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UNCLAS SECTION 01 OF 05 BAGHDAD 003196 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EPET ENRG ECON EINV EAID PREL IZ
SUBJECT: OIL STAMPEDE: IRAQ,S 2ND BID ROUND RESULTS 
 
REF: A. BAGHDAD 1764 
     ¶B. BAGHDAD 1805 
 
BAGHDAD 00003196  001.2 OF 005 
 
 
¶1. (U) Summary: In a landmark event for Iraq and the global 
oil industry, Iraq's 2nd oil bid (licensing) round on 
December 11-12 showcased the potential of Iraq's oil sector. 
Overall, the event proceeded with remarkable organization, 
precision, and transparency.  The bidding started as a rush 
and quickly became a stampede as a broad range of 
international oil companies bid unheard of low prices for 
seven of the ten oil fields (or oil field groups) being 
offered.  Based solely on the magnitude of the awarded bids, 
Iraq's total oil production could conceivably rise to 12 
million barrels per day (bpd) within seven to ten years.  In 
the less than six months since the first bid round on June 
30, Iraq has positioned itself to jump from the 11th largest 
oil producer to potentially the world's largest oil producer, 
and from the 10th largest oil exporter to potentially the 
world's largest oil exporter. This cable reports the results 
of the weekend's bid round; septel will analyze the political 
and economic implications of these results.  End Summary. 
 
The Event: Impressive Organization 
---------------------------------- 
 
¶2. (U) Iraq held its 2nd oil bid (licensing) round on 
December 11-12 at the Ministry of Oil (MOO), outside the 
International ("Green") Zone.  With intense security 
precautions and numerous attendees from international oil 
companies (IOCs), the press, and the Government of Iraq (GOI) 
-- all with large security details -- the event began with 
some disorder and confusion, but quickly proceeded with 
efficiency and transparency.  The event began with speeches 
by Prime Minister Nuri al-Maliki and Oil Minister Hussain 
al-Shahristani, and the first two hours of the event, 
including the bidding for the first three fields, were 
televised. 
 
Bidding Process: Highly Methodical and Transparent 
--------------------------------------------- ----- 
 
¶3. (U) The MOO appeared to take every precaution to 
demonstrate that its bidding process was fair and above 
reproach.  A committee of senior MOO officials, chaired by 
Minister Shahristani, presided over the meeting on an 
elevated stage at the front of the auditorium.  During each 
of the bid round's two days, five oil fields (or oil field 
groups) were offered sequentially, and the bidding on each 
field was completed before the next field was offered for 
bid.  The two components of each bid were the Remuneration 
Fee Bid (RFB) and the Plateau Production Target (PPT).  The 
RFB is the gross profit per barrel of oil (in dollars) that 
the bidder desires.  The PPT is the production rate (in 
barrels of oil per day) that the bidder commits to achieve 
within the timeframe specified and to maintain for a 
specified timeframe for each oil field being offered. 
 
¶4. (U) The bidders, a mix of individual companies and 
consortia of companies, had roughly 20 minutes to announce 
their intention to bid for the field being offered.  A bid 
could be submitted only on an official form sealed in an 
official envelope, both of which were unique to the field 
being offered.  On the front of the bid envelope, in addition 
to other information, the bidder listed the company or 
companies in consortium who were bidding and, for companies 
bidding in consortia, the percentage interest of each company 
and the operator for the consortium.  A registration 
committee seated next to the stage then confirmed whether the 
Qcommittee seated next to the stage then confirmed whether the 
bidding information conformed with the bidding requirements. 
 
¶5. (U) When the time closed for declaring an intention to 
bid, a sealed envelope containing MOO's maximum acceptable 
remuneration fee was placed in a glass box on the stage next 
to the MOO committee.  Each bidder then placed its sealed bid 
envelope in the glass box.  After all bids were submitted, 
the envelopes were removed one at a time, the front of the 
envelope was projected on a screen for all attendees to see, 
the envelope was then opened, and the enclosed bid form was 
projected on the screen.  After all bids had been announced 
in this fashion, each bid was scored according to a 
previously published formula.  A summary listing all bids for 
the field being offered, along with each bid's score, was 
then projected on the screen for all attendees to see. 
 
¶6. (U) The winning score and bidder was identified on this 
summary listing, and the field was immediately awarded to the 
 
BAGHDAD 00003196  002.2 OF 005 
 
 
highest scoring bidder -- unless the Remuneration Fee Bid 
(RFB -- gross profit per barrel) of the winning 
company/consortia was higher than MOO's maximum remuneration 
fee.  If the winning RFB was higher than MOO's maximum 
remuneration fee, the sealed envelope with MOO's maximum fee 
was removed from the glass box, opened as the audience 
watched, and the enclosed form was then projected on the 
screen.  The winning bidder was given reasonable time to 
decide whether to accept MOO's maximum fee. 
 
