11 March 2008
Iraq intends to offer five big producing fields and two small ones in its first bid round, planned for this year, in an attempt to boost output by a significant amount as speedily as possible, a senior government official involved in the process and Iraqi oil ministry sources told International Oil Daily Monday.
The fields will be offered on service contracts running for at least 20 years.
The five big fields are already the subject of negotiations between international majors and the oil ministry over short-term technical support contracts (TSC) to help hike production by 500,000 barrels per day over one or two years.
They are Rumaila, pursued by BP; Zubair by Exxon Mobil; the first phase of West Qurna by Chevron and partner Total; and Kirkuk and the three Missan fields — Buzurgan, Fauqa and Abu Ