After watching Royal Dutch Shell go for the kill on Majnoon oil field, I’m stunned and I’m sure I’m not the only one. I expected companies to try and undercut each other to win one of the fields offered in the second bid round, before the door of Iraq oil closes again. But I didn’t expect them to go way below the maximum remuneration fee the oil ministry was willing to pay for the development of the giant Majnoon. The obvious question is: would the deal be profitable for Shell at $1.39 per barrel it offered compared to Total’s $1.75?
Consider this: Just for the 10 years when Majnoon would be producing at its peak or plateau production of 1.8 million b/d bid by Shell, and after paying the Iraqi partner its 25% share of the profit and then paying 35% tax on the remaining windfall, Shell is expected to make $4.45 billion in net profit. That’s hardly a bad deal for an international major.
More importantly, the $1.39 per barrel fee offered and agreed for developing Majnoon sets a new benchmark following the $1.9-$2 per barrel fees offered by the ministry for the three fields awarded in the first bid round, Rumaila, West Qurna-1 and Zubair.
The second contract for Halfaya oil field awarded Friday to a CNPC-led consortium was not too far with $1.4 per barrel fee bid and won. However, with about half a million barrels to be produced at peak for a minimum of 13 years, the net profit for the duration of the contract is nowhere to be compared with that of Majnoon.
West Qurna-2 will be the last of the giants to be awarded on Saturday and it could yet bring even more dazzling surprises as those who lost on the first three fields of similar size – in addition to Zubair and Halfaya – awarded since June, make a last dash before the curtain finally comes down.
My bet? At $1.2 per barrel fee, West Qurna-2 would still make a decent profit similar to Majnoon at a similar level of production. I bet someone will bid even lower than $1.2 per barrel for West Qurna-2.
Good guess. Marc