Bidding Results: Momentum and Surprises 
--------------------------------------- 
 
¶7. (U) On the first day of the bid round, the initial oil 
fields offered (the super-giant Majnoon field and the giant 
Halfaya field) were two of the three largest and most 
attractive offerings.  They were awarded to surprisingly 
aggressive bids, at remuneration fees well below the lowest 
($1.90) remuneration fee accepted in the 1st bid round 
contracts.  The other three field groups offered the first 
day were not awarded, though one (Qaiyarah) received a bid by 
Sonangol that was not accepted by the MOO.  The second (and 
last) day began with Sonangol announcing that it would accept 
MOO's much lower maximum remuneration fee ($5.00 versus 
$12.50) for Qaiyarah.  This announcement set the tone for the 
day as the action and surprises accelerated.  The first two 
fields offered (the super-giant West Qurna Phase 2 field and 
the undeveloped Gharraf field) received four bids each at 
stunningly low prices.  In another surprise, even Badra 
field, a minor and remote cross-border field with Iran, was 
awarded.  At the end of the day, four more of the ten oil 
fields (or oil field groups) were awarded, bringing the total 
for both days to seven fields awarded (a remarkable change 
from the 1st bid round on June 30 in which only one of eight 
fields was awarded that day).  The general mood of MOO 
officials present was restrained but jubilant.  The general 
mood of the international oil companies varied and seemed to 
range from pleased to surprised to stunned. 
 
Bidding Results: Broad International Participation 
--------------------------------------------- ----- 
 
¶8. (U) Forty-four international oil companies, from 
twenty-three countries, were prequalified to bid.  Twenty-one 
companies from seventeen countries submitted bids.  Petronas, 
the Malaysian national oil company, submitted the most bids 
(five, all as part of bid consortia) and participated in the 
most winning bids (four).  A number of other companies 
participated in three bids submissions.  An analysis of the 
awarded bids and the percentage interest of each company 
shows that the Russian company Lukoil was awarded the most 
reserves (11 billion barrels of oil) and bid the most 
increase in production (1.5 million bpd), followed closely by 
the Anglo-Dutch company Royal Dutch Shell (with 7.6 billion 
barrels of reserves and 1 million bpd of production) and 
Petronas (with 6.6 billion barrels of reserves and 1 million 
bpd of production).  Only three of the seven prequalified 
U.S. companies attended the bid round, and only one 
(Occidental Petroleum) submitted a bid.  No U.S. companies 
were awarded contracts.  (Comment:  However, from the 1st bid 
round contracts, ExxonMobil and Occidental Petroleum will 
participate in developing nearly 3 million bpd of future 
Iraqi production -- or nearly a third of the potential total 
increase in Iraqi production from both bid rounds.  Despite 
Qincrease in Iraqi production from both bid rounds.  Despite 
winning no new fields in this bid round, U.S. firms remain 
poised to do well in the Iraqi oil sector. End Comment.) 
 
Bidding Results: Landmark Event for Iraq and Oil Industry 
--------------------------------------------- ------------ 
 
¶9. (U) Iraq's current oil production is 2.4 million bpd.  If 
the production targets in the contracts for the three fields 
awarded as a result of the 1st bid round on June 30 are 
achieved, Iraq's production would increase by 4.9 million bpd 
to 7.3 million bpd.  If the winning bidders in the 2nd bid 
round achieve their production targets, the seven awarded 
fields would increase Iraq's production by an additional 4.7 
million bpd and raise Iraq's total production to 12 million 
bpd within seven to ten years.  In short, in less than six 
months from the 1st bid round on June 30, Iraq has positioned 
itself to jump from the 11th largest oil producer to 
potentially the world's largest oil producer, and from the 
10th largest oil exporter to potentially the world's largest 
oil exporter (overtaking even Saudi Arabia).  (Comment:  Iraq 
faces tremendous challenges in realizing this potential, 
including the construction of export infrastructure, which 
 
BAGHDAD 00003196  003.2 OF 005 
 
 
will be reported septel.  End comment.) 
 
