China is on the Iraqi oil field auction like white on rice.Submitted by Jim Brown on Tue, 06/30/2009 - 13:17
BAGHDAD — The long-awaited auction of licenses to develop Iraq’s huge oil reserves began Tuesday amid unusual contentiousness, as multinational companies demanded far more revenue from every barrel of increased production than the authorities were willing to allow.
Scores of Chinese, Russian, American and British oil executives, representing 8 of the world’s top 10 non-state oil companies, gathered in a hotel meeting room in the Green Zone. They listened closely on headphones to translations as bids for six oil fields and two natural gas fields were read out and then rushed into consultations.
But only one contract was agreed to on Tuesday. That went to a pairing of BP and the China National Petroleum Corporation for the largest field on offer: Rumaila, near the southern city of Basra, which has proven reserves of 17 billion barrels. Once the bid is accepted by the oil minister, Hussain al-Shahristani, Parliament must issue final approval.
The auction is of huge economic importance to Iraq, which hopes to raise oil production within five years to 4 million barrels a day from the current level of 2.4 million. It also carries major symbolic weight, coinciding with the formal American handover of urban security to Iraqi forces.
Iraq’s oil fields were nationalized under Saddam Hussein and were closed to foreigners for decades. The industry’s infrastructure crumbled under international sanctions imposed after the invasion of Kuwait in 1990. The Bush administration had planned for Iraq to finance its post-invasion rebirth with oil revenues, but that idea failed in the face of technical problems and sabotage.
According to reporters watching the auction, the first round of bidding for the Rumaila field stalled when Exxon Mobil and a consortium of BP and the China National Petroleum Corp. both wanted more than the government’s offer of $2 for each barrel above a guaranteed minimum production level. Exxon said it would produce 3.1 million barrels daily with each additional barrel at a fee of $4.80, news reports said. The BP consortium, which eventually won, said it would produce 2.85 million barrels a day and originally wanted $3.99 per additional barrel. Currently, the field is pumping around a million barrels a day.