Iraqi oil

The foreign army moves out; the foreign oil men move in. Iraqis may fear their energy being sold off on the cheap, but need not worry. Terms for operating rights offered at auction on Tuesday for eight oil and gas fields were so harsh that two failed to find bidders. And the auction of the country’s giant Rumaila field almost collapsed – until BP stepped in and accepted a flat $2 fee per for each barrel of oil produced, half what it asked for.

In this case, Iraq has certainly got a good deal. If BP boosts Rumaila’s production to Baghdad’s 1.7m barrels per day target, it would take some $365m in fees a year, about a thousandth of annual revenues. Use company margins obtained elsewhere, and pre-tax profits might reach $40m – although that is before factoring in higher Iraqi costs, especially security. Even if BP more than doubles Rumaila’s production to its own heady target of 2.85m bpd, it would still only earn $120m a year, about 0.6 per cent of forecast group profits. In return, Iraq would have increased oil production by three quarters, without putting any capital at risk.

Related articles by Zemanta

• Iraqi Oil Licensing Round Runs Into Trouble (abcnews.go.com)
• BP And CNPC Win Biggest Iraq Oil Contract (news.sky.com)