Iraq gas auction fails to attract majors

19 October 2010

Three fields successfully awarded but interest was subdued

Iraq’s Oil Ministry has awarded three natural gas fields in its third hydrocarbons licensing round, but the auction has failed to attract bids from the major international oil companies (IOCs).

The ministry had prequalified 47 IOCs, but only 13 registered for the auction and just five submitted bids during the 20 October auction in Baghdad.

Three yet to be developed gas fields were on offer: Siba in the south; Akkas in the western Anbar province near the border with Syria; and Mansuriyah in the north-east region close to the border with Iran.

IOCs were put off by security concerns in the areas around the sites, the lack of infrastructure for exports from the fields and questions over domestic downstream demand. This is despite efforts by the Oil Ministry to make the fields more attractive.

Companies submitted proposals for remuneration on each barrel of oil equivalent (boe) produced and plateau production targets for each of the three fields. This will be payable once the field reaches a dry gas production level equal to 25 per cent of the plateau production target, which must be maintained for at least nine years.

The largest of the three fields, the Akkas field, was awarded to a consortium of Korean Gas Corporation (Kogas) of South Korea and Kazakhstan’s Kazmunaigas, which agreed to a remuneration fee of $5.50/ boe.

The consortium bid significantly lower than the Oil Ministry’s demand of $8.50/boe, opening the possibility of future supplies for its national government, say analysts. At such a low price, the bid would not have been viable for an independent oil firm.

The field also received a failed bid from France’s Total, one of a handful of oil majors present at the auction, along with Turkish Petroleum Corporation (TPAO).

Kuwait Energy Company was one of the most active bidders, winning development contracts for the two remaining fields as a developer or joint venture partner.

The firm in consortium with TPAO won contract for the smallest field up for auction, the 1.5 trillion cubic feet (cf) Siba field in the Basra governorate, for $7.50/boe and a production target of 100 million cubic feet a day (cf/d).

The Siba field is just across the border from Kuwait and the emirate is desperate for gas to feed its growing power consumption needs. Negotiating an export deal for the gas may be difficult, while Iraq remains starved of power.

TPAO lead another consortium with Kuwait Energy, along with Kogas in the only bid for the 4.5 trilion cf Mansuriyah field.

Government officials have described the auction as a triumph and the first major step in developing Iraq’s gas sector, which has suffered under years of neglect. The country’s power sector is also desperate for feedstock.

The auctioned fields will produce 820 million cf/d, less than half the feedstock needed to run its existing and under construction gas-fired power plants in the country, but a significant step forward.

The Akkas field deal has faced some opposition. Qasim Abid, the governor of Anbar province, along with the chairman of Anbar Council, have publically challenged the deal. Sources close to the regional government say they will continue to oppose it unless the deal is reconfigured and implemented under their demands.

However, taking on the federal government will not be easy. Legal challenges to the Rumaila deal in the first bid round was defeated in court. It is also possible that “external players could play a part to sustain the Iraqi government decision”, says the source close to the Anbar provincial government.

With the field close to the Syrian border, Baghdad could ask Syria to help “convince or threaten Anbar’s local tribes to back off their current stance, allowing the field to deliver export gas to serve the Arab Gas Pipeline via Syria”, the source adds.

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