Bold is one way to describe BP’s move to become the only western oil company to win a contract to develop one of the world’s biggest oil fields in one of the world’s most unsecure countries. Bold is also BP’s ambition for the field – to turn it into the world’s second largest producer by ramping its output to 2.85m barrels a day, from less than 1m b/d today in a relatively short 6-7 years. Bold was also BP’s willingness to cut its asking price in half, to $2 a barrel, from $3.99. But whether one assesses BP decision as bold, brazen or bonkers may have more to do with one’s definition of an entirely different word….
Some may say accepting $2 a barrel at the auction – one that was uncharacteristically transparent for such an opaque industry – sets a terrible precedent. Maybe. But Rumaila’s sand-covered reserves are different to almost any other field BP, or any other oil company, is likely to get their hands on anytime soon. Also, BP knows Rumaila better than anyone else (arguably even better than Iraq itself). It not only discovered the field, but has spent the past years studying its seismic maps and data.
What the company gets paid to repair the field that is hobbling along, crippled by wounds inflicted by war and sanctions may not be much, but it is enough to turn a small profit, says Wood Mackenzie. The contract offers little gain for working hard, or having the luck of an oil price rally because it is a service agreement rather than a production sharing one. But the optimist would point out that given ExxonMobil told Iraq in its bidding that it could push the field to 3.1m b/d, there could be some upside yet.
And then there is the business of being the only western oil company in a country where passions run high and suspicions foreigners ‘stealing’ the country’s oil provide fuel to the fire. But there is an upside there too, optimists say. With its bid, BP has shown Iraq that it is more willing than its peers to play by the country’s rules and help it get back on its feet. This could play well when and if Iraq decides to open up more of its reserves, perhaps on more lucrative terms. So, the moniker one uses – Bold, Brazen or Bonkers Petroleum – probably has most to do with whether one defines risk differently from the way BP sees it.