Persistent attacks in Iraq, a country with great opportunity but low margins, could lead to oil investors selling their stakes, a low uptake in future licensing rounds and demands for more favourable terms in production sharing agreements, according to Daniel Brett, director of strategy, oil security services, Blacksand Maritime, Blacksand Group.
With crude oil extraction profit margins for IOCs in Iraq hovering at $2/boe for brownfields, and up to $2.2/boe for greenfields, and escalating costs for security, IOCs involved in Iraq are currently trying to renegotiate the low margins that they once accepted, according to Ann-Marie Carbery from analyst firm Contax Partners.
“More than a trend of oil investors selling and leaving, although this has been observed on some fields by minority stakeholders, we are seeing trends of oil investors trying to renegotiate. Depending on the outcome of these discussions, the next step may or may not lead the IOCs to sell completely,” said Carbery.
Despite the desire for better production profits by the IOCs, the Iraq government is unlikely to capitulate at the moment. Dr Ali Mahdi Al Dabbagh, former Iraq state minister and official spokesperson for the Iraq government, says that there are unlikely to be any changes in the current Iraq hydrocarbons contracts, as there are currently no laws surrounding hydrocarbons contracts, and no one authorised to make those changes.
“No one has the power, willingness, or ability to talk about changes in the existing hydrocarbons contract terms, especially around remuneration fees, which are totally locked. However, some terms might be reviewed when slight stability in the country arises,” said Al Dabbagh.
While bureaucracy and politics are hurdles to making changes in existing hydrocarbons contracts in Iraq, it may become apparent to those in power that such changes will be critical to the country’s future success, according to Contax Partners.
“If there are not better terms available on future licensing rounds, then that uptake on future contracts may indeed be low,” said Carbery.
According to Dr Faleh Al-Khayat, former director general of planning, Iraq Oil Ministry, the Iraq government has set aside $13 billion, 15% of the country’s entire revenue, for IOCs, to cover their costs and remunerate them for oil extraction; however this is still in the planning stages.
“The currently low profit margins, plus the threat of attacks on staff and installations, leading to high security costs, may mean it is better for IOCs to walk away, or find another way of doing business,” according to Brett.
