Exxon, Shell Win Iraq’s West Qurna Oilfield Contract (Update3)
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By Robert Tuttle
Nov. 5 (Bloomberg) -- Iraq awarded a contract to develop the West Qurna oilfield to Exxon Mobil Corp. and Royal Dutch Shell Plc, a month before the country holds its second licensing round for oilfield contracts since the 2003 U.S. invasion.
The initial agreement, scheduled to be signed today, will be submitted to the Iraqi government for approval as early as next week, Asim Jihad, an Oil Ministry spokesman, said by telephone. The companies will be paid a fee of $1.90 a barrel for the oil they produce, he said, the maximum set by the government in a June licensing round. Exxon spokesman Patrick McGinn confirmed the agreement in an e-mailed statement today.
Earlier this week Iraq signed a contract with BP Plc and China National Petroleum Corp. to triple output at the Rumaila field to 2.85 million barrels a day. An Eni SpA-led group said in October it was awarded a license to develop the Zubair field.
“With these very encouraging examples, there will be a lot of interest in the second licensing round” in December, Samuel Ciszuk, an analyst at IHS Global Insight, said in a telephone interview.
Iraq, holder of the world’s third-largest oil reserves, aims to increase crude production to 6 million barrels a day by 2015. The country produced 2.45 million barrels a day last month, according to Bloomberg estimates.
In addition to Exxon and Shell, Iraq was in discussions with Russia’s OAO Lukoil, Total SA of France and CNPC for West Qurna, Abdul Mahdy al-Ameedi, deputy director general of Iraq’s Petroleum Contracts and Licensing Directorate, said last month.
Lukoil’s Loss
“It will be a big loss for Lukoil,” which did work on West Qurna when Saddam Hussein ruled Iraq, Ciszuck said. “They have really been eyeing this field.”
The Rumaila field contract granted to BP and CNPC was the only one awarded in June in the country’s first postwar licensing round. Exxon and Shell had originally placed a joint bid for the West Qurna work in that round, competing against four other groups. At the time, Exxon and Shell had offered to boost output from the field to 2.325 million barrels a day for a remuneration fee of $4 a barrel, which they lowered to $3.70.
All of the license round bids for West Qurna were rejected by Iraq because the proposed fees exceeded a maximum of $1.90 a barrel, the ministry said in a July 2 statement. Irving, Texas- based Exxon and Shell, headquartered in The Hague, began direct negotiations with Iraq later, culminating in today’s contract.
While Iraq’s licensing rounds offer foreign companies the most access to Middle East oil reserves for decades, the country will retain ownership of the fields and pay companies for their expertise.
West Qurna
The West Qurna oil field in southeast Iraq is about 50 kilometers (31 miles) northwest of the city of Basrah and overlaps the northern edge of the Rumaila field. Three reservoirs of West Qurna have been produced from in the past, according to the ministry.
Separately, a second phase of the development of West Qurna will be one of several new projects to be offered in a second licensing round in Baghdad next month. Total Chief Financial Officer Patrick de la Chevardiere said yesterday that the French company is interested in bidding for the Majnoon field in the second round.
To contact the reporter on this story: Robert Tuttle in Doha at rtuttle@bloomberg.net
Last Updated: November 5, 2009 10:39 EST
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