Oil and Natural Gas Corporation lost its bid to develop Iraq's giant Halfaya oilfield to a consortium led by a China National Petroleum Corporation. This is the second time that the state-run oil explorer is losing a bid to CNPC in Iraq.
The CNPC-Petronas-Total alliance outbid a consortium of ONGC Videsh, Oil India Ltd and Turkish Petroleum Corp (TPAO) for the giant Halfaya field, quoting lower than the $1.76 per barrel that the OVL partners sought.
OVL and partners had sought a higher fee as they planned to boost production in the third largest field on offer in Iraq's second post-war bid round to 550,000 barrels per day.
CNPC, Petroliam Nasional Bhd (Petronas) and Total SA, on the other hand, offered to boost production to 535,000 bpd from current 3,000 bpd at a cost of $1.40 a barrel. The Halfaya oilfield has estimated reserves of 4.1 billion barrels of oil.
Norway's Statoil ASA and Russia's OAO Lukoil also made a bid that was better than OVL-led group by offering to produce 600,000 bpd from the Halfaya oil field at an average $1.53 a barrel.
China's CNPC holds 50 per cent stake in the winning consortium while Malayasia's Petronas and France's Total hold 25 per cent each.
Earlier, in the first round of Iraqi oil field auction in June, OVL bidding along with Russia's Gazprom and TAPO had lost the Zubair oilfield when they sought a remuneration five times higher than the $1.90-2 a barrel that Baghdad was willing to pay.
TPAO had a 50 per cent in the group that bid today while OVL held 30 per cent. OIL had the remaining 20 per cent.
Shell-Petronas win Majnoon oilfield
A consortium of Royal Dutch Shell and Malaysia's Petronas today won the rights to develop the giant Majnoon oil field in Iraq beating a partnership of French oil major Total and China's CNPC.
Forty-four companies, including Exxon Mobil, BP and Chevron, have send top-level representatives for the auction.
Majnoon, one of the world's largest remaining untapped oilfields, has been put on the block as Iraq staged its second auction of oil contracts since the 2003 US invasion.
"We announce that the consortium of Shell and Petronas have won (the contract) to develop Majnoon, and the fee is less than the Oil Ministry specified," Iraqi oil minister Hussain al-Shahristani said.
The companies have proposed a per barrel development fee of $1.39 per barrel - a fee lower than what Iraq was willing to pay - and offered to increase output from the Majnoon field to 1.8 million barrels per day, more than double what Iraq had expected.
Majnoon, with an estimated 12.6 billion barrels of reserves, is located in the relatively stable southern Iraq and is one of the largest untapped oilfields in the world.
The service fee paid to foreign companies in the first bidding round was $1.90-$2.00 per barrel, because the fields are undeveloped.
Iraq is offering a total of 15 oil and gas fields, in 10 groups, in the second tender auction. These include Najmah, Qaiyarah, East Baghdad (central and north), the eastern fields of Gilabat, Khashem Al-Ahmar, Nau Doman and Qumar, Badra, Middle Furat (Kifl, West Kifl, Merjan), Halfaya, Garraf, Majoon and West Qurna phase 2.
All contracts will, however, be technical service contracts (TSCs), rather than the production sharing contracts (PSCs) that oil companies around the world favour.
Baghdad is looking to sign 20-year TSCs for the fields.
The Iraqi government expects the development of the fields to add another 2.6 million barrels per day (bpd) to the nation's oil output. The fields on offer under the second round are also more attractive to investors as they are largely undeveloped and hold significant additional reserves and production potential.
A number of major international oil companies have shown interest in the bidding round. According to Sabah Abdul Kadhim from Iraq's oil ministry, Of the 45 companies that had pre-qualified for the licensing round, 40 companies have paid the $250,000-$500,000 participation fees, depending on the size of the field.
Iraq's Petroleum Contracts and Licensing Directorate (PCLD) is reported to have set two main bidding requirements: the remuneration fee and production plateau target, with 80 per cent of the weighting in the awarding of the contracts to be put on the remuneration fee.