Kate Mackenzie BP’s wooing of Basra authorities may pay off

As if agreeing to halve its per-barrel revenue at the auction weren’t enough, the joint CNPC/BP bid to develop the Rumaila oil field still faces a potentially difficult pathway through Iraqi politics to have the contract signed.

Just ask Shell, which in September agreed a deal to produce gas, also in Basra, but is yet to sign contracts on the arrangement. The contract signing is reportedly getting close, but it was hampered by accusations that the company didn’t compete for the contract, and that it would be given a monopoly on gas production on the area. This did nothing to abate the wariness in Iraq about foreign companies taking profits from resources out of the country.

Samuel Ciszuk of IHS Global Insights said these accusations were unfounded; Shell is only capturing gas that was previously being flared. In any case, the deal is a 49/51 joint venture with Iraq’s South Gas Company. But, he said, it could explain why BP are moving quickly to build up support amongst local officials. From Reuters:

Representatives from the foreign firms met with members of Basra’s
provincial council in a gathering hosted by Oil Minister Hussain Shahristani in
Baghdad to discuss the 20-year development contract for Rumaila, council members

“Today, we are 90 percent satisfied the contract will benefit Iraqis.
There’s none of the ambiguity we had feared would stain it,” said Waleed Hameed
Qitan, a council member who was one of three delegates sent by Basra’s
provincial council to observe at the Baghdad meeting.

Getting a number of regional officials on their side is a start. Samuel Ciszuk at IHS Global Insight said it was a sign that BP and CNPC – although particularly BP – is doing a better job at building support than did Shell in its gas deal in southern Iraq:

Shell didn’t seem to grasp the new realities in Iraq. Imperfect as it is, it’s not the total authoritarian state that it was under Saddam – there is quite a debate, and there are quite unclear lines… over the extent of regional power versus central power. That’s why there could be very big problems created by local politicians in the area. So I think BP’s onto something here and getting an number of local politicians onto their side is a start.

However he does note that after the January regional elections in Basra, more local politicians are close to prime minister Nuri al-Maliki, which also makes the path somewhat easier for the Rumaila deal.

Related links:

Kurdistan oil lures yet more investment (FT Energy Source, 22/07/09)
Live: Oil companies oil companies bid for Iraq’s oil fields
(FT Energy Source, 30/06/09)