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A PARTNERSHIP between BP and China National Petroleum (CNPC) was the only bidder to win one of eight Iraqi oil contracts after competitors refused to accept the state oil ministry’s tough terms.

The eight contracts cover fields holding some 43b bbl of estimated reserves – a healthy proportion of Iraq’s total estimated 115b bbl. Despite this lure, the world’s oil majors were put off by the service contracts offered by the oil ministry. Oil companies prefer production sharing contracts which allow them to first recoup enough oil to cover the cost of developing a field then take a minority percentage of further production, say 15%, with the state taking the rest. The service contracts offered by the ministry are far less profitable – the operator is paid a fixed fee for each barrel recovered.

The 32 bidders first submitted the price they wanted for every barrel produced above the minimum production level. The ministry then picked the winners and divulged the price it was prepared to pay per barrel – this was significantly less than the bidders were hoping for. In the case of the 17b bbl Rumaila field, the oil ministry first offered the contract to ExxonMobil on the proviso that it lower its per barrel expectations. ExxonMobil refused and and withdrew. BP and CNPC stepped in, cut its $3.99/bbl bid to meet the ministry’s $2/bbl maximum, and won a contract to service the field for 20 years. BP has promised to boost production by 1m bbl/d to 2.8m bbl/d in six years. The contract is now subject to cabinet approval.

“Our principal objective is to increase our oil production from 2.4m bbl/d to more than 4m in the next five years,” says oil minister Hussein al-Shahristani.

With so many oil majors walking away this target could be difficult to reach. CNOOC, ConocoPhillips, Eni, Shell, and Sinopec all followed ExxonMobil’s lead and refused to lower their bids. The Mansriyah gas field received no bids whatsoever. The lack of flexibility was further prompted by the fact that parliament has not yet passed an oil bill, which leaves unanswered the question of who has the final say on decisions during field reconstruction – the oil major or the state-owned oil company.