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Viewing cable 09BAGHDAD1074, Bechtel to Survey First Bid Round Oil Fields

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Reference ID Created Released Classification Origin
09BAGHDAD1074 2009-04-21 06:37 2011-08-24 16:30 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Baghdad
VZCZCXRO4748
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #1074/01 1110637
ZNR UUUUU ZZH
R 210637Z APR 09
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 2775
INFO RUCNRAQ/IRAQ COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
UNCLAS SECTION 01 OF 02 BAGHDAD 001074 
 
SIPDIS 
 
SENSITIVE 
 
AIDAC 
 
DEPT FOR NEA/I AND E AND EEB 
 
E.O. 12958: N/A 
TAGS: ECON EPET EINV ENRG ETRD PREL IZ
SUBJECT: Bechtel to Survey First Bid Round Oil Fields 
 
Sensitive but unclassified.  Contains proprietary business 
information.  Please protect accordingly. 
 
1. (U) Summary:  On April 15, EMIN met with Bechtel executives who 
described their project to survey six oil fields in support of the 
first bid round at the behest of the Ministry of Oil (MoO). 
International oil companies (IOCs) that are participating in the bid 
round could then purchase the survey information to obtain a better 
understanding of current field conditions and insights into 
conducting business with the MoO..   Bechtel's survey could help oil 
companies obtain the information they otherwise would not have 
access to, helping to support the bid round process.  End summary. 
Bechtel to Survey of First Bid Round Fields 
--------------------------------------------- ------ 
 
2. (SBU) Bechtel Corporation executives from the Global Security 
Unit and the Oil, Gas and Chemicals Unit met April 15 with EMIN 
Ambassador Wall, members of CJ9 Essential Services Division, 
Econoffs, Foreign Commercial Service (FCS) and Department of 
Transportation  staff to brief on Bechtel's current project and to 
seek Embassy assistance and advice.  The Ministry of Oil's (MoO) 
information on six oil fields presented to bidders so farhas been 
woefully inadequate and the IOCs have expressed disappointment in 
the initial packets.  A Bechtel official said, for example, the West 
Qurnah field data consisted of a crude map with a table of equipment 
and approximately 20 pictures.  (Note:  The six fields include 
Kirkuk, Bai Hasan, Maysan, Zubair, Rumaila, and West Qurna.    Since 
the gas fields are not producing, there are no production facilities 
to be evaluated.  End note.) Bechtel executives said that Gaffney 
Cline and Associates (GCA), which is under contract with the MoO to 
assist with the bid rounds, contacted both Bechtel and Kellogg, 
Brown and Root (KBR) prior to the February Istanbul workshop to seek 
proposals to survey the six oil fields offered in the first bid 
round.  This survey would help supplement the MoO's information data 
packages provided to the IOCs. Bechtel's proposal was selected. 
Interest in Survey Drops from 18 to 3 
------------------------------------- 
 
3. (SBU) Initially, 18 of the IOCs at the Istanbul workshop had 
expressed interest in purchasing a copy of the survey.  Since then, 
the number has dropped to three: Exxon, Conoco-Phillips, and the 
Chinese National Petroleum Company (CNPC).  Bechtel hopes that after 
it completes the surveys, it can convince more companies to purchase 
them.  One company, Lukoil had apparently based its decision on a 
price point, with a cap of $300,000.  Bechtel hoped that with more 
companies subscribing, they couldlower the subscription price to a 
level that would attract more companies.  A Bechtel executive said 
BP had declined immediately when Bechtel provided the terms of 
subscription on February 24, which he opined had motivated the other 
companies to follow suit.  BP's competitors might have suspected 
that the pull-out indicated BP and Shell were confident that they 
would win the bid round, especially since they had already conducted 
their own studies on certain Iraqi fields. 
Troubles Getting an Agreement 
----------------------------- 
 
