Iraq’s Oil Ministry has promised a “completely different” fifth round of field auctions after a fourth round in late May failed to attract bids from oil and gas companies, an official acknowledgement that the ministry’s oil and gas licensing policy has deterred private investment despite the potentially huge resources on offer.
The Petroleum Contracts & Licensing Directorate (PCLD) said it would “make changes in the rules and contractual & economic conditions for the service contracts of the previous licensing rounds which will make the contract in this round completely different from the previous contracts between the ministry and the international companies.”
While oil production development continues, with July exports marginally up on June’s figures at 2.565 million barrels per day, the exploitation of the country’s gas deposits as much needed feedstock for electricity generation has largely stymied.
According to the statement from PCLD, the fifth round will comprise auctions for gas fields only. The fourth bidding round included eight gas-prone blocks, none of which received any bids.
The statement follows comments made by Deputy Prime Minister for Energy Hussein Al-Sharistani that the fourth round terms were too harsh.
“The fourth bid round was not successful, as we hoped, and the reason was because the contracts … were very tough and did not give a possibility for the company to accept the high risk of work,” Sharistani told reporters on 12 August, according to an AFP report. “We are studying a new model of contract for other oil fields because the first oil fields (that were auctioned) were discovered and well-known. There is a study in the ministry of oil to improve the model of contract to make it more attractive for oil companies.”
The fourth round blocks covered areas of Iraq which have not seen any recent upstream activity, and where infrastructure and security problems are more acute than the established oil fields around Basra. While the round saw interested in oil blocks, approved bidders rejected the contractual model on offer for the gas prone blocks.
As with earlier rounds, the fourth bidding round offered a technical service contract, which is traditionally used for the development of established fields where the level of probable reserves is already known, and so the likely return on investment can be calculated.
Bidders felt this loaded too much contractual uncertainty onto them where gas had not been discovered.
“One way of reducing the risks on the gas exploration blocks would have been to award an exploration contract and negotiate the development terms of any discovery once it’s confirmed as commercial,” analyst Ruba Husari said on the Iraq Oil Forum site.
The PCLD also confirmed it was “preparing for a licensing round to (develop & produce Nasiriya oil field and build Nasiriyah refinery) as a single complete project, and the qualified companies will be invited soon to this project.”
Negotiations to develop the 4.4 billion barrel field and the construction of a dedicated 300,000 bpd export refinery has dragged on with Japan’s Nippon Oil without a contract being signed.
Chevron, Eni and Repsol have all submitted proposals to develop Nasiriyah, though the blacklisting of the former after its entry to the Kurdish region will see it left out of the bidding.
In October, France’s Axens Technologies was awarded a basic design and license for the construction of a refinery at Nasiriyah from Iraq’s State Company for Oil Projects.
