BP and China National Petroleum Corp (CNPC) signed an oilfield contract with Iraq that marked a milestone in the country's plan to open up its vast oil resources to world oil majors. Rumaila is the workhorse of Iraq's oil industry with a capacity of 1.1 million barrels per day (bpd), almost half Iraq's total output of 2.4 million bpd.
The following are key points from a draft version of the Rumaila contract obtained by Reuters:
- BP and CNPC must improve the production rate of crude oil and natural gas liquids from Rumaila by 10 percent compared to the initial production rate as soon as possible.
- The initial production rate is to be agreed by the companies and Iraq on the day the contract is ratified or before, and will be calculated as the average production rate over a 30 day period.
- The firms must aim for sustained output, or "plateau production target," for a period of seven years of 2.85 million barrels of crude and natural gas liquids per day.
The minimum BP / CNPC work includes
- Conduct 3D seismic and geographical surveys.
- Drill 20 new production and 10 new injection wells.
- Rehabilitate 130 wells.
- Design and build two water re-injection plants.
- Refurbish or construct additional field gathering and processing facilities.
- Contractors must spend a minimum of $300 million implementing their minimum work obligations.
- Within 30 days of the deal being finalized the contractors must pay a signature bonus of $500 million. The money is recoverable over 20 quarterly payments, payable from the ninth quarter following the quarter in which the deal is ratified.
- BP and CNPC must allocate a minimum of $5 million for a fund for training Iraqis.
- Their remuneration fee will be taxed up to 35 percent.
- BP and CNPC's bid for the Rumaila contract was for remuneration of $2 per barrel.
- They may receive only a fraction of that depending on their performance in boosting output.
- The value of the contract to BP and CNPC and the speed they can recover costs depends on how much they can boost production.
- A formula for assessing performance measures output against a projection of what output would have been without the BP and CNPC investment. That formula assumes an annual decline in output of 5 percent per year would have taken place.
- BP and CNPC may be paid in oil or cash. Iraq can choose to reimburse the companies' supplementary costs in oil or cash, but the firms can decide how their service fees are paid.
- Recoverable supplementary costs incurred by BP and CNPC bear an interest of 1 percent over the London Interbank Offered Rate (LIBOR) until they are paid.
- The Rumaila oilfield service contract lasts for 20 years, but it can be extended.
- BP and CNPC must submit a rehabilitation plan within six months of ratifying the contract.
- The contractors must establish in Iraq a "normal presence" -- personnel and equipment necessary to support field operations -- within six months of the rehabilitation plan being approved or the contract could be terminated.
- The companies must submit an enhanced redevelopment plan, based on knowledge gained from the field's initial rehabilitation, within three years of the contract's ratification.
Further Deal Opportunities
- Discovered but undeveloped oil reservoirs at Rumaila may be produced under the contract, but will be subject to a separately agreed remuneration fee.
- BP and CNPC will for six years from the date the contract is ratified have the exclusive right to negotiate an agreement to explore for and develop undiscovered potential reservoirs in Rumaila.
If Things Go Wrong
- Grounds either party to declare force majeure include an act of God, war (declared or undeclared), and force of nature, insurrection, riot and fire.
- They also include in certain circumstances, for BP and CNPC only, government orders or legislation.