4. (SBU) Bechtel representatives described initial complications in 
reaching an agreement with the MoO.  Although GCA requested Bechtel 
to conduct the surveys, none of the parties involved were willing to 
sign a contract with Bechtel.  Thus, Bechtel decided to sell the 
Qsign a contract with Bechtel.  Thus, Bechtel decided to sell the 
surveys on a subscription basis without an official contract signed 
with any party.  In order to conduct the surveys, Bechtel needed a 
formal agreement with the MoO that would provide access to the six 
oil fields and indemnify Bechtel for any damages or liabilities 
incurred during the survey.  The final agreement was a two-page 
document containing the bare minimum of standard clauses that 
Bechtel felt were essential.  The company experienced difficulty 
with MoO personnel hand-writing in changes on the signed agreement, 
even after both parties had agreed to the text. 
 
Time Schedule for Work 
---------------------- 
 
5. (SBU) Bechtel plans to complete the surveys by May 15, and to 
deploy two teams for a period of two weeks, with each team spending 
2-3 days on a field.  (Comment:  IOC bids were originally due in 
April and final approval was scheduled for June, but the schedule 
has slipped by at least a month.  The schedule could slip even 
further if the MoO must wait until May 15 for IOCs to finalize their 
bid proposals.  End comment.)  A Bechtel executive also speculated 
that the IOCs will be using Bechtel's experience on the ground as a 
bellwether for their future experiences in Iraq.  Occidental Oil had 
observed that if the Iraqis had trouble agreeing to a two-page 
document, how could the MoO be trusted to sign 50- to 75-page 
documents with the IOCs. 
 
BAGHDAD 00001074  002 OF 002 
 
 
 
Survey Objectives 
----------------- 
 
6. (SBU) The first order objective of the surveys will be to 
evaluate the production capacity of the fields.  Other order 
objectives will include evaluating the field's support 
infrastructure and evaluating the field's connectivity to the 
general Iraqi distribution and export system.  The representatives 
said that Bechtel had been asked to assess the current equipment 
with special emphasis placed on upgrades made over the past year and 
any planned upgrades over the next year.  (Comment:  The IOCs that 
had previously completed evaluations of the fields, such as Exxon 
Mobil, could have requested this focus in order to update the 
information already on hand.  Additionally, the current "crash 
program" has put numerous tenders out for extensive work to be done 
in the fields open for bid.  End Comment)  The Bechtel 
representatives also said they had agreed to provide four 
hard-copies of the survey to the MoO. 
 
Future Business in Iraq 
----------------------- 
 
7. (SBU) Bechtel said that Oil and Gas is the first Bechtel division 
to re-enter Iraq since it completed contracts for USAID's 
reconstruction program in Iraq in 2006.  Bechtel representatives 
noted that several other divisions had been recently contacted to 
work in Iraq, notably the Electricity Division.  The representatives 
said the primary concern was security, followed by contracting. 
They expressed disappointment with the MoO contracting unit thus 
far.  The representatives said that companies like Bechtel will not 
lower their contracting standards for Iraq, and the Iraqis will have 
to learn that through engagement with international companies.  They 
said that in order to reach Oil Minister Shahristani's goals, Iraq 
requires a dramatic change.  Should conditions progress as hoped in 
the coming months, senior executives from Bechtel could be visiting 
Iraq and laying the groundwork for future relationships in the oil 
and many other sectors. 
 
Comment 
------- 
 
8. (SBU) Despite Bechtel's previous experience in Iraq, its Oil and 
Gas Division executives seemed to be groping for a way forward. 
They were dismayed to hear that the MoO Petroleum Contracts and 
Licensing Directorate (PCLD) Director General (DG) would not be 
available until after their departure and appeared to have no 
definite appointments either at North Oil Company or the South Oil 
Company.  The Embassy provided suggestions of contacts at the MoO 
and put them in touch with PRT Kirkuk and REO Basrah.  While Bechtel 
has an obvious financial incentive, its success in this endeavor 
would help support the bid round process and thereby boost Iraq's 
oil production and eventually increasing export revenues.  End 
comment. 
BUTENIS