Baghdad offers service deal terms for exploration round

19 September 2008
Oil Ministry seeks international interest in first oil licences since the US invasion.

Baghdad is to offer international oil companies (IOCs) the same investment terms for its upcoming exploration and development bid round as it proposed for the recently cancelled short-term service deals.

The round is the first of its kind in Iraq since the US invasion in 2003, and its success is being seen as vital to the future of the country’s oil industry.

The Oil Ministry held a series of meetings in Baghdad in the final week of August, says one ministry official, and concluded that while the short-term technical service contracts would not go ahead, the same model could be used for the 20-year full-field contracts.

Earlier this year, the bulk of oil majors agreed to be paid through a mixture of service fees and cost reimbursements for the short-term deals. However, the ministry sent formal letters to oil majors on 4 September advising them that the short-term deals had been terminated. The ministry said there was not enough time left for firms to complete the necessary upgrade work before the start of the exploration and development bidding round.

Despite the collapse of the short-term deals, Baghdad is pressing ahead with similar terms on the longer deals.

“We think it strikes a good balance for oil companies who want to work in our country, but the final model may yet change depending on the talks we have with these [international oil] companies,” says the Oil Ministry official.

The five main groups lined up to sign short-term service deals with Baghdad were the UK/Dutch Shell Group, both by itself and
as part of a partnership with Australia’s BHP Billiton, the UK’s BP, the US’ ExxonMobil Corporation and the US’ Chevron in partnership with France’s Total (MEED 22:8:08).

The country manager of one of these IOCs says the progress of Iraq’s troubled oil industry is now dependent on the success of the initial bid round.

“The Oil Ministry has shrugged and pretended that it is not the end of the world, but there is a growing scepticism in the industry now about whether any of these fields are going to get off the ground,” he says. “It certainly places a lot of pressure on this next bid round going off without a hitch.”

The oil licences in the bid round cover the Kirkuk and Bai Hassan fields in the north, West Qurna, Rumaila, Zubair and three oil fields in Missan province - Burzurgan, Fauqa and Abu Ghirab - in the south, along with the western Akkas and eastern Mansouria gas fields.

The eight oil fields included are already producing, but the round is expected to increase their output by 1.5 million barrels a day (b/d).

This is part of the country’s drive to increase oil production from the current production of 2.5 million b/d to 4.5 million b/d by 2012 (MEED 30:6:08).

The 34 companies that have been prequalified will be able to bid on their own or as part of a consortium.

Baghdad is to hold a licensing roadshow in London on 13 October, when deadlines for submissions and awards are expected to be announced.

Separately, Shell is on the verge of signing a 20-year contract with Iraq’s South Gas Company for the development of associated gas in the southern region of the country (MEED 12:9:08).

The deal will cover the three southern provinces of Basra, Missan and Thi Qar, although other areas could also be involved.

Iraq’s natural gas reserves are estimated to be 110 trillion cubic feet, making them the fifth largest worldwide. However, according to the Oil Ministry, production is only about 1 billion cubic feet a day.

Key facts

  • 1.5 million b/d: Increase in oil production from the eight fields in bidding round

  • 4.5 million b/d: Government target for oil production by 2012

  • 2.5 million b/d: Current oil production b/d=barrels a day.

Source: MEED

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