Pertamina withdraws bid to develop oil field in Iraq

Alfian ,  The Jakarta Post ,  Jakarta   |  Thu, 07/02/2009 10:17 AM  |  Business

State energy firm PT Pertamina is included in a long list of oil and gas companies failing to reach a deal with the Iraqi government over terms in the country’s first open oil and gas bidding round since 1972.

Pertamina, through its subsidiary PT Pertamina Hulu Energi (PHE), initially planned to develop the West Qurna block, one of six oil blocks offered by the Iraqi government. The company planned to team up with Malaysia’s Petronas and the China National Petroleum Corp. to bid for the block,  estimated to have reserves of 8.6 billion barrels of oil.

But, at the last minute Pertamina decided to withdraw its offer. “Yes, we decided to withdraw from the block, because the project is not viable economically for Pertamina,” PHE’s director for overseas business development Dwi Martono said on Wednesday.

Dwi added that Pertamina did not lose out to other bidders, rather it decided to cancel the proposal because the company disagreed with the Iraqi terms and conditions.

One of the terms that Pertamina disagreed upon was the  service contract scheme adopted by Iraq’s oil and gas industry. “Iraq does not use the PSC [production sharing contract] as we do here. It adopts the contract service scheme instead, which means oil and gas operators will be treated as service companies and be paid by the government for each barrel of oil pumped. We think this is not viable for us,” Dwi said.

Iraq offered six oil and two gas fields in its first international tender since Saddam Hussein nationalized the country’s oil and gas industry in 1972. All the fields have been in the production stage making them very attractive for oil and gas companies.

However, of a total of 22 companies which made bids on Monday, Iraq only awarded a development contract for one field, the Rumaila field, which is the largest of the fields offered. Bloomberg reported that the Iraq government awarded this development contract to BP and the China National Petroleum Corp .

Iraq failed to award development contracts for seven other fields. Included in the companies failing to reach agreement were  Exxon Mobil Corp. and Royal Dutch Shell Plc. According to Bloomberg, the failure was caused by the terms and conditions of the Iraq government, which required bidders to cut their fees.

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