It may have taken almost a year, but Iraq managed to sign a dozen oil licensing deals with foreign oil firms in its first two licensing rounds in 2009. The Oil Ministry’s decision to push back the date for its third licensing round shows it may not be able to replicate the success for gas production.
Baghdad has tried to sweeten the deal for three gas fields dropping its demand for singing on fees, which were up to $500m in the first two bid rounds. The other main terms – remuneration fees and production targets – remain unknown, making the prize for international oil companies (IOCs) difficult to assess.
It is the prospect of potentially lucrative exports, which will be the main draw for bidders, but this is still a contentious issue for Iraqis. After spending the summer sweating in record high temperatures, with only a few hours of electricity each day, it is hard to imagine there will be any spare capacity for Iraq to export.
Along with opposition, the cost of building Iraq’s gas export infrastructure from scratch will be another major burden. Whether it is exported as liquefied natural gas or by pipeline, just how this will be paid for does not seem to have been reconciled internally within Iraq.
Politics may also prove the biggest obstacle. Without a resolution to the stalemate forming a new government, IOCs will remain wary of the committing to major deals. It is hard to argue that the current government enjoys any executive privileges to sign major contracts committing Iraq to strategic deals. Although unlikely, the new cabinet may seek to revoke the agreements.
It is doubtful whether these problems can be resolved before 1 October, when IOCs will finally get to bid for the fields. Further delays could be on the cards, or the Oil Ministry could push ahead with the auction with an incomplete foundation, as it did in its first bid round in June 2009. Neither option will help the ministry get the best possible terms for the fields.