Left to renegotiate the contracts along the way

Tomorrow, the largest tankers in the world will be riveted on Baghdad. Over the next two days, the Iraqi Government will proceed to a wide call for tender on the operation of ten oil and gas fields through service contracts. Baghdad has screened 45 companies to participate in this process, including ExxonMobil, Shell, BP and Total. Deposits involved represent a volume of 41 billion barrels, or about one-third of the proven reserves of the country.

For the majors, this solicitation is a huge strategic issue. The Iraq holds the third reserves of crude oil in the world and offers a cost of extracting oil which is among the lowest of the world. Assessed at about 2.4 million barrels per day in November, the country's production never exceeded 3 million barrels per day since thirty years. But it could experience considerable growth in the years to come. "With the war Iran-Iraq, the Gulf war, the US embargo, the Iraqi production system had no access to the latest technologies since 1978." "Its infrastructure is old and exploration is very low," said the President of the French oil Institute Olivier Appert.

Most importantly, the Middle East is a region very little open to big oil companies while it is intended to take more and more importance in the years to come. With the decline of the North Sea and the Russia deposits, the Organization of petroleum exporting countries (OPEC) will generate more than half of global oil production in 2030 compared to 42 in 2005, according to the international agency of energy. What encourage majors to position itself at any price in Iraq, to ensure the production of future volumes.

"Madness of quantities".

Professionals in the sector have been working for months on the preparation of their offers. These will be reviewed according to two key criteria: the rise of deposits and the remuneration per barrel extracted. Most of the experts are quite optimistic about the progress of the auction. In the first call for tenders, end of June, a single deposit had been awarded, lack of agreement between the State and oil tankers. But, since the Iraqi Government and the majors have all made concessions, and several contracts have been signed out of tender by ExxonMobil, Shell and ENI. They should serve as a reference to the entire industry. Remuneration and the calendars accepted by the three tankers however provoked gnashing of teeth. "These companies have the folly of quantities, judge a professional. Profitability is reduced to erode and production volumes are not realistic. ""Conditions are not satisfactory but the majors can not afford to be absent from Iraq,"another nuance.

Tomorrow, the competition will be fierce. Given their proximity to the Iraqi regime, British and Americans will be in pole position for the deposits. But Russian or Chinese actors are not to be overlooked. "The first objective of the Chinese groups is not profitability but the acquisition of energy resources." "They are able to accept a lower ROI of 6 to 7 at that Western oil demand for also risky projects," explains Eric Spiegel, senior Vice President with the firm of Booz & Co. Council What push one another and others to take risks. Left to renegotiate the contracts along the way.