Summary
Timothy Williams in Baghdad reported in the July 1 issue of the New York Times that the Iraqi government failed to attract good offers in a public auction on Tuesday for rights to its oil fields. The single successful contract went to a joint venture of BP and China National Petroleum Corporation. The two companies won the right to develop Rumaila with reserves of 17 billion barrels, near the city of Basra. The auction came on the same day as the deadline for American troops to leave the Iraqi cities. The auction represented the greatest attempt since it was nationalized by Saddam Hussein in 1972. Representatives of Exxon Mobil, Lukoil, Japex, Total, Korea Gas and Royal Dutch Shell made offers. BP and China National will now negotiate with the Iraqi Oil Ministry to complete a contract. Iraq says only 1 million bbl/day are pumped from Rumaila which is far less than the government thinks is possible. The two companies agreed to get $2/bbl for oil produced above the baseline.
Analysis
North Rumaila has over 500 wells of which about 300 are or were recently on production. South Rumaila has over 250 wells of which 150 are or were recently on production. The depth of the wells range from 10,200 feet to 10,300 feet (true vertical depth). From their positions on the map, they could easily constitute one field separated by an impervious zone around the middle. This is a common feature of many fields in the Middle East. In August of 2008, the Journal of Petroleum Technology published an engineering performance report on South Rumania. At that time cumulative production was about 8 billion barrels and it appeared another 4 billion barrels could be recovered by allowing the water/oil ratio to climb without limit until the year 2030. Production began from the Zubair formation in October of 1954 and performance data indicated a strong water drive with oil rates around 400,000 bbl/day. But when extra oil was required in the late 1970s, the rate was increased to 1.3 million bbl/day. Performance data indicated that depletion drive was the main drive mechanism at that rate with significant pressure decline. The stabilized production rate at the time of the study was 650,000 bbl/day. It appeared that the aquifer was now able to keep up with production. The study that over the 50 year life of the field, water influx from the aquifer has been the main contributor to production. The western flank aquifer is much stronger than the one on the eastern flank. When the study was completed, it appeared that the aquifer volume was almost 13,000 times as large as the original oil in place. Given the proximity of North Rumaila to South Rumaila, a similar study would probably result in similar results. But Northern Rumaila being larger, remaining reserves could be as high as 6 billion barrels. Thus the more realistic estimate of remaining reserves is not 17 but 10 billion barrels. This oil would be recovered by use of new technology which would include the drilling of multilateral wells. The agreement with the Iraqi government appears to be general in nature with many unresolved points. The joint venture will insist on a relatively fast payout of initial investment and an overall rate of return of at least 25%. If that cannot be obtained, the agreement would likely fail. Chances are, it will not fail because Iraq needs more production to boost revenue. They will be flexible inasmuch as it is now clear to them that their cherished ideas about the value of the assets is unrealistic. The joint venture, not being of a charitable turn, will be more unbending. Under these circumstances a reasonably fair contract will result. It should be noted that the southern tip of South Rumaila extends into Kuwait. The Kuwait National Oil Company has exploited it in the last few years with a possible reduction in estimated remaining reserves.
