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BP-Led Oil Consortium Faces Challenges in Iraq
 BAGHDAD -- Now that a BP PLC-led consortium has won the rights to rehabilitate one of the world's biggest oil fields in Iraq, the real work for the British giant and its Chinese partner is just beginning. The project will be a test case for how Western oil companies will be received in Iraq.The BP consortium, which includes China National Petroleum Co. as the minority partner, won a fee-based contract to boost production at Iraq's Rumaila oil field. Other major oil concerns, such as Exxon Mobil Corp., ConocoPhillips and Italy's Eni SpA, walked away from the bidding round this week, saying the ministry's terms -- in some cases payouts of as little as $2 per barrel of oil pumped -- weren't acceptable. Still, big oil companies, eager for new frontiers, will likely remain interested in Iraq, home to some of the world's largest reserves. India's ONGC; China's CNOOC and China Petroleum & Chemical Corp., or Sinopec; Korea Gas Corp., or Kogas; and Russia's OAO Lukoil and OAO Gazprom, all were involved in the failed bids on Tuesday. Iraq's cabinet officially approved the BP-led offer on Wednesday. It rejected bids submitted for six other fields, saying the bidders' demands for per-barrel payouts were too high. An eighth contract -- Mansuriya gas field -- in the volatile Diyala region drew no bidders. The oil ministry is considering its next step, including whether to include the remaining fields in a second bidding round later in the year. The successful BP-CNPC bid has cemented Beijing as a big player in Iraq, following the Chinese company's $3 billion deal late last year to develop a field in southern Iraq. Despite the terms, industry analysts say the consortium can make a profit in the deal, though the returns will be far less than initially expected. The prize for BP is a rare opening to pump crude in the Middle East, where most of the world's oil is concentrated and which is largely off-limits to major oil concerns. A BP spokesman declined to comment. The project won't have a big impact on the value of BP's global portfolio, with the rates of return marginal and the upfront costs high, said Alex Munton, an Iraq specialist at oil consultancy Wood Mackenzie. "But this is still a viable project economically," he said. "And where else in the world can you access an opportunity on this scale?" BP's Rumaila deal faces other big uncertainties and challenges. Some Iraqi lawmakers are saying they have legal authority to vet the contract. The oil ministry maintains BP's contract needs approval only from Iraq's cabinet. Meanwhile, Iraq's parliament hasn't passed a petroleum law laying out the ground rules for foreign investment in the country's petroleum sector. This week's auction round was meant to spearhead development despite that stalled legislation. Some executives have questioned whether contracts signed by the current government will be honored by the new government, due to take power after elections next year. And it is unclear how BP and CNPC will work with Iraq's state-owned oil companies, which now control almost every facet of production. One of the prospective local partners -- the South Oil Co., based in Basra in southern Iraq -- already has signaled its reluctance to work with the bid winners. "There are a lot of unknowns about how things will run on the ground," said Nadia Salem, Iraq legal team leader for Dubai-based Al Tamimi & Company, which advised some of the companies participating in the bid. But Iraq -- suffering from a cash crunch due to faltering oil production and lower global crude prices -- has an interest in making BP's entry into Iraq smooth. "We will make every effort for them to succeed," said Oil Minister Hussain al-Shahristani. Posted by: Steve White 2009-07-02 |
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