6 February 2009
Collapsing oil prices and dwindling revenues are forcing Iraq’s oil ministry to review the terms of the first bid round it launched last summer. After all, the state entity might not be able to finance a 51% carried interest in each of the six oil fields as stipulated in the bid round’s tender protocol and draft model contract. As a result, companies meeting ministry officials at a technical workshop in Istanbul Feb 12-14 might hear news that is music to their ears; a reduction of the state partner’s equity in the oil fields projects to 25%-30%. At least that is the thinking in Baghdad at the moment.
If formalized, this change would have other significant implications, especially on the structure of the operatorship of the fields. The two issues are intertwined. If the state partner has a controlling majority, it then becomes the operator of the field while the foreign partner is called a co-operator. For international oil companies, ceding control over the decision making process and the freedom to carry out a development program they bid on with billions of dollars, is a non-starter. It’s an issue than can make or break the contract, they argue.
Control over oil fields is a divisive issue, within and outside of Iraq, especially where fields being tendered (Rumaila north & south, West Qurna-phase1, Zubair, Missan, Kirkuk and Bai Hassan) are producing some 2 million b/d and represent the state’s major source of revenue. Putting the lifeline of the country in the hands of foreign companies is not acceptable in post-war nationalist Iraq. It would amount to a privatization process of Iraq’s oil wealth.
From there on, the scenario for the outcome of the first bid round is almost predictable. A deadlock is inevitable especially as major companies dismiss as unfeasible any contract that is not endorsed by the legislature and the Iraqi parliament is unlikely to give its blessing to a scheme that puts Iraq’s crown jewels in the hands of foreign oil companies for the next 20 years, albeit under technical service contracts.
Enter the “saboteurs”. With Prime Minister’s Nuri al-Maliki’s blessings, Deputy PM Barham Salih is hard at work to convene a gathering in Baghdad in two weeks to discuss the urgent needs of Iraq’s oil sector. It won’t be surprising if the plan put on the table – as an alternative to the controversial one pursued by the oil ministry – calls for the quick rehabilitation of producing oil fields by engineering contractors and oil fields services firms in parallel with the opening of green fields to Big Oil.
Ruba Husari, Dubai