. An initial pact is expected to be signed on Thursday. The deal will then go to the Iraqi cabinet for approval before a final agreement can be signed, Oil Ministry spokesman Assem Jihad said. "We have agreed with the Ministry of Oil on the principles of the rehabilitation and development of the West Qurna field and look forward to completing the contract," said Exxon spokesman Patrick McGinn. The Exxon-Shell team beat out bids by a consortium made of Russia's OAO Lukoil and ConocoPhillips, and another one led by CNPC. After rejecting the Oil Ministry's payment terms as too stingy during a June auction, the three competitors for West Qurna later accepted the ministry's original $1.90-per-barrel payment for additional oil extracted above current production levels. Originally, Exxon asked for $4 a barrel, while the Lukoil consortium proposed $6.49 a barrel. The CNPC team proposed $2.60 a barrel. West Qurna-1 is believed to have about 8.7 billion barrels in oil reserves. The BP-CNPC group was the only consortium that didn't walk away from the summer bidding round, agreeing to cut its own proposed fees drastically to secure an early deal for Iraq's super-giant Rumaila field. Since the summer auction, the Oil Ministry continued talks with several companies regarding their bids. On Monday, Eni, along with partners Occidental and Korea Gas Corp., of South Korea, signed an initial agreement to develop the Zubair field in southern Iraq. Iraqi officials hope the contracts for the Rumaila, West Qurna-1 and Zubair fields will help bring Iraq's oil production to seven million barrels a day in six years, compared with the current production level of about 2.5 million barrels a day. Iraqi officials have struggled for years to lift production. Baghdad, even with foreign help, still faces major hurdles once work begins. Security across the country is still poor, though overall violence has fallen since the worst of Iraq's sectarian violence, following the 2003 U.S.-led invasion. Another possible hurdle is the health of the oil fields themselves. Iraqi oil officials have complained for years that Saddam Hussein pushed them to produce too much oil too quickly, without needed investment. Oil analysts have worried that may have damaged reservoirs irreparably. Iraq will hold a second bidding round in December for 10 unexplored oil and gas fields. Exxon Mobil, Lukoil, CNPC and other oil giants are among the more than 40 companies that are eligible to participate in that auction.