Iraq’ Ministry of Oil is working hard to eliminate legal obstacles to the 11 oil field licenses awarded to interntional oil companies (IOCs) in 2009.
Baghdad has asked UK oil major BP and China National Petroleum Corporation (CNPC) to convert the $500m signature bonus for Rumaila oilfield into a $100m unrecoverable payment rather than a soft loan which would require parliamentary approval.
The the two partners are understood to have paid a $500m signature bonus in January this year for the 17 billion barrel Rumaila oilfield in the south of Iraq.
The revision will bring the awarded field in line with two other deals signed by international oil companies (IOCs) in Iraq’s first and second oil field licensing round in 2009.
US energy giant ExxonMobil was the first to renegotiate its deal for the 8.7 billion barrel West Qurna-1 field, explains Thomas Donovan, an Erbil-based partner with Iraq Law Alliance.
The ExxonMobil consortium with UK-Dutch Shell Group saw its signature bonus payment slashed to $100m from $400m in April. In the same month payments for the 4 billion barrel Zubair field, won by Italy’s Eni, the US’ Occidental Petroleum and South Korea’s KOGAS were cut to $100m from $300m. Both were converted from soft loans to irrecoverable payments.
According to the oil ministry, the soft loans would require parliamentary approval which will take some considerable time in Iraq’s current political stalemate, with no functioning parliament in place. Iraq’s government has been effectively paralysed since Iraq’s 7 March general election which failed to produce an outright winner.
However, there is also residual concern from the recent failed case brought by Sheda Musawi, a former parliamentarian who challenged the award of the Rumaila field on the basis that the oil ministry had not consulted the regional government in Basrah, which she claims in required by Iraq’s constitution (MEED 1:7:10).
However, according to some Iraq commentators paying back the $400m may prove to be another legal problem for the Ministry of Oil. “Iraq might have held off on claiming the money as they were thinking about this conversion already”, says one analyst.
“It [the revised signature payment] stems directly from the arguments in the Musawi case, and it appears the lawyers involved saw this as a more advantageous way of ensuring these cases do not get wrapped up in an unenforceable and worse, illegal, category”, says Donovan.
One of her central arguments was that the $400m signing-on bonus would be a loan to the government which would circumvent the legal and constitutional safeguards. “This fact, among all others, seemed to resonate with the Ministry of Oil and the IOCs involved”.
The reduced size of the payments is also a reflection that the costs of development will be significantly higher than the IOCs expected.
“It seems to be a working relationship between the IOCs and the Ministry of Oil”, says Donovan. “Perhaps the Ministry of Oil knew that they would have to cut the amount if these IOCs were going to have such a large expenditure in the immediate term with no return”.
Baghdad has sought to increase oil output, signing 11 production licensing agreements with IOCs as part of its plan to lift output from the current level of 2 million barrels a day (b/d) to 6 million b/d by 2016.