Why Oil Majors Are Coming Back to Iraq


"…many people negotiating now would not have taken $2 [in profit per incremental barrel] before."

In June many of the world's biggest energy companies walked away from bidding on potentially rich oil fields in Iraq. While they liked the billions of barrels of reserves that were on offer, ENI (E), ExxonMobil (XOM), Royal Dutch Shell plc (RDS.B;RDS.A), and others balked at the tough terms the Iraqis were proposing.

Today they're coming back—and getting roughly the same deal that was on the table during the summer. Shell, Exxon, and ConocoPhillips (COP) are in talks that could help boost Iraq's oil production to more than 6 million barrels per day—behind only Saudi Arabia in OPEC. "This is the window in which if anything can happen it will happen," says Alex Munton, an Iraq specialist at Edinburgh-based energy consultants Wood Mackenzie.

The big oil companies are reconsidering Iraq because they realize this may be among their last opportunities to get large volumes of crude. Britain's BP (BP), for instance, typically turns up its nose at anything below roughly 700 million barrels of reserves; Rumaila, about 30 miles west of Basra, may have 20 billion barrels of recoverable oil, BP estimates. Another field in the same class is West Qurna, located north of Basra, where a group including Exxon Mobil and Shell is competing against a partnership of ConocoPhillips and Russia's Lukoil (LKOH.RTS) for production rights.

Majnoun, which the Iraqis will offer in December, could have 12 billion barrels. And Kirkuk, where Shell is hoping to get a contract, has at least 8.5 billion barrels. "It is fair to say that there are many people negotiating now who would not have taken $2 [in profit per incremental barrel] before," Shell Chief Financial Officer Simon Henry said during the company's Oct. 29 earnings conference call with reporters.

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