BP, CNPC First to Receive Development Costs

BP and its partner China National Petroleum Corporation (CNPC) will be the first companies to be paid back by the Iraqi government for developing Iraq’s supergiant Rumaila oil field, a senior Iraqi oil official told Dow Jones Newswires.

“The first company that we are going to pay back costs and remuneration fees to will be BP,” Abdul Mahdy al-Ameedi, head of the Iraqi oil ministry’s petroleum contracts and licensing directorate, told the news agency.

Ameedi said payment to BP is expected to start either in March or April. He didn’t provide further details.

Iraq signed over the last 14 months some 12 deals to develop one of the country’s vast oil fields. According to the terms of the service contracts Iraq signed with the firms, Baghdad has to start paying back the costs of developing these fields and remuneration fees when they achieve a 10% increase in production.

BP said last month that it had raised production at Rumaila by more than 10% above the initial level of 1.066 million barrels a day, but Ameedi said in a previous interview with Dow Jones Newswires that Rumaila is now producing almost 20% more oil than before, or 1.275 million barrels a day.

For every extra barrel of oil production BP and CNPC squeeze out of the field above the 10% milestone, they will receive a payment of $2. They would be also paid back costs for developing the field, which holds some 17 billion barrels of oil reserves.

BP had said that it alone would invest some $15 billion in the project during the 20-year contract. Independent oil industry sources had said that BP and CNPC would make up to 15% profit from total revenues of the Rumaila oil field.

Companies such as Eni, Italy’s largest oil company in terms of reserves, along with Occidental Petroleum and Korea Gas Group (KOGAS), would be also paid back this year as they have already met the 10% increase from the giant Zubair oil field, which has estimated proven reserves of 6.5 billion barrels.

(Source: Dow Jones)

2 Responses to BP, CNPC First to Receive Development Costs

  1. Ahmed Mousa Jiyad February 24, 2011 at 4:38 pm #

    BP/CNPC will NOT get $2 per every extra barrel as the article suggests. Here is why:
    The bid Remuneration Fee for Rumaila contract is $2 per every extra barrel. Out of this 35% deduction for corporate income tax and further 25% deduction as the share of the “State partner”. Moreover, the Remuneration Fee is adjusted downwards according to the R-factor, ranging from 100% to 30% of Remuneration Fee. Accordingly what BP/CNPC actually earn ranges between $0.975 and $0.2925 per incremental barrel over the contracted baseline production.

    For detailed analyses on this and other fiscal terms of the contracts see my articles:
    Jiyad, Ahmed Mousa (15 Mar, 2010), ‘Remuneration Fees Are Measured In Cents, Not Dollars!’, MEES v53 nr 11.

    Jiyad, Ahmed Mousa (May, 2010), ‘The Fiscal Regime of the Iraqi Oil Model Contracts’. Energy & Geopolitical Risk. V1 nr.2.

    Ahmed Mousa Jiyad,
    Iraq Development Consultant and Scholar,
    Norway.

    [email protected]

    24 Feb 2011

  2. Editor February 24, 2011 at 5:13 pm #

    Ahmed, many thanks for your comment!

    – Editor