Baghdad forces oil majors to form consortiums with rivals

17 October 2008
Oil Ministry warns standalone bids will not win favour in licensing round.

International oil companies (IOCs) are being forced to form consortiums with rival firms, after being told by Iraq’s Oil Ministry that companies stand little chance of winning contracts on their own, in the country’s first bid round since the US-led invasion.

Although most oil majors have relationships with rivals through joint ventures in other countries, the directive from Baghdad has surprised the firms, which were expecting to bid for fields on a standalone basis.

The Iraq country manager of one European oil company tells MEED that Oil Minister Hussain al-Shahristani has made it clear he is in favour of companies forming consortiums to take advantage of a wider range of experience and expertise.

“The question was asked by an oil company about the ministry’s attitude towards companies and consortiums, and the answer was that Iraq would favour a consortium over a single [company] bid,” says the country manager.

The manager says rival firms immediately began the process of discussing potential tie-ups after a meeting held by the ministry in London on 13 October.

“It has thrown up an additional hurdle for companies to think about, so that in addition to considering tender rules and the actual field data, there is an element of negotiation over how one company could fit in with another,” he says.

He adds that companies have also been told that a firm’s existing experience in using methods such as enhanced oil recovery techniques will not be considered as a factor by Baghdad.

“The only thing the ministry is considering is the company that makes the best combination bid between a maintenance fee, an incremental fee and an enhanced production target above the baseline level,” he says.

Under the oil ministry’s plans, foreign oil companies will recover costs and earn extra revenues on the fields, based on the degree to which they can increase output above current levels.

A senior executive from another European oil major, who also attended the London meeting, says firms were surprised to discover that no 3D seismic studies had been conducted on the eight fields in the round.

“That is going to substantially add to the level of work that is required for each firm,” says the executive. “We have been told that the consortium and the regional oil company will fund that seismic work.”

The oil licences available cover the Kirkuk and Bai Hassan fields in the north, West Qurna-1, Rumaila and Zubair in the south, and three oil fields in Missan province: Burzurgan, Fauqa and Abu Ghirab. The gas fields are the Western Akkas and Eastern Mansouria fields (MEED 19:9:08).

Data packages will be available to purchase from 31 October, with bids to be submitted within six months and contracts due to be signed by June 2009.

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