15 April 2008
Iraq’s oil ministry expects to sign two deals with two oil majors by the end of the month under the technical support contracts framework approved recently by the Iraqi cabinet, with two other deals expected to follow shortly afterward, Iraqi oil sources told International Oil Daily Monday.
The ministry has also named 35 international oil companies it said have prequalified to bid in the upcoming licensing round to develop seven oil and gas fields, the first licensing round since the fall of the previous regime in 2003.
A Baghdad source said the last round of talks held in mid-March with BP, Chevron with partner Total, Exxon Mobil and Royal Dutch Shell were “non-conclusive” and a new round is tentatively set for Apr. 27 and Apr. 28.
The two-year technical support contracts aim to offer Iraq a speedy interim solution to the problem of reversing declining output at the four major producing fields in southern Iraq, plus the Kirkuk field in the north, until the country is in a position to sign long-term agreements. The target is 100,000 barrel per day increments at each of the Rumaila, West Qurna Phase 1, Zubair, Missan and Kirkuk fields within a year of contract signing, sustained for a second year.
“Progress has been made on two contracts, with one final issue related to payment in oil still needing to be sorted out at the government level,” the source said.
Both the oil ministry and the majors favor remuneration in kind, but the issue of disbursing barrels instead of cash requires an agreement with the New York-based Development Fund for Iraq, which accounts for all of Iraq’s oil production and sales proceeds.
Remuneration will be split into reimbursement for costs of equipment to be procured on behalf of the ministry and a fee for services. The latter would involve an “opportunity cost” given the tight market for specialized labor, companies’ sources said. A major issue in calculating remuneration is how to quantify the “opportunity cost” that would be added to the return the companies are expected to make.
The Iraqi cabinet has given the oil ministry the go-ahead to sign technical support contracts to develop the five producing fields with five of the world’s top oil firms.
However, following the initialization, Iraqi Oil Minister Hussein al-Shahristani would still need the cabinet’s final approval on the financial commitments made by the ministry. The deals, which will include procurement of equipment on behalf of the ministry and technical support fees, are expected to be valued at more than $50 million — the level beyond which the ministry needs cabinet approval.
The cabinet will also review final drafts because of the sensitivities surrounding the signing of the first oil contracts — albeit just for technical support — in years. the Iraqi sources said. The contracts will be signed with North Oil Co. and South Oil Co.
“Agreement with the two other companies is still pending on a deal regarding the linkage between the technical support contracts and the first licensing round. They are insisting on a form of guarantee that they would not lose out to others in the competition,” the source added.
The ministry has yet to finalize the list of fields to be offered in the first bid round but has so far included all five fields subject to the technical support contracts, in addition to Qayarah, a heavy oil field in northwest Iraq, and the Akkas gas field near the Syrian border.
The list of qualified companies announced Monday include the majors involved in the technical support contracts talks, as well as international and national oil companies from the US, Europe, Asia and Russia. Two Russian companies, Lukoil and Gazprom Neft, made it to the list, as well as Australian BHP Billiton and Woodside Petroleum; Chinese Sinochem, Sinopec, China National Offshore Oil Corp. and China National Petroleum Corp.; and Japanese Inpex, Japex, Mitsubishi and Nippon Oil. Other Asian companies include Korea’s Kogas, India’s Oil and Natural Gas Corp., Malaysia’s Petronas and Indonesia’s Pertamina. Other Europeans include BG, Edison, Eni, Maersk, Premier, Repsol YPF, StatoilHydro and Wintershall. US companies Anadarko, ConocoPhillips, Hess, Marathon Oil and Occidental as well as Canada’s Nexen have also been qualified to bid.
The ministry’s contracts and licensing directorate said only the 35 listed, out of 120 companies and consortia that submitted data and information, fulfill the minimum criteria set by the ministry. It said a range of minimum and maximum marks were set out in five areas that cover the technical, financial, legal, training, health and safety aspects. The documents that companies were required to submit covered tax, legal and work records, including lists of upstream projects for the past five years, production rates and investments.
The announcement made on the ministry’s website said only the 35 companies who succeeded in their submissions will participate in the first bidding round, while the petroleum and contracts directorate continue updating the process of qualifying companies, adding others who did not make it this time. It said it will update the other companies’ information in view of allowing as many as possible to participate in the next licensing rounds that would follow after the first one expected later this year.
By Ruba Husari, Dubai
(Published in International Oil Daily April 15, 2008)