China says "thanks Americans, for the Iraqi oil"

[J]

NYT link

Few Bidders to Develop Iraqi Oil and Gas Fields
Published: June 30, 2009

BAGHDAD — The Iraqi government stumbled once again on Tuesday in its frequently delayed effort to award development rights to its most valuable oil fields. In a public auction it largely failed to attract the lucrative offers it sought from dozens of international oil companies invited to the bidding.

After the daylong event, which was broadcast live on national television, the government came away with just a single deal struck from among the six giant oil fields and two gas fields it had put up for bid.

The single successful contract went to a joint venture of BP and the China National Petroleum Corporation for the largest field offered: Rumaila, near the southern city of Basra, which has proven reserves of more than 17 billion barrels.

The auction, celebrated by the Iraqi government as a milestone for the fledgling democracy, came on the same day as the deadline for American combat troops to pull out of Iraqi cities.

It is the most significant attempt to open up the country’s oil industry since it was nationalized by Saddam Hussein in 1972, and the centerpiece of a plan to raise oil production to 6 million barrels a day by 2015, from the current level of 2.4 million.

Instead of garnering an infusion of foreign cash to rebuild and to prop up its limping economy, however, the auction of fields that contain about 80 percent of Iraq’s oil output appeared to further polarize the country. Four of the eight oil and gas fields offered Tuesday received only a single bid from oil corporations, and an undeveloped gas field in violence-plagued Diyala Province in northwest Iraq received none.

“These oil companies want to make as much money as they can, so they submitted low bids,” Hussain al-Shahristani, the country’s embattled oil minister, said during a news conference following the auction. “But I sent them a message that there are people in Iraq who are protecting Iraq’s wealth.”

But observers said the event could be deemed a success only if viewed strictly in populist political terms, because foreign presence in Iraq’s oil industry is a contentious issue. Many believe the 2003 American-led invasion was carried out to wrest away Iraq’s enormous oil reserves, the third largest in the world after Saudi Arabia’s and Iran’s.

Ruba Husari, editor of the Iraq Oil Forum Web site, which covers the country’s oil industry, said what remained unresolved was how Iraq was to modernize its oil industry without giving in to the desires of oil companies, which prefer owning a share of the oil they pump. Iraq has so far rejected such arrangements, which are known as production sharing agreements.

Iraq has an estimated 9 percent of the world’s crude oil, but its pipelines and other infrastructure are aging. Many of its most productive fields, laced with water because of mismanagement, are no longer able to produce as much oil as they once did. The country lacks the money to rebuild the industry, which accounts for almost all of its foreign earnings.

The auction on Tuesday, held in a heavily secured ballroom at the Rashid Hotel in Baghdad’s Green Zone, was reminiscent of a professional sports draft lottery. Bids were placed inside a large plastic box that had been set up on a stage. The oil companies were given 20 minutes to mull over each oil and gas field, with the time shown counting down on a giant video screen.

The sight of executives walking onstage to drop sealed bids in the plastic box brought cheers of delight from Oil Ministry employees in the audience.

The executives themselves, representing Exxon Mobil, Lukoil, Japex, Royal Dutch Shell, Total and the Korea Gas Corporation, among others, then stood aside as their offers were displayed on a screen before the bids were compared to those of rival companies seeking the same contract.

The Oil Ministry said it chose to conduct its business on television and in front of an audience of reporters and others to combat allegations of widespread corruption in the ministry, which led it to cancel a group of no-bid oil contracts last year. Major oil companies had little interest in the terms of those contracts, either.

Because the financial risk of a 20-year investment in Iraq was considered to be too great for even the largest oil corporations, the companies for the most part formed joint ventures.

Throughout the day, clusters of men in dark suits spoke to each other in their common language: broken English, with Dutch, Chinese, Russian and Thai accents. A member of a Korean delegation wore a flak vest inside the hotel ballroom.

The only successful bidders, BP and the China National Petroleum Corporation, will negotiate with the Oil Ministry through the summer to complete a contract to revive the Rumaila oil field.

Iraq says only about a million barrels of oil a day are pumped from Rumaila — far less than the 1.75 million barrels the government believes that the field should be producing, and little more than one-third of the 2.85 million barrels that BP and the Chinese company say they can extract.

The companies had originally requested a premium of $3.99 for every barrel of oil they produced over an Iraqi government-established baseline, but the government offered only $2.

While the companies finally agreed to the government’s price, it was the only time all day that the usually wide gaps between what the government was willing to pay and what the companies said they needed to be paid were bridged.

Reporting was contributed by Campbell Robertson, Alissa J. Rubin and Abeer Mohammed from Baghdad, and Keith Bradsher from Hong Kong.

