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Iraqi oil for sale in TV auction Oil companies reject Iraq's terms
(about 2 hours later)
BP and China's CNPC have won a contract in the televised auction for contracts to run oil and gas fields in Iraq. Only one of the bidders for the eight contracts to run oil and gas fields in Iraq has accepted oil ministry terms.
Six oil fields and two gas fields are available in the first big oil tender in Iraq since the invasion of 2003. Six oil fields and two gas fields were available in a televised auction that was the first big oil tender in Iraq since the invasion of 2003.
The consortium took the contract for the 17 billion barrel Rumaila field after Exxon Mobil rejected the terms offered by the oil ministry. BP and China's CNPC agreed to run the 17 billion barrel Rumaila field after Exxon Mobil turned it down.
Other fields have also failed to find buyers, either because there were no bidders or because terms were declined. Iraq has asked the rest of the companies to consider resubmitting bids for the other seven contracts.
The oil ministry is offering 20-year service contracts to extract oil or gas from the fields. The oil ministry is offering 20-year service contracts.
There are 31 oil companies that have been approved as potential bidders. Other fields have failed to find buyers, either because there were no bidders or because terms were declined.
Thirty-two oil companies had been approved as potential bidders.
Red envelopeRed envelope
For each field, the ministry has specified a minimum production level, which is close to the amount that is currently being produced. For each field, the ministry specified a minimum production level, which was close to the amount that is currently being produced.
FIRMS REJECTING TERMS CNOOCSinopecConocoPhillipsEniOccidental PetroleumKorea Gas CorpExxon MobilRoyal Dutch ShellPetronasONGCGazpromTurkish Petroleum Corp
The bidders will not be paid for anything up to the minimum production level - but they say how much they want to be paid for each barrel produced above the minimum, and also predict how much oil they will be able to produce.The bidders will not be paid for anything up to the minimum production level - but they say how much they want to be paid for each barrel produced above the minimum, and also predict how much oil they will be able to produce.
From that, the auctioneers pick a winning bidder.From that, the auctioneers pick a winning bidder.
However, there is another twist. In a red envelope, the auctioneers have the maximum amount that the oil ministry is prepared to pay.However, there is another twist. In a red envelope, the auctioneers have the maximum amount that the oil ministry is prepared to pay.
So far, those amounts have been significantly less than the oil companies are asking for, so the winning bidders have been asked to cut their prices. Those amounts were significantly less than the oil companies were asking for, so the winning bidders were asked to cut their prices.
In the case of the Rumaila field, Exxon Mobil declined to accept the ministry's maximum payment, but BP and CNPC, which had originally asked for $4 a barrel, agreed to do the work for $2 a barrel.In the case of the Rumaila field, Exxon Mobil declined to accept the ministry's maximum payment, but BP and CNPC, which had originally asked for $4 a barrel, agreed to do the work for $2 a barrel.
They will also be able to charge the ministry for the costs of the work they have to do on the production facilities.They will also be able to charge the ministry for the costs of the work they have to do on the production facilities.
The contracts are subject to approval by the cabinet.The contracts are subject to approval by the cabinet.
Other winning bidders are deciding whether to accept the ministry's maximum payments. Other winning bidders declined to accept the ministry's maximum payments.
Raising productionRaising production
Before the auction, Iraqi officials said companies from nations involved in the 2003 invasion would be neither favoured nor disadvantaged.Before the auction, Iraqi officials said companies from nations involved in the 2003 invasion would be neither favoured nor disadvantaged.
The auction was originally planned for Monday but had to be delayed because of sandstorms in Baghdad. The auction was originally planned for Monday, but had to be delayed because of sandstorms in Baghdad.
"Our principal objective is to increase our oil production from 2.4 million barrels per day to more than four million in the next five years," Oil Minister Hussein al-Shahristani told Iraqi public television."Our principal objective is to increase our oil production from 2.4 million barrels per day to more than four million in the next five years," Oil Minister Hussein al-Shahristani told Iraqi public television.
Iraq has the world's third-largest proven oil reserves, with 115 billion barrels, of which the fields up for auction account for about 43 billion barrels.Iraq has the world's third-largest proven oil reserves, with 115 billion barrels, of which the fields up for auction account for about 43 billion barrels.
But there has been some controversy about the auction, with members of the Iraqi parliament objecting to not having the chance to approve the deals.But there has been some controversy about the auction, with members of the Iraqi parliament objecting to not having the chance to approve the deals.
Parliament has not yet passed an oil bill. Some observers have suggested that the decision to award service contracts, instead of the more common production-sharing contracts, was taken to make it easier to proceed without such a bill being passed.Parliament has not yet passed an oil bill. Some observers have suggested that the decision to award service contracts, instead of the more common production-sharing contracts, was taken to make it easier to proceed without such a bill being passed.
Under a production-sharing contract, an oil company would recoup its costs and then be entitled to a proportion of the oil extracted, instead of being paid a fixed fee for each barrel.Under a production-sharing contract, an oil company would recoup its costs and then be entitled to a proportion of the oil extracted, instead of being paid a fixed fee for each barrel.