Energy majors will have to collaborate in Iraq

17 October 2008
Given Iraq’s potential, oil majors are unlikely to be put off by political wrangling or contractual hurdles.

Baghdad has chosen an opportune time to launch its first post-war oil licensing round, but the way it is going about it is bringing some unwelcome surprises for oil companies.

Energy majors, hungry for access to some of the most promising acreage anywhere in the world, have been invited to bid for eight oil and gas fields under incentivised technical service contracts, which are expected to be signed for 20 years.

The contracts are not the production-sharing agreements that oil majors prefer, although they should still give room for sizeable profits.

Another unexpected drawback for international oil companies is the suggestion from the Oil Ministry that consortiums will be favoured over bids from individual companies.

While allowing Baghdad to make the best use of the skills and experience on offer, it is difficult to see how this approach fits with the ministry’s directive to choose the most competitive bid.

The other problem for oil majors, which has largely been ignored by Iraq’s Oil Ministry, is the decision to proceed with contracts despite the failure of the government to push a new oil law through parliament.

While Oil Minister Hussein al-Shahristani has claimed in the past that existing legislation allows the cabinet to award contracts, the 20-year term of the deals could be on shaky ground.

With the Kurds and the majority Shia still at odds over whether provincial governments should be able to agree their own contracts with oil companies, there will be protracted political wrangling before any contracts can be signed.

But given Iraq’s potential, oil majors are unlikely to be put off by any of this. By the time bids are due next year, most major firms are likely to have found suitable partners with which to collaborate.

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