International oil companies who attended Iraq’s 2nd bid round roadshow in Istanbul Tuesday were unfazed by the growing tension in Baghdad ahead of the January legislative elections. The 42 companies who attended – out of 45 who have been prequalified to participate in the bid round – will compete for 10 contract areas, four of which include the giant fields of Majnoon, West Qurna-2, East Baghdad and Halfaya. The short timeline announced, which aims to have the contracts awarded sometime in mid-December, means that there’s going to be a frenzy to set up consortia. About 19 companies are classified as “unrestricted” and can operate any of the contract areas. However, no company can operate more than one of the big four fields, nor can it be awarded more than two contract areas in total. However, companies can be part of up to four consortia.
The oil ministry managed to put an impressive road show in Istanbul this week. Building on the experience of the first bid round and the fact that green fields offer a less complicated setup than the producing fields offered last time, the current licensing round seems a straightforward piece of work. The concept of the Field Operating Division (FOD), invented in order to keep the most prized fields of Iraq in the hands of Iraq’s national operating companies, has been dropped. Instead, foreign companies winning a 20-year development and production service contract (DPSC) will fully operate the fields on offer, including exploration, development and production. The state entity will still own a 25% carried interest in the contract.
However, in trying to please a domestic audience and placate criticism that emerged following the launch of the first bid round, several changes were introduced to the model contract which could complicate certain aspects of the process rather than smooth the way to a quick award.
Among these is a clause that states that although the contract will be drafted in both English and Arabic languages, in case of conflict it’s the Arabic version that prevails. Although some critics, understandably, argue in favor of such a clause making it an issue of “national sovereignty”, it is not by coincidence that English has become the Lingua Franca of petroleum contracts around the world, albeit with limited exceptions that in no way constitute a norm. Adhering to international norms in contracting should in no way infringe on the exercise of national sovereignty over petroleum resources.
Excellent information, Ms. Husari. Iraq is unreasonable. They might have big reserves and lifting cost is reasonable: but there are many other major costs associated with operating a field in Iraq, including the lack of security, infrastructures, regular supplies, basic logistics, etc.
The Oil Ministry has not understood yet that they might have oil but that many other parts of the world have it too, and that there are many other countries where it is far easier to explore and operate a field. To begin with you don’t need to engage in de-mining operations as happens in many of the fields in the Maysan area. And you know which contracts to stick to and they are and have been clear for years.
One of the problems of having the arabic version as the authentic one of the contract is that there is lack of definition of the exact boundaries and precise contents of each term and nothing is more important in law than a precise definition of concepts and ideas. Law expresses itself through words. It is enough with the otherwise disastrous anglo-saxon legal technique -they just have so much to learn from the Germans!- so now not even have the contracts in a language that has developed enough jurisprudence in such a specific field as oil and gas exploration and production contracts.