18 January 2008
Iraq’s launch last week of a prequalification process for international oil companies ahead of a tender for undeveloped fields has drawn fire from smaller firms, which say the criteria and requirements set by the oil ministry exclude them from the competition and favor their bigger brethren, especially the majors. Oil ministry sources said the prequalification process is designed to determine “which companies could be called on to participate in which fields,” based on their technical and financial capabilities.
The criticism comes as the oil ministry and four majors gear up for another round of negotiations on technical support contracts for five producing fields following meetings late last year. Iraqi sources told International Oil Daily that the talks are planned before the end of January, but no firm date has been set. The firms submitted technical and financial proposals in December and have already received feedback from the Iraqis, industry sources said.
In the absence of a federal hydrocarbon law regulating international firms’ involvement in developing Iraq’s fields, the oil ministry also plans to tender new fields for competition. Ministry officials say agreements based on development and production contracts — the last model contract developed before the fall of the previous regime — could be signed, with the cabinet and Parliament providing guarantees by voting on each contract individually and turning it into law.
In the call for prequalification documents, a copy of which was obtained by International Oil Daily, the newly created contracts and licensing department said all international firms wishing to operate in Iraq should provide a set of documents by Jan. 31, and that “only selected and eligible companies will be invited to participate in the competition for upstream sector projects which will be declared within the first license round soon.” It said “the names of the qualified companies and the criteria for qualification will be announced later to achieve the principle of equity and transparency.”
The prequalification process covers legal, financial, technical, training, and health and safety aspects. Companies are required to provide a variety of documents, among them tax, legal and work records, including lists of upstream projects for the past five years, production rates and investments.
Those requirements, some companies argue, exclude small firms or those with short or even no upstream track record. Furthermore, the short deadline only allows companies that have gone through the process already to be ready in time.
Several companies have been established over the past few years solely for the purpose of pursuing upstream work in Iraq, while others without upstream expertise are interested, too. This is the case, for example, with Irish independent Petrel Resources and trader and refiner Vitol, which recently entered into a partnership with Dubai-based, Iraqi-owned Dome and US Anadarko to bid for upstream assets in Iraq. Although Dome started pursuing Iraqi projects under the Saddam Hussein regime, it has no upstream projects on its books.
In a questionnaire, the ministry asked companies for a list of consortia and their members. Some firms found the request unusual, since consortia are formed only once fields are tendered and investment and other risks evaluated.
The ministry has yet to say when the licensing round will be held, although Oil Minister Hussein al-Shahristani had said last year it would be launched before the end of 2007.
Direct talks with BP, Chevron, Exxon Mobil and Royal Dutch Shell on the technical support contracts are also progressing slowly amid differences over the scope of the deals, industry sources said.
Iraqi oil officials view the proposed two-year contracts as an interim solution to help arrest accelerating decline rates and raise output marginally until Iraq is in a position to sign long-term agreements. The ministry aims to raise output by 100,000 barrels per day from each of the Rumaila, West Qurna Phase 1, Zubair and Missan developments in southern Iraq and the Kirkuk field in the north, within one year of contracts being signed. The five fields are producing just over 2 million b/d, but almost all urgently need technical support to help stem decline rates, particularly the older Rumaila and Kirkuk fields.
The gap between the Iraqi and company proposals is still wide, industry sources say. Most of the firms have laid out ambitious plans for the fields assigned to them, while Baghdad is talking about a limited scope of work that the companies can execute remotely.
The ministry’s immediate objective is to deliver a quick fix that can raise Iraq’s output from the current 2.2 million-2.3 million b/d to close to 2.8 million b/d, and provide a visible achievement that can be exploited politically.
In return for agreeing the short-term deals, the majors hope for a commitment they will be awarded those fields longer term without having to fight for them through a competitive bidding process. Without the promise of long-term involvement, the firms are having trouble reconciling themselves to what they describe as working as contractors, especially since Iraq is proposing to provide the short-term investment itself and reward companies in cash or in kind. Iraqi officials argue companies participating in the current process will stand a better chance of securing long-term deals when they become available.
By Ruba Husari, Dubai
(Published in International Oil Daily Jan. 18, 2008)