Wow, total utter failure. After invading Iraq on false pretenses in what was actually a thinly disguised resource grab, the US fails on the resource grab just like it did with everything else in Iraq. China and the UK get the contract to develop and pump oil after the US goes to all the trouble of "liberating" Iraq. I suspect the Chinese are in hysterics from this development, the US spent god knows how many billions and thousands of lives "freeing" Iraq and China gets to swoop in after all the dirty work is done and grab the oil for themselves, vulturing doesn't get any better than this.

[That NOS Guy]

Wow, total utter failure. After invading Iraq on false pretenses in what was actually a thinly disguised resource grab, the US fails on the resource grab just like it did with everything else in Iraq. China and the UK get the contract to develop and pump oil after the US goes to all the trouble of "liberating" Iraq. I suspect the Chinese are in hysterics from this development, the US spent god knows how many billions and thousands of lives "freeing" Iraq and China gets to swoop in after all the dirty work is done and grab the oil for themselves, vulturing doesn't get any better than this.

"Dirty work is done"? Are you serious? Let's be completely upfront here, Iraq is not, and will not be stable in the foreseeable future short of a miracle. The Chinese have a paper claim to an oil field, that's very nice. What will ultimately matter is if the tinpot dictator(s) who arise from this mess choose to honor such agreements, which is usually a topic in doubt.

While it does seem like a coup for the Chinese, it only remains so for the current moment, and it remains an extremely risky investment. We all know what happens with risky investments with oil, don't we?

[K. A. Pital]

I think China just thinks the US are damn incompetent.

[Sea Skimmer]

Wow, total utter failure. After invading Iraq on false pretenses in what was actually a thinly disguised resource grab, the US fails on the resource grab just like it did with everything else in Iraq. China and the UK get the contract to develop and pump oil after the US goes to all the trouble of "liberating" Iraq. I suspect the Chinese are in hysterics from this development, the US spent god knows how many billions and thousands of lives "freeing" Iraq and China gets to swoop in after all the dirty work is done and grab the oil for themselves, vulturing doesn't get any better than this.

Do you even understand what this contract is for? It’s not a contract to ‘get all the oil’. It’s a contract to raise production rates for one field, all of which his still completely owned by the Iraqi government, to a set level for a fixed price. Only if the company does better then the contracted increase do they even start to get royalties on any actual oil production. In fact the whole oil industry has been pissed that this is the only kind of contract Iraq is currently willing to tender as it requires a huge financial risk, and an underwhelming reward.

It will in fact be China doing the dirty work, and Iraq reaping all the rewards which is a very good thing for the US since the more money Iraq has the sooner we can curtail aid and the sooner the country can be rebuilt which is what will bring real stability. It will also have the indirect effect of lowering world oil prices, since Iraq is going to pump every barrel it can for a long time to come.

[J]

I know how the contract works, Iraq retains the rights to the oil and royalties from its export while BP & CNPC receive a bonus for every barrel produced above the quota. The point is BP & the CNPC will produce & ship the oil, the US doesn't even get to pillage Iraq for oil after the invasion. Which makes the entire campaign to liberate Iraq even more of a debacle than it already is since the US doesn't seem to be getting anything out of it. It would be hilarious if it weren't so tragic.

[CaptainChewbacca]

So... you're complaining that the US isn't pillaging the national resources of another country?

[aerius]

So... you're complaining that the US isn't pillaging the national resources of another country?

She thinks it's sad that you guys screwed up everything in Iraq, including the part where you pillage their resources.
It's like you can't get a single thing right in that country.

[Elfdart]

So... you're complaining that the US isn't pillaging the national resources of another country?

Think of it as America's Dumbest Imperialists. The Cheney-Bush Junta are like the guy who tried to rob a 7-11 and placed his gun on the counter to pick up the cash with both hands.

And looked surprised when the cashier grabbed the gun.

[Kamakazie Sith]

So... you're complaining that the US isn't pillaging the national resources of another country?

She thinks it's sad that you guys screwed up everything in Iraq, including the part where you pillage their resources.
It's like you can't get a single thing right in that country.

The other possibility is the current administration doesn't intend on pillaging the resources of another country. I mean as long as we're not being one sided in naming possibilities.

[Starglider]

The point is BP & the CNPC will produce & ship the oil, the US doesn't even get to pillage Iraq for oil after the invasion.

Isn't the oil being sold on the open market anyway? There will be a slice of the profits going to non-US companies instead of US companies (not that notional nationality matters much for BP, which is publicly traded). As Skimmer mentioned the US still gets the benefits of (slightly) cheaper oil to purchase and revenues for their pet government, so it's no big deal.