October 20th, 2010

Gas Fields Auction



After two delayed dates and three model contracts issued, one of which was withdrawn, Iraq has finally awarded its three gas fields of Akkas, Mansuriah and Siba to small oil companies pushing for a foot in Iraq’s energy sector.

Having pre-qualified 13 companies, including France’s Total, Italy’s ENI and Norway’s Statoil, only five companies finally made it to Baghdad on Oct. 20th to participate in Iraq’s 3rd bid round in 16 months. Four companies won stakes in the three fields and TPAO, Kuwait Energy and Kogas will operate one each. Only Total got nothing, probably a victim of its too deep and detailed knowledge of the commerciality of the Akkas field it bid for, as one observer put it.

Iraq naturally called the gas fields auction a big success. The three fields should produce collectively about 800 MMcf/d of non-associated gas within six years. That’s equivalent to half the 1.5 Bcf/d of associated gas currently produced and also equivalent to the amount being flared. The production plateau targeted by the three winning consortia should be maintained for 13 years as far as Akkas and Mansuriah are concerned and 9 years for Siba.

Both Kuwait Energy and TPAO, being neighboring countries, will benefit from the proximity of their home bases and from the potential of gas exports in the future once the Iraqi domestic market is sufficiently supplied. By contrast, Kogas which bid for Akkas for a shockingly low remuneration fee, is unlikely to benefit from the synergies offered across the border in Syria after the oil ministry introduced gas processing option at facilities across the border.

The implementation of the three gas contracts is expected to be more challenging than the oil contracts awarded last year. Iraqi Oil Minister Hussein al-Shahristani can claim a much needed victory which will serve in political negotiations he’s involved in over the formation of the next Iraqi government, having awarded all three fields and at a fee that is lower or equal to the ministry’s maximum remuneration fee. But whether the gas infrastructure will be built in time to accommodate the expected production and whether all companies who won contracts will deliver on commitments made, remains to be seen.

The View from Baghdad