22 October 2003
Iraqi oil ministry officials favor open bidding for any future contracts for oil fields and exploration blocks, embracing both companies involved in previous negotiations and new contenders, mainly US majors for whom Iraq was off-limits.
“We have proposals that we are formulating, but that still need to be submitted for approval by the oil minister and the political echelons in Iraq,” Natik al-Bayati, senior adviser at the oil ministry and an old hand at negotiations with foreign companies, told International Oil Daily in Geneva on Tuesday.
According to the ambitious plans, which al-Bayati said are personal suggestions, the Iraqi oil ministry would prepare data packages and model contracts by the first quarter of 2004, and allocate the first fields or blocks by the second half of the year.
“We probably won’t allocate all the fields and blocks at one time, but rather do a trial with one or two of each,” al-Bayati said. “What is certain is that we will not hold bilateral negotiations or side discussions with oil companies as in the past. We will follow an open, transparent and competitive procedure according to international standards.”
Thamer al-Ghadban, chief executive of the oil ministry, has a more cautious but still ambitious timetable in mind. “We want to start cooperation with international oil companies, but only after the ministry approves an oil policy. First we have to have a clear policy that is based on sound international oil practice and a fair competition,” he told International Oil Daily.
“We will open dialogue with the companies in the first half of 2004 and then discuss contracts with them in the second half of the year. We have no time to waste, so we will aim at a parallel process. [We will] advance in the negotiations while the constitution and the legal framework are being drawn up, so that both sides will be ready for the final handshake once all is in place,” he said. But he added that Iraq “will not sign contracts as in the past, unless there is a timetable for implementation.”
While companies are wary while security in Iraq is volatile and the political process uncertain, al-Ghadban noted that companies” were queuing during the sanctions to do business in Iraq,” and that, “Once we take the initiative and set things rolling, they will come. We believe they will be happy to do business in Iraq.”
Al-Bayati argued that proper preparations are essential. “One of the main problems of the previous bilateral negotiations we held with international oil companies was the absence of a pre-prepared standard data package,” he said.
The data packages would be available to all interested companies for a fee, and new competitors would be given ample time to study them, to counter any disadvantage from a lack of past contacts.
With Iraqi data old and limited, one idea would be to hire a consultancy company to prepare packages in line with global industry standards, al-Bayati said. In the old days, Iraqi negotiators tended to guard data closely, handing it out on a step-by-step basis for analysis. “For the Iraqi side, that was to assure continued dialogue and two-way flow of information with the international oil companies,” al-Bayati said.
In the 1990s, Iraq courted interest in nine exploration blocks in the Western Desert and 25 appraised fields. Three firm contracts for exploration were awarded, and four for field development. Of the latter, Russian Lukoil’s deal for Phase 2 of West Qurna was cancelled at the end of last year, while China National Petroleum Corp.’s contract for Al-Ahdab was frozen in 2000 for non-execution, but not actually terminated. Syrian Petroleum Co. had a contract for the Nur oil field, which at its request was not ratified by presidential decree, even though it started work last year. Petrovietnam’s Amara field development contract was too new to be canceled for non-compliance.
A decision on the fate of these contracts is still pending. Under international law, Iraq has the sovereign power to annul any contract, legal experts say.
Some international oil companies that showed past interest in exploration held off to see if blocks in central Iraq would become available. Al-Bayati said areas that were excluded because of disagreements within the Iraqi ministry should be opened up to bidding in the future, “in order to diversify the exploration opportunities.”
At stake are three blocks in particular: Badra and Samarra, to the northeast and northwest of Baghdad, respectively, and Euphrate Graben in northwestern Iraq, near the border with Syria. These are considered to have high potential because of their proximity to producing fields. The Western Desert is largely virgin territory, with only 15 wells drilled so far.
By Ruba Husari, Geneva
(Published in International Oil Daily October 22, 2003)