Bidding Results: Resources of Global Oil Industry Available 
--------------------------------------------- -------------- 
 
¶10. (U) As a result of the 2nd bid round, Iraq has the 
opportunity to partner with more key international oil 
companies:  one more of the six major oil companies (the 
French company Total), two more of the top ten oil companies 
as measured by production (Total and Lukoil), two respected 
national oil companies (Malaysia's Petronas and Norway's 
StatoilHydro), and eight new (to Iraq) international oil 
companies from seven countries.  In addition, of the 15 
winning bidders (either bidding alone or in consortia), six 
are parastatal companies that could bring the full diplomatic 
and economic resources of their countries to Iraq's oil 
sector. 
 
¶11. (U) Summing up the results of both bid rounds (June 30 
and December 11-12), Iraq can now partner with four of the 
six major oil companies, six of the top ten (and ten of the 
top twenty) oil companies (as measured by production), two 
respected national oil companies, and an additional 15 
international oil companies from 13 countries.  All five of 
the permanent members of the United Nations Security Council 
will now have companies involved in Iraq's oil sector. 
 
Bidding Results: The Bids and the Winners 
----------------------------------------- 
 
¶12. (U) Some 32 billion barrels (28% of Iraq's total 
reserves) were awarded during the 2nd bid round, including 
two of Iraq's (and the world's) largest oil fields: part of 
West Qurna, which holds in its entirety 21.5 billion barrels 
of oil, almost 19% of Iraq's reserves, and is Iraq's largest 
field (the first part of West Qurna was awarded as a result 
of the 1st bid round); and Majnoon, Iraq's third largest 
field with 12.6 billion barrels of oil and 11% of Iraq's 
reserves).  The awarded fields are in five of Iraq's eighteen 
provinces:  four are in southern provinces (Basra, Maysan, 
Dhi Qar, and Wasit), and one is in a northern province 
(Ninawa). 
 
¶13. (U) The bids and bid winners are follows: 
 
 
Day 1: 
 
Majnoon Oil Field: 
 
**Winner** 
Consortium of 
(a) Royal Dutch Shell (Anglo-Dutch company, one of the six 
Majors, top 10 company as measured by production) as the 
operator with a 60% interest in the consortium 
(b) Petronas (Malaysian national oil company, top 20 company 
by production) with a 40% interest in the consortium 
Remuneration Fee Bid (RFB): $1.39 
Plateau Production Target (PPT): 1,800,000 bpd (the current 
production is 55,000 bpd and the minimum required PPT was 
700,000) 
 
Consortium of 
(a) Total (French company, one of the six Majors, top 10 
company by production) as the operator with 57% interest 
(b) CNPC, i.e., China National Petroleum Corporation or 
Petrochina (top 10 company by production, participant in the 
Rumaila contract from the 1st bid round) with 43% interest 
RFB: $1.75 
PPT: 1,400,00 bpd 
 
 
Halfaya Oil Field: 
 
**Winner** 
Consortium of 
(a) CNPC (one of the Chinese national oil companies, top 10 
company by production, participant in the Rumaila contract 
from the 1st bid round) as the operator with 50% interest 
(b) Petronas (Malaysian national oil company, top 20 company 
by production) with 25% interest 
(c) Total (French company, one of the six Majors, top 10 
company by production) with 25% interest 
RFB: $1.40 
PPT: 535,000 bpd (the current production is 3,000 bpd and the 
minimum required PPT was 300,000) 
Qminimum required PPT was 300,000) 
 
BAGHDAD 00003196  004.2 OF 005 
 
 
 
Consortium of 
(a) StatoilHydro (Norwegian national oil company, top 20 
company by production) as the operator with 50% interest 
(b) Lukoil (Russian company, top 10 company by production) 
with 50% interest 
RFB: $1.53 
PPT: 600,000 bpd 
 
Consortium of 
(a) ONGC Videsh Limited, i.e., OVL (one of the Indian 
national oil companies, top 20 company by production) as the 
operator with 50% interest 
(b) TPAO (Turkish national oil company) with 30% interest 
(c) OIL, i.e., Oil India Limited (one of the Indian national 
oil companies) with 20% interest 
RFB: $1.76 
PPT: 550,000 bpd 
 
Consortium of 
(a) Eni (Italian national oil company, top 20 company by 
production, participant in the Zubair contract from the 1st 
bid round) as the operator with 30% interest 
(b) Occidental Petroleum, i.e., Oxy (U.S. company, top 25 
company by production, 4th largest U.S. company by 
production, participant in the Zubair contract from the 1st 
bid round) with 20% interest 
(c) Kogas, i.e., Korea Gas Corporation (Korean national oil 
company, participant in the Zubair contract from the 1st bid 
round) with 20% interest 
(d) Sonangol (Angolan national oil company) with 15% interest 
(e) CNOOC, i.e., China National Offshore Oil Corporation (one 
of the Chinese national oil companies) with 15% interest 
RFB: $12.90 
PPT: 400,000 bpd 
 
