There's another surge occurring in Iraq -- but this one doesn't involve the military. Several members of Big Oil previously turned up their noses at the Iraqi government's financial proposals for increasing the output from a group of previously developed fields. Now the petro-producers have changed their tune.
In late June, Iraq held a bidding session with numerous oil companies from around the world. The terms were unusual: Rather than be rewarded with a portion of the oil recovered, the companies would be paid a flat sum for investing technology, and also a per-barrel fee based on the number of incremental barrels they were able to add to a given field's output.
Most of the oil companies were looking for per-barrel rates above $4, versus the government's preferences for about half that level. Given the disparity, the initial session yielded only one agreement. That pact involved about $2.00 a barrel, and was garnered by a group led by BP (NYSE:BP), which will work on the South Rumaila field, one of the largest oil fields in Iraq.
However, other companies and the government stayed in touch following the June session. Now several members of Big Oil have recently swallowed their pride and reached agreements to work in the country. For instance, a consortium led by ExxonMobil (NYSE:XOM), and including Royal Dutch Shell (NYSE:RDS-A), has just signed on to tackle the big West Qurna-1 field.
That group topped a bid made by Russia's Lukoil and ConocoPhillips (NYSE:COP), along with another headed by China National Petroleum Corp. Also, another preliminary agreement has just been signed by a group that includes Italy's Eni (NYSE:E) and California-based Occidental Petroleum (NYSE:OXY), which will be deployed in the country's large Zubair field.
There are at least two potential obstacles to the company's efforts. First, insurgent attacks continue in Iraq; at the very least, the oilfield workers will require substantial security. Second, a ramp-up in Iraqi production could irritate other members of OPEC, who had expected the country's output to remain low for some time.
Iraq appears to contain tremendous reserves -- at least 115 billion barrels of oil, and perhaps lots more. As the work steps up in the country, it could yield surprises for participating companies. On that basis, I'd suggest that Fools keep an especially close eye on my two favorite members of Big Oil set to toil in Iraq, BP and Exxon.
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