Majors deny demanding share of Iraqi oil

04 July 2008
Much-needed service agreements are delayed as Baghdad claims oil firms refused work based on fees.

International oil companies (IOCs) have denied claims by the Iraqi government that negotiations for much-needed technical support agreements broke down because of their demands for a share of the oil produced.

Baghdad had been expected to announce the outcome of a series of technical service agreements with oil majors on 30 June. However, the announcements have been indefinitely delayed.

The confusion over the talks comes at a delicate time for the Iraqi oil sector. Baghdad has just begun to open up its oil industry to much-needed international assistance for the first time in decades.

Delaying the announcements, Oil Minister Hussein al-Shahristani said: “We did not finalise any agreement with them because they refused to offer consultancy based on fees as they wanted a share of the oil.”

However, one senior oil industry executive involved in the talks with Baghdad denies his company or its rivals have been pushing for a share of production. Instead, he says, the oil majors have been willing to negotiate technical service contracts (TSC) without production-sharing clauses.

“To my knowledge, no IOCs have made any reference to production share,” he says. “We, like the other IOCs, have been negotiating straight TSCs for the past few months. We thought we were very close to agreement.”

The executive confirms that Baghdad has reduced the length of agreements it is willing to sign to just one year, compared with the two-year term previously anticipated. “One of our team was informed that the minister wanted to change the term to one year,” he says. “We have had nothing formal or in writing.”

Production sharing is a con-troversial issue in Iraq because of the belief by many Iraqis that the US-led invasion of the country in 2003 was motivated by a desire to gain access to the country’s oil.

Iraq is thought to hold the world’s third-largest oil reserves, at 115 billion barrels.

The government is planning to boost production from the current 2.5 million barrels a day (b/d) to 4.5 million b/d by 2012.

Baghdad announced on 30 June a shortlist of 41 oil companies, including six national oil companies, that could compete for longer-term field development deals (MEED 30:6:08).

The country’s first licensing round since 2003 covers eight blocks, including six oil fields and two gas fields.

Bids for the oil fields are due to be submitted by the end of March 2009, with contracts set to be agreed by the following June. A bidding schedule for the gas fields has not been announced.

Under a TSC, the oil companies act as contractors or service providers to the Iraqi government, and are paid a fixed fee to complete the work.

Major oil companies generally prefer to sign production-sharing agreements rather than TSCs.

However, the lack of other opportunities in Iraq, coupled with the long-term potential of the country’s reserves, has led to most oil majors deciding that service agreements are worth pursuing.

The oil executive says such agreements are “quite simply the right thing to do” for Baghdad, whose oil and gas industry infrastructure is 20-30 years out of date.

“The more the outside world can do to accelerate this process, the faster stability will return to Iraq, and indeed to the region,” he adds.

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