We may just have turned an important corner in the world of oil. No, I'm not referring to the price of crude climbing back above $75 and likely headed higher. Rather, I'm pointing to the pride-swallowing by several of the large integrated oil companies, such that they apparently will soon be among those working to develop Iraq's huge reserves.
At the end of June, Iraq's government held a bidding session among dozens of the world's largest oil companies in an effort to gain help in breathing life back into several previously developed fields. But the country's terms were so onerous that only one consortium -- led by BP (NYSE: BP ) -- walked away with an agreement.
Rather than receiving a portion of the oil involved, as is usually the case, the terms called for the companies to receive a per-barrel fee for the amount they were able to increase production in a given field. The companies were looking for fees near $4.00 or more a barrel, approximately twice the government's expectation. Given that discrepancy, most of the companies, including ExxonMobil (NYSE: XOM ) , Chevron (NYSE: CVX ) , France's Total (NYSE: TOT ) , and China's CNOOC (NYSE: CEO ) all walked away without deals.
But the Iraqi government and the companies have continued to talk. As a result, it suddenly appears that Exxon, along with a consortium that includes Italy's Eni and Occidental Petroleum (NYSE: OXY ) , and another comprised of ConocoPhillips (NYSE: COP ) and Russia's Lukoil all are willing to "make do" with the lower figure. Don't be surprised if they're joined by others.
Why the reversal? Quite simply, ever since Saddam Hussein nationalized the country's energy industry and booted out the foreign companies in 1972, Iraq's reserves have been eyed eagerly by the industry. Today, those reserves are thought to total about 115 billion barrels, placing the country behind just Saudi Arabia, Canada, and Iran.
But with vast areas still unexplored, some believe that up to 150 billion more barrels may lie beneath Iraq's earth. As such, it's obviously considered better to accept a lesser fee now than to be excluded from these massive resources forever.
In the years ahead, I believe that energy development in Iraq is destined to explode. More immediately, crude prices continue to march northward. As such, I urge you to make certain that you're well represented in the sector. Careful study will help you fill out your portfolio. Just don't get caught short in this important group.
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