A Barrel Full

The biggest opportunity to get your hands on prime crude assets since the 1970s nationalisations. Nobody could afford not to take part. The Iraqi government couldn’t lose. Well perhaps not.

Iraq’s effort to woo foreign energy companies to help resurrect its ailing oil fields fell flat Tuesday, as most companies balked at the financial terms offered by the government despite the lure of the country’s vast reserves.  

Only one of the eight fields up for grabs was taken.

The Iraqi Oil Ministry reached an agreement with British Petroleum and China National Petroleum Corp. only after BP and CNPC accepted a much lower fee than they originally sought .

The problem is it seems that the terms asked for were just too much. What is it about natural resources that make politicians even more stupid than usual? They feel like sharing the proceeds with those that they work with is somehow unnecessary.

You have two options. Get the best deal you can today, or fail. You cannot force others to accept your terms. Iraq desperately needs the skills and investment cash that these companies can bring, and yet did everything possible to persuade them not to come.

There is no element of crude sharing, the usual structure for these deals, and very little upside potential.

In the current bidding round, Iraq said it would reimburse companies for costs and pay them a per-barrel fee for increases in production from the country’s abundant but long-neglected fields. But it did not offer the companies an ownership stake in the crude, which would have been a more attractive type of contract. It also demanded nearly $3 billion in “signing bonus” loans for the six oil fields, which are active but underproducing, and two largely undeveloped gas fields.  

They felt the need to reinvent the wheel, rather than go with the type of contracts that everyone is used to. Almost guaranteed to get you a lower price.

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