Exxon, Conoco Both Score Firsts in Baghdad

13 August 2008

US majors are adopting a more aggressive approach toward Iraq. Jim Mulva, chief executive of ConocoPhillips, this month became the highest-ranking US company executive to visit the country since the war, while Exxon Mobil has submitted the first one-year no-fee technical support contract (TSC) to the oil ministry, Iraqi sources said Tuesday.

A Conoco spokeswoman in Houston confirmed the visit, Mulva’s first to Iraq. “As customary in business relationships with host governments, representatives from ConocoPhillips have met and had telephone conversations with officials from the Iraqi Ministry of Oil. In addition, Jim Mulva recently met in Baghdad with officials from the ministry. As a matter of company policy, ConocoPhillips does not comment on the specifics of such meetings,” the spokeswoman said in an e-mail to International Oil Daily.

Conoco is one of 35 international firms prequalified to participate in Iraq’s first post-war bid round, launched for the long-term development of six oil fields and two gas fields on Jun. 30. It also had a memorandum of understanding (MOU) with Baghdad, one of several dozen inked by international firms following the US-led invasion in 2003.

Iraqi sources told International Oil Daily from Baghdad Tuesday that Mulva met with Oil Minister Hussein al-Shahristani at ministry headquarters earlier this month. Al-Shahristani has said companies bidding for long-term development contracts will have to open offices in Baghdad.

Before Mulva, Mounir Bouaziz, Royal Dutch Shell’s gas and power vice president for new business development for the Middle East, North Africa and the Levant, had been the most senior official from a major to visit since 2003. He went in June.

“The interpretation of the visit in Baghdad is that the company is serious and interested in doing business with Iraq. This counts a lot for the people here,” one Iraqi source said of Mulva’s trip.

Iraqi sources said Conoco worked on the Jambur oil field in northern Iraq for free under its MOU. While Jambur is not being offered in the bid round, the nearby Bai Hassan oil field is. Conoco could be interested in bidding for Bai Hassan as it would stand little chance at the other five oil fields on offer, where rival firms have long been involved in technical studies, industry observers said.

Exxon has, meanwhile, become the first company to submit a one-year TSC, for the Zubair oil field in southern Iraq, since Baghdad decided in July to halve the contract length, Iraqi sources said. Zubair is now producing about 200,000 barrels per day and the TSC is meant to add 100,000 b/d within a year.

Determined not to create a precedent by agreeing to a short-term service contract that focuses essentially on procurement of equipment to upgrade surface facilities — a contractor task from which oil majors shy away — Exxon has been negotiating a fee-free TSC since launching talks in late 2007.

Other companies involved in TSC negotiations — including BP, Royal Dutch Shell and Chevron with Total — have agreed to remuneration, split into reimbursement for costs and a fee for services. Some have argued that the services fee should include an “an opportunity cost,” given the tight market for specialized labor.

Of the six oil fields offered for long-term development in June, five were already being negotiated under TSCs. Al-Shahristani told International Oil Daily last month that he was cutting the TSC terms to one year from two years to avoid overlapping with the long-term deals, but suggested the TSCs could be extended on an ad hoc basis if the scheduled June 2009 deadline for the long-term awards were delayed.

Industry sources argued that an ad-hoc extension was problematic and unfeasible. Since the scope of work would have to be defined in the contract, fees would have to be fixed from the start. They also said that taking delivery of equipment ordered would take up to a year, leaving little time for deployment and installation.

By offering to forgo its fee, Exxon is immune to those variations, which explains the swift adaptation of the two-year draft contract it submitted in June.

All the companies submitted draft TSCs to the oil ministry just before the launch of the long-term bid round. BP’s was for Rumaila, Shell’s for Maisan and Kirkuk, and Chevron and Total’s for West Qurna Phase 1.

A sixth draft contract for the Luhais field was submitted in June by a consortium of US Anadarko, trader Vitol and the UAE’s Dome. Iraqi officials said last month that although Luhais could remain a two-year contract, since the field was not included in the bid round, the draft was initialed by Vitol instead of Anadarko, contrary to the agreement. Vitol has limited upstream experience and does not meet the prequalification criteria set by the ministry, the officials said.

Iraq had called for TSCs from majors already advising the ministry for free under MOUs, to help arrest the alarming decline in major producing fields, especially Rumaila and Kirkuk. The Rumaila north and south fields together account for more than half of Iraq’s oil output from the south.

By Ruba Husari, Dubai

(Published in International Oil Daily August 13, 2008)

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