Iraq managed to award 6 out of 11 exploration block and gas field in its fifth bid round, despite the rushed organisation which kept big players such as Exxon Mobil, Total and Lukoil away despite showing earlier interest. Most of the bidders were first comers to Iraq, vying for a foothold in the country’s prolific oil and gas sector. (Full Results)
Coming just two weeks ahead of national elections, it is doubtful the current council of ministers, which soon becomes a caretaker cabinet until the appointment of a new one, will get around to endorsing the new contracts and allow them to proceed to final signature. This will most likely be left to the next government.
The latest bid round deviated drastically from earlier tenders in the type of contract developed for this round and the unusual bidding process introduced on the day of the bidding.
The oil ministry dropped the previous technical service contract type where foreign companies are paid a fixed remuneration fee per barrel produced. The remuneration fee was one of the parameters used to award contracts in the previous four open tenders since 2009. The new contract will pay the operator a share of the profit or the net revenue after deduction of a 25% government royalty and development costs (capex and opex). The contracts were awarded to the bidder with the lowest share of profit it offered to take. That share would still be subject to a 35% tax rate.
In a last minute change to the bidding procedures, the oil ministry announced before the start of the bidding process that it decided to declare the maximum net revenue share it’s willing to accept and let the bidders bid against it. In previous rounds, the maximum remuneration fee the ministry was willing to offer was only revealed if bidders aimed higher, in which case they were offered the opportunity to accept the lower fee the ministry was willing to pay. It was never revealed if the remuneration fee bid was higher than the ministry’s maximum. This time, bidders went for the ministry’s declared maximum share of profit when they bid alone but had to slash their offers way below the ministry’s maximum when they had to compete against each other for the contract.
The new mechanism took the suspense out of trying to guess what percentage of profit the ministry was willing to share with the operators and insured that the bid round will not fail. Three companies were awarded blocks and fields after bidding alone against the single and known parameter.
Crescent Petroleum, which has been courting the oil ministry for some time for gas fields in northern Iraq, managed to secure the four gas fields in Diyala province, grouped in 2 sets. It competed against China’s Geo-Jade Petroleum and Zhenua Oil for Qumar-Galabat fields offering to take a 9.21% share of the net revenue while the oil ministry’s announced maximum net revenue share was 16.65%. The other two companies bid 13.15% and 15.91% respectively.
Crescent was the only bidder for Khashm Al Ahmar-Injana gas fields, offering 19.99% against the ministry’s maximum of 20%. It also bid solely for the Khidr Al Mai exploration block near the Iraq-Kuwait border offering a take of 13.75% against the ministry’s announced maximum of 13.76%. Khird Al Mai block contains the two oil fields of Jerishan and Rachi.
The UAE-based Crescent is developing the two gas fields of Kormor and Chemchemal in the Kurdistan region of Iraq. The two new gas contracts with Baghdad will allow it to expand its gas footprint in the country and become a major gas player.
Geo-Jade Petroleum secured the Naft khana block near the Iraq-Iran border beating ENI with a bid of 14.67% take against the Italian company’s 21.19%. The ministry’s declared maximum was 24.45%. The Naft Khana block contains several oil and gas fields -some undeveloped yet- including Naft khana, Tal Ghazal, Nawdoman and Jaria Pika. The Chinese company also won the Huwaiza exploration block on the Iraq-Iran border without competition. It offered to take 7.15% profit share against the ministry’s maximum of 7.16%. The Huwaiza block contain the Huwaiza discovery estimated to contain 2.4 trillion barrels of oil in place.
China’s United Energy Group beat ENI and Crescent for the Sindbad block on the Iraq-Iran border, taking 4.55% share of the net revenue against the ministry’s maximum offer of 6.11%. The Sindbad block includes the undeveloped Sindbad oil field estimated to contain 2 trillion barrels of oil in place.
Five blocks remain open for future bidders after receiving no bids These are Zurbatiya, Shihabi, Fao, Jebal Sanam and the only offshore block in the Arabian Gulf.
The oil ministry initially qualified 26 companies for the fifth bid round but only 14 paid the participation fee to acquire the data package. Of these eight put in a bid bond to secure their right to bid. Dragon Oil, Dana Gas and Sinooc stayed out of the competition despite putting a bid bond.
The highest maximum net revenue share the ministry was willing to offer was 24.45% for the Naft Khana block. The lowest was for Zurbatiya block at 4.77%. The highest share of the profit a company offered to take was 19.99 % for Khashm Al Ahmar-Injana gas fields and the lowest was UEG’s 4.55% for Sindbad block.