Shell turns down chance for first Iraqi oil deal

European oil giant Shell has turned down the chance to win the first foreign upstream oil production contract in post-war Iraq, saying the terms on offer from Baghdad's new interim government were not good enough. Despite security concerns, Shell told it considered bidding for production work on the billion-barrel Khurmala Dome field in northern Iraq.
"We obtained a copy of the tender but the scope and contract format are not compatible with our aspirations for long-term risk-reward contracts," a Shell spokesman said.

Typically oil majors like to secure a 15-20 % return on 25-30 year contracts. Since the war ended last May work by foreign contractors in Iraq's vast oilfields, the world's second largest, has been limited mostly to short-term infrastructure repair contracts led by companies like US Halliburton.
Security worries have severely limited the number of foreign bids for rehabilitation projects now on offer for three Iraqi oilfields. Shell's leading competitors BP and the US oil majors show no sign yet of contemplating entry into Iraq.

Baghdad is hoping to award contracts by the end of August after extending the deadline for bids five times, industry insiders familiar with the tenders said. They said the tender for Khurmala Dome that took Shell's interest is worth $ 100 mm ($ 154 mm) worth of investment, small by Shell standards. Shell was the only big name oil company that took interest in the tenders, they said. Small UAE, Irish and Turkish companies also bid for the projects -- part of a plan to help raise output by 20 % by the end of this year.
"Interest was limited. Oil officials are confident that the projects will be finally awarded," said one Arab oil executive involved in the tenders.

The other fields up for rehabilitation are the 2.2 bn barrel southern Suba-Luhais at $ 150 mm and the smaller northern Hamrin field at a cost of $ 80 mm. Ireland's Petrel is bidding for all three, managing director David Morgan told. Dome, a UAE company, and EverAsia from Turkey also have bid, Iraqi sources said.
Iraq wants to restore production capacity to pre-war volumes of about 3 mm bpd from some 2.5 mm bpd now. Funding shortages and security problems have delayed 150 oil ministry projects. These are separate from $ 1.8 bn of US-funded projects that have also run into delay.

But after a reshuffle at the oil ministry, head of projects Ahmad al-Shamma is planning to move plans forward.
The ministry invited international companies to bid for a pipeline project in the centre of the country and another tender to construct a new pipeline linking the Kirkuk fields to the Beiji refinery is expected to be issued this month.