:: Energy & Petroleum :: Energy :: Washington Wire Global Report

Iraq awards Rumaila oil field contract to BP-Chinese partnership
July 2, 2009

The Iraqi cabinet reportedly has awarded a 20-year contract to a partnership between BP and China National Petroleum Corp. to develop the Rumaila oil field at $2 per barrel. The goal is to expand production from 985,000 barrels of oil per day to 2.85 million barrels per day.

According to the U.S. Department of Energy's Energy Information Administration, Iraq in 2008 pumped 2.37 million barrels total. This contract alone, then, represents an effort to boost overall Iraqi oil production by more than a third.

The contractors initially proposed $3.99 a barrel before agreeing to slash costs to $2 per barrel. Other bidders, including Exxon Mobil and Royal Dutch Shell Plc, reportedly refused to negotiate down to that level.

The Rumaila oil field is a massive deposit in southern Iraq, part of which extends into Kuwait, the subject of past border disputes and reputedly a factor in Iraq's invasion of Kuwait in 1991.

Apparently there are five additional oil fields, and two additional natural gas fields, that had been under consideration for foreign development that Iraq might attempt to develop itself.

Note that the contract apparently does not award rights to the oil, but rather purchases contracting services to pump the oil.

Note also that it is the Iraqi national cabinet awarding the contract, not regional authorities. Oil rights have been a point of sensitivity in efforts by Iraq, a cobbling of religious and ethnic factions, to unify as a federal nation-state.

This contract effort stands in contrast to, for example, efforts by Kurdish regional powers to award oil contracts in their territory in the north of the country.

The potential for the issue of oil revenues to serve as a flashpoint is aggravated by the fact that, while an Arab Sunni minority had enjoyed greater power in the past, they faced the prospect of being left out of oil revenues given the geographic positioning of Arab Sunnis and that of oil deposits.

As of 2007 Iraq had the world's fourth largest oil reserves, but was ranked only 15th in total oil production, 13th in crude oil production. Iraq in 2007 producted 2.10 million barrels of oil, out of 84.42 million barrels total world production.

That year Iraq exported 485,000 barrels of oil per day to the United States, making the Iraqis the 7th-largest exporter to the United States. In 2007 the United States imported roughly 12.22 million barrels of oil per day.

Further reading:

:: Iraq Approves BP-Led Bid to Develop Rumaila Oil Field (Update1), Bloomberg, July 1, 2009
:: BP-Led Consortium Wins Contract To Develop Rumaila Oil Field In Iraq, Energy Business Review, July 1, 2009

:: KUWAIT - Oilfield Profile - Ratqa/Rumaila, All Business, May 31, 1999 (accessed July 2, 2009)

:: Iraq Energy Profile - U.S. EIA

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