Iraqi Oil – Who Benefits?

Posted on Tuesday, November 1, 2011 by Post Scripts

Posted by Tina

You remember the oft repeated war for oil smear waged against the Bush administration. Certain people on the left were convinced, or just wanted to convince YOU, that the President and Vice President had an evil plan to control the oil in Iraq…for their own personal profit.

The truth, of course, is something a lot more boring. The Bush administration supported the Iraqi’s as they constructed their own constitution and government and selected their own representatives in public free elections. Ho Hummmmm…no sensational stuff there!

Today CNN Money reports on the fate of Iraqi oil and the clever negotiations the Iraqi government waged with the many companies that have access to Iraqi oil:

The Iraqis were savvy in their negotiations. Normally, when firms develop oil fields the terms of the deal give companies ownership over a certain percentage of the yet-to-be-tapped oil.

But with the Iraqi deal, most firms don’t actually own any of the oil. They are instead paid a service fee on each barrel that they pump.

The return on their investment is still attractive — the energy research firm EPRINC estimated it at 15%. But it means they can’t claim as much of the oil as an asset on their balance sheets, which can hurt their stock price.

It also means that over 90% of the oil revenue the fields generate will stay in Iraq.

So much for those trumped up, highly inaccurate charges.

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One Response to Iraqi Oil – Who Benefits?

  1. Tina says:
    Tuesday, November 1, 2011 at 8:40 am

    Dec 12, 2009 No boon for U.S. firms in Iraq oil deal auction – Reuters

    http://www.reuters.com/article/2009/12/12/us-iraq-usa-oil-idUSTRE5BB18Q20091212

    Read more:

    http://www.nytimes.com/2008/08/29/world/middleeast/29iraq.html

    The original contract included production-sharing rights, but under the new contract China will be paid for its services but will not share in profits.

    http://www.businessweek.com/globalbiz/content/jul2009/gb20090724_632771.htm

    Considering the risks, the financial rewards will not be all that great. BP will be working under a service contract that in simple terms provides for payment of $2 per barrel for the oil BP produces above an agreed baselinebelieved to be current production, adjusted by a 5% yearly decline rate for output. BP and CNPC initially bid for a $3.99-per-barrel payment, but the Iraqis persuaded them to reduce that. A consortium of ExxonMobil (XOM) and Malaysia’s Petronas (PETR.KL) offered the Iraqis a higher target3.1 million barrels per daybut walked away from Iraq’s tough terms. BP will be penalized if it does not hit its 2.85 million-barrel target.

    In an indication of how stiff the terms are, Edinburgh consultants Wood Mackenzie estimate that the BP consortium will receive fees amounting to only 1% of the estimated $1.2 trillion total revenues from the project. An additional 4% or so will go to recovering the $10 billion to $20 billion investment and costs required over the 20-year life of the contract. Wood Mackenzie figures the value of the project to the consortium is just $3 billion. “This is quite modest for a field which should produce 16 billion barrels at least,” Wood Mackenzie says.

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