Iraq’s Oil Ministry has asked International Oil Companies (IOCs) operating in the region to come up with a shared vision for changes to existing and future contracts.
The ministry has asked IOCs that have signed technical service contracts to recommend changes to the deals as the contracts in their current form are more expensive to the state, Iraqi oil minister Adil Abd al-Mahdi said on Sunday.
In addition, contracts have a very quick cost-recovery process, which places a burden on the state at a time of low oil prices, he added.
Under current agreements, the cost recovery and remuneration fee payments need to be made in oil and since June last year when the price of oil was above the $100 mark, the amount of oil owed by the Iraqi government to IOCs has doubled.
Many worry that this will add more pressure to Iraq’s already strained budget and with scheduled payments lagging behind, concerns have been raised over the government’s ability to abide by the contracts rules.
Abd al-Mahdi said the changes in contracts should incentivise IOCs to keep costs down, and profits from oil sales will reflect the price of crude, not the overall amount produced.
“We are in the stage of building ideas,” he said. “It is not production sharing, but to keep the service contract in place, to put more incentives for us and for them.”
Producing oil fields don’t need production sharing contracts, a model that IOCs prefer and which the KRG uses, Abd al-Mahdi said, denying that Iraq was renegotiating for contracts to become production sharing agreements.