 
East Baghdad Oil Field: 
No bids 
 
 
Eastern Oil Field Group (Gilabat, Khashim Al-Ahmar, Nau 
Doman, Qumar): 
No bids 
 
 
Qaiyarah Oil Field: 
 
**Winner: Awarded on Day 2** 
Sonangol (Angolan national oil company) as the operator with 
100% interest 
RFB: $5.00 (Sonangol's bid was $12.50, but it accepted MOO's 
maximum remuneration fee of $5.00) 
PPT: 120,000 bpd (the current production is 2,000 bpd and the 
minimum required PPT was 120,000) 
 
 
Day 2: 
 
Phase 2 of the West Qurna Oil Field: 
 
**Winner** 
Consortium of 
(a) Lukoil (Russian company, top 10 company by production) as 
the operator with 85% interest 
(b) StatoilHyrdo (Norwegian national oil company, top 20 
company by production) with 15% interest 
RFB: $1.15 
PPT: 1,800,000 bpd (the minimum required PPT was 750,000; no 
current production) 
 
Consortium of 
(a) Petronas (Malaysian national oil company, top 20 company 
by production) as the operator with 60% interest 
(b) Pertamina (Indonesian national oil company) with 20% 
interest 
(c) PetroVietnam, i.e., Vietnam Oil and Gas Group (Vietnamese 
national oil company) with 20% interest 
RFB: $1.25 
PPT: 1,200,000 bpd 
 
Total (French company, one of the six Majors, top 10 company 
by production) as the operator with 100% interest 
RFB: $1.72 
PPT: 1,430,000 bpd 
 
 
BAGHDAD 00003196  005 OF 005 
 
 
Consortium of 
(a) BP, i.e., British Petroleum (British company with a 
significant U.S. presence, one of the six Majors, top 10 
company by production, participant in the Rumaila contract 
from the 1st bid round) as the operator with 51% interest 
(b) CNPC (one of the Chinese national oil companies, top 10 
company by production, participant in the Rumaila contract 
from the 1st bid round) with 49% interest 
RFB: $1.65 
PPT: 888,000 bpd 
 
 
Gharraf Oil Field: 
 
**Winner** 
Consortium of 
(a) Petronas (Malaysian national oil company, top 20 company 
by production) as the operator with 60% interest 
(b) JAPEX, i.e., Japan Petroleum Exploration Company with 40% 
interest 
RFB: $1.49 
PPT: 230,000 bpd (the minimum required PPT was 150,000; no 
current production) 
 
Consortium of 
(a) KazMunayGas (Kazakhstan national oil company) as the 
operator with 45% interest 
(b) Kogas, i.e., Korea Gas Corporation (one of the Korean 
national oil companies, participant in the Zubair contract 
from the 1st bid round) with 45% interest 
(c) Edison (Italian company) with 10% interest 
RFB: $2.55 
PPT: 185,000 bpd 
 
Consortium of 
(a) TPAO (Turkish national oil company) as the operator with 
60% interest 
(b) ONGC Videsh Limited, i.e., OVL (one of the Indian 
national oil companies, top 20 company by production) with 
40% interest 
RFB: $2.76 
PPT: 200,000 bpd 
 
Pertamina (Indonesian national oil company) as the operator 
with 100% interest 
RFB: $7.50 
PPT: 150,000 bpd 
 
 
Badra Oil Field: 
 
**Winner** 
Consortium of 
(a) JSC Gazprom Neft (Russian company, top 20 company by 
production) as the operator with 40% interest 
(b) Kogas, i.e., Korea Gas Corporation (one of the Korean 
national oil companies, participant in the Zubair contract 
from the 1st bid round) with 30% interest 
(c) Petronas (Malaysian national oil company, top 20 company 
by production) with 20% interest 
(d) TPAO (Turkish national oil company) with 10% interest 
RFB: $5.50  (the consortium's bid was $6.00, but it accepted 
MOO's maximum remuneration fee of $5.50) 
PPT: 170,000 (the minimum required PPT was 80,000; no current 
production) 
 
 
Middle Furat Oil Field Group (Kifl, West Kifl, Merjan): 
No bids 
 
 
Najmah Oil Field: 
 
**Winner** 
Sonangol (Angolan national oil company) as the operator with 
100% interest 
RFB: $6.00  (Sonangol's bid was $8.50, but it accepted MOO's 
maximum remuneration fee of $6.00) 
PPT: 110,000 (the minimum required PPT was 110,000; no 
current production) 
HILL