Iraq: BP Wins the Prize

A consortium led by oil giant BP and China’s CNPC has today won the contract for the vast Rumaila oil field – the largest oil field in Iraq and one of the biggest in the world.

The acquisition will be seen as a huge boost to BP, which has been seeking to get control of the field for years. It is the first contract to be awarded in Iraq’s first oil and gas field tender open to international companies in nearly three decades.

BP won the rights to Rumaila after Exxon-Mobil dropped out of a televised auction in a disagreement with the country’s Oil Ministry over fees. BP had been seeking $3.99 remuneration for each extra barrel of oil produced but agreed to drop the fee to $2 a barrel.  Exxon meanwhile was said to be wanting a fee of $4.80.

BP has probably been willing to accept slightly less favourable terms offered by the Ministry because Iraqi oil offers such vast potential. Ramaila is a huge elephant with reserves estimated at some 17 billion barrels, but there could be much, much more.

And the company knows more than most just how much oil is there, having undertaken a study of the field for the Iraqi Government two years ago.

A total of 32 companies are involved in the auction process which covers a total of 43 billion barrels of oil, including BHP Billiton, Chevron, ConocoPhillips and Royal Dutch Shell.  Many more reserves await to be discovered.

The auctions are still mired in controversy. Over the weekend an Iraqi parliamentary committee said that the Iraqi Oil Minister, Hussain Shahristani, did not have the right to award the contracts without parliamentary approval.

Moreover most analysts are saying before BP gets its dirty hands on the prize, the deal will still have to be approved by Iraq’s parliament.

And they certainly will want to have their say in the matter. They might even say “no”.

So the champagne at BP’s London HQ might just have to stay on ice for a little longer.