Report on Business: Royal Dutch Shell (NYSE: RDS.A) and Malaysia’s Petronas on Friday won the rights to develop one of the world’s largest remaining untapped oilfields as Iraq staged its second auction of oil contracts since the 2003 U.S. invasion.
The companies proposed a fee of just $1.39 per barrel and pledged to increase output from the supergiant Majnoon field to 1.8 million barrels per day, more than double what Iraq had expected. The fee was below what Iraq was willing to pay.
“We announce that the consortium of Shell and Petronas have won (the contract) to develop Majnoon, and the fee is less than the Oil Ministry specified,” Iraqi Oil Minister Hussain al-Shahristani said at the heavily-protected auction.
French oil major Total, partnered with China’s CNPC, also bid and was likely to have been disappointed at losing a field it sought to develop under ousted dictator Saddam Hussein. As some consolation, it had a stake in a CNPC-led consortium that won the rights to the smaller Halfaya oilfield.
Iraq is offering 10 oilfields over two days in a rare opportunity for oil firms, from Western majors to Chinese and Indian state-owned giants, to gain access to plentiful and cheap to pump Middle East oil reserves.
Despite the anticipation, no one bid for one of the supergiants, the 8.1-billion barrel East Baghdad field, part of which lies under the sprawling Sadr City slum in the Iraqi capital. Baghdad is still hits by periodic bombings and oil executives considered it unsafe to invest in the field.
The deals have the potential to lift Iraqi oil output to levels which would rival that of top oil producers Saudi Arabia and Russia, and could rattle the geopolitical power balance in the Middle East.
My comment: That last statement is why I opened a bank/brokerage account in Iraq. As the money starts flowing from the oil a rising tide lifts all yachts or so goes the theory. Of course this is a super high risk strategy but the potential rewards are also potentially historic. I still have two Kurdistan junior oil and gas stocks and they are Vast Exploration and WesternZagros. Speculating on finding a billion barrel field for the Jed Clampett effect.
John Polomny
The Real Deal
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