I think it remarkable that bidders accepted such extraordinary targets. They must believe that they are achievable for at least the short term. I certainly find it hard to believe it will promote best practice.
More importantly, putting a new 12 million barrels of oil on the market over the next several years will offset developing declines everywhere else. Thus the intent is to postpone a major decline in global oil deliveries. This is not a real problem for the developed world since they can simply buy their way past those without the money. It is a monster problem for everyone else who rely on oil to fuel their own industrial revolution.
We have posted a lot on the solutions that will work in North America . Unmentioned was the reality of these solutions been much more difficult to implement elsewhere. Their best solution initially is to simply divert the oil industry to the third world preferentially as the developed world swiftly transitions out of the business. Then once the developed world has completed the transition it is simple for the rest to follow.
I think that the necessary solutions are presently to hand or certainly will be in this decade. This Iraqi oil surge will provide the necessary cushion.
It obviously also provides convincing evidence for the war conspiracy types that the major motivation for disposing of the inconvenient former government was this oil and our present clear need of it.
However, if EEStor or its equivalent emerges shortly, then oil will be worthless in a decade or so and it does not matter at all. Besides, who wants to go to war over a completely uneconomic goal like peace in Afghanistan.
Contractual Incentives and Penalites to Motivate Oil Companies Increase Iraq Oil Production to 12 million barrels per day
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6VFyjeej5LivsjMy8sZxx1B4TPwV3_ozacKKnkwuWOqKzFS0tbESZGAjCPxZi4Y8ki8NY7EeTLUqj1wYtEYk2lD04hYOY5Fie229TzGMymkHQ7pQfGFIGMJfH5c1jhzXKJLtoP4lT6yt5/s1600-h/iraqoilss.jpg
Stuart Staniford chart on Iraq Oil
Jay Park describes why he thinks Iraq can achieve its 12 million barrels per day in 6-7 years This was a comment on an article (crossposted to the Oil Drum) by Stuart Staniford of Early Warning blog.
He is the instructor of the "International Petroleum Transactions" course at the Faculty of Law of the University of Calgary London London
Jay Park's Analysis of the Likely Development of
I [Jay Park] have been involved for a number of years with the Iraqi oil industry, and I am familiar with the Technical Service Contracts (TSCs) which were awarded in the First and Second Petroleum Licensing Rounds by the Petroleum Contracts and Licensing Division (PCLD) of the Iraq Ministry of Oil (MoO). I have met Dr. Al-Shahristani and many of the other MoO executives. Consequently, some of what I know can shed light on the opinions and comments above.
It seems to me that the possibility that
Let me explain why I agree with this sentiment. In 2004 and the years that followed, MoO entered into a number of "Memoranda of Understanding" with various major international oil companies (IOCs) to study the discovered Iraqi fields, both producing and non-producing, and share this information with MoO. Extensive analysis work was done by the IOCs, in the hopes that the work would lead to an award of a contract for the fields, or at least, the knowledge gained would give an upper hand in a bid process. Neither proved to be the case; all contracts have been awarded by bidding, and all information was shared with prospective bidders. The consequence is that all IOCs went into the bid process with good knowledge of the fields.
The Technical Service Contracts impose an obligation on the IOC (who becomes a a "Contractor" for the relevant Iraqi regional oil company, such as the South Oil Company, or the North Oil Company) to increase production to the Plateau Production Target. This must be done within 6 years (for First Round fields) or 7 years (for Second Round fields). The PPT must be maintained for 7 years.
The Plateau Production Target was one of two factors which the IOCs bid during the rounds. The second bid factor was the Remuneration Fee, expressed in dollars per barrel. The winning bid was determined using a formula involving (in the First Round) the product of the production target and the remuneration fee, or (in the Second Round) a point system that put 80% of the weight on the Remuneration Fee.
In either case, there was a tremendous incentive on the bidding IOCs to propose a VERY high Plateau Production Target. It has been said that MoO was amazed at the PPTs that were bid. MoO had hoped to get commitments for 6 million bbl/day of production; instead, they got 12 million bbl/day, even though less than all of the fields were awarded.
Can these production rates actually be achieved in
1. The IOCs had good information about these fields
2. The Contractor's remuneration fee is based on a per-barrel fee which creates an economic incentive to achieve the PPT
3. The Contractors have a contractual obligation under the TSCs to reach the PPT. If they fail to do so, there are non-performance penalties under the TSC that grind down the already-modest remuneration fees, and other possible consequences
I don't make it my business to bet against some of the world's most capable companies achieving objectives that they are contractually bound to perform, and with economic incentives that encourage such performance, when they voluntarily set those objectives with all the relevant information they needed.
The following are reasons why these production levels may not be achieved:
2. While IOCs are very good at achieving their committed goals, the TSCs (particularly for the First Round fields) give them quite limited control over ensuring that operations are successful. It is up to MoO to develop the transportation and export infrastructure to take away all the produced oil, and MoO's performance record since 2003 in increasing Iraqi production is less than stellar.
3. Security issues in the fields or attacks on pipelines may prevent the Contractors from being able to fulfill the PPT.
In a presentation I heard from Mr. Thamir Ghadhban, a former Iraqi oil minister, and now an oil advisor to the Iraqi Prime Minister Maliki, he doubted that 12 million barrels/day could be achieved. He believes that the IOCs bid too high, just to get the contracts. However, others have suggested to me that a really good oil field can be very forgiving-- and have no doubts, these are some of the world's best oilfields. Kirkuk
Indeed, production capability could conceivably go over 12 million bbl/day, once the Kirkuk field contract is negotiated (probably with Shell), and if Kurdistan region production is added. The Kurdistan Regional Government's Minister of Natural Resources, Dr. Ashti Hawrami, predicts that there could be 1 million bbl/day from Kurdistan within the decade. In my view, it is only a matter of time before there is resolution of the political wrangling that prevents Kurdistan production from being exported (I can explain my reasoning for this in another post if anyone cares).
Also, the First and Second Bid Rounds were dealing only with discovered fields. There are 430 geological anomalies in Iraq
The remuneration fee is the 'profit' to the Contractor. And it is less than many people understand. The table in Stuart's post that lists the fields and the remuneration fee shows the gross fee. There is an Iraqi state partner in the Contractor consortium who gets 25% of that remuneration fee, and then there is income tax of 35% on the remainder. So the $2.00 per barrel fee that BP and CNPC agreed to receive for Rumailah becomes only $0.97 after those deductions. At $80 oil, that is 98.7% government take-- a new world high.
Please remember that Iraq
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