Iraq is selling its oil, but investors should not expect a fire sale. Oil companies are trimming expectations just to get the oil flowing again, and the stakes are enormous.
The fields up for auction are among the world’s largest, and no other area in the world offers such potentially rich pickings. The goal is to fully exploit Iraq’s vast reserves for the first time. Two deals were signed on Friday.
Shell and Petronas have won the bidding for the Majnoon field and its 12.5 billion barrels. Today it only pumps nearly 46,000 barrels a day. The consortium wants that to leap to 1.8 million and, for that, it is ready to accept only $1.39 a barrel.
China’s CNPC leads the second consortium that has won the Halafaya field and its over four billion barrel reserves. They will get $1.40 for every barrel they pump over today’s 3100 a day figure. 535,000 barrels a day is their target.
Auctions began in June, and another was held in November. They are the first since 1975’s nationalisation of Iraqi oil. Anglo-Dutch Shell, America’s ExxonMobil, CNPC and British Petroleum have the most cards in play, but Iraq will be the big winner.
“We can develop the oil sector by investment through national efforts or by foreign companies, but on condition that the contract should be a service contract, not a production sharing contract,” says oil expert, and Deputy Head of the Central Council of Oil Syndicates, Falih Abud Al-Assadi.
The message coming from Iraq is clear: we may be desperate for help, but that does not mean we are ready to be ripped off. So the big oil companies are having to bite the bullet and accept some tough conditions, foregoing profit-sharing for long-term gain.
This is why: in six year’s time the plan is to raise production to seven million barrels a day, close to world leader Saudi Arabia’s 9.45 million. And Iraq is sitting pretty on the world’s third largest reserves, estimated at 115 billion barrels. Boosting production will provide the Saudis with some real competition in the world oil market.