Iraq unveils foreign oil contract shortlist

[Suladarin]

Iraq unveils foreign oil contract shortlist
Published on 06-15-2009
Source: Times Online

British groups BP, BG International and Premier Oil have been shortlisted to bid for contracts to work on Iraq's oil and gasfields

Alice Fordham, Baghdad

Three British companies have been shortlisted to bid for contracts to work on Iraq's oil and gas fields, pitting themselves against 32 other non-Iraqi companies in a televised, two-day bidding procedure revealed at Baghdad's Oil Ministry.

BP, which provided technical assistance to the Iraqi state oil company in 2004-2006, BG International and Premier Oil were among the 120 companies who put themselves forward in June last year, and which now appear on the shortlist of 35 companies who are invited to submit proposals for consideration by a panel of experts at the Ministry.

Along with other oil majors including Exxonmobil and Total, they are due to present proposals on June 29 and 30 to work on one of six oil fields and two gas fields. It will be the first major foreign investment in Iraqi oil for 40 years, which has the world's third-largest oil reserves but needs massive foreign investment to resurrect the country's energy infrastructure.

BG International, however, told The Times that it was unlikely to submit a proposal. "Iraq does not currently form part of BG Group's plans," a spokeswoman said.

The oil and gas fields are already operational. The agreements due to be awarded are service contracts, whereby companies provide technical assistance to increase capacity, and are paid according to how much production of oil or gas increases, rather than production contracts, where revenue is shared.

Oil Minister Hussein al-Shahristani gave Iraq's current oil output as 2.4 million barrels per day, the highest since 2003, and anticipated that after this round of contracts is awarded, production would increase to 4 million barrels per day.

The country has reserves of 115 billion barrels, but poor security and bureaucratic stalemate have stalled its exploitation. The country's controversial hydrocarbon's legislation, which was proposed in February 2007 but mired in disagreement about how to distribute oil revenue, remains in doubt.

However, Mr al-Shahristani offered his assurances that companies' concerns about operating without legislation would be addressed, as all proposals would be given cabinet approval.

“If it is going to be delayed for any reason, then the existing laws allow the oil ministry to approve these contracts,” he said. While concerns still exist, the bidding companies have largely given tacit approval to working in this way, and also to strict conditions including a 35 per cent corporate tax.

This flexibility on the part of foreign investors has been attributed to the falling oil prices. "Given the size and attractiveness of the reserves," Robert Foulkes, associate with advisory firm Critical Resource, told The Times, "and the fact that the companies are looking beyond the recent oil price slump when making new investments, they will do what they need to to get access."

Three fields in this round of bidding are in Basra, two in Kirkuk in the north, and one in Maysan, also in the south. The two gas contracts are for sites in Anbar and Diyala provinces.

There are none in Iraqi Kurdistan, the northern region where revenue from resources is heavily disputed. However, Mr al-Shahristani slammed the semi-autonomous Kurdish Regional Government (KRG), who began exporting oil at the beginning of this month, calling the deals "illegal" as they had not been seen by the Iraq Oil Ministry.

"The KRG has signed some contracts and created a backlash," he said, adding that the revenue from the oil would go directly to central government, who would not pay firms who signed independent deals with the KRG.

The KRG would continue to receive 17 per cent of oil revenue, he said, and no more. Companies, including Norway's DNO International, Toronto-listed Addax Petroleum and Turkey's General Enerji who signed independent deals with the KRG must be paid by the KRG, he said, adding that, "we will not discuss any compensation for these companies under any circumstances."

[Missy Ryan and Ahmed Rasheed]

Iraq oil auction off to shaky start
Jun 30, 2009

Iraq's first auction of contracts to develop its oil fields since the U.S.-led invasion was not the bonanza for the oil industry that executives hoped, and has tempered eagerness to participate in future bid rounds.

Iraq closed the oil auction on Tuesday after awarding just one of the eight fee-paying contracts on offer, to a consortium led by British oil major BP.

For five of the fields, companies sought operating fees far above what Iraq was prepared to pay, prompting the government to ask bidders for the seven unawarded contracts to resubmit their proposals.

An official close to the process said these were then sent to the cabinet for consideration, without being made public.

For Western oil majors which have struggled to add new reserves in recent years - as the biggest reserves holders like Saudi Arabia and Russia keep their biggest fields for their state oil companies to develop - Tuesday's auction offered an unrivalled opportunity.

Investors feared the companies might even have been prepared to agree to loss-making deals simply to gain a foothold in such a prolific area.

But in the end, the two sides differed wildly on the value of the opportunity on offer and largely stuck to their guns.

While the government said it was prepared to pay maximum fees of around $2/barrel for most contracts, some companies sought fees 10 times that level.

"It's a complete gulf, a chasm," said Alex Munton, Middle East analyst at Wood Mackenzie.

The $2/barrel fee - which BP accepted after initially pitching for $3.99/barrel - would make Iraqi barrels among the lowest margin barrels in the world.

Royal Dutch Shell Plc has said that it achieves a margin of $2-4 a barrel in the Niger Delta, $20 in the United States and $10-12 in the North Sea.

"The Iraqis have been pushing operators hard on costs and in some cases operators have preferred to walk away rather than accept an uneconomic solution," a source at one of the companies said.

The Rumaila contract which BP and its partner China National Petroleum Corp won will be worth around $1 billion a year over 20 years.

Iraq plans to hold another bid round later this year, offering companies the opportunity to invest in undeveloped fields.

However, after Tuesday's result, analysts said they were pessimistic about its chances.

A senior executive at Maersk Oil and Gas Co, which participated in the bidding on Tuesday, said he was unsure whether his company would participate in the next round.

The failure of even Chinese oil companies - typically the biggest payers in auctions for energy assets -- to meet Iraq's demands is not a good omen for future bid rounds, IHS Global Insight Middle East Energy analyst Samuel Ciszuk told the news agency Reuters.

Part of the reason for the chasm on value perceptions may be related to reservoir damage, Ciszuk said.

After viewing data on the fields in recent months, foreign companies may have concluded the damage, due to underinvestment in recent years, is greater even than Baghdad realises, and so that the two sides have varying perceptions on the risks attached to meeting the production targets in the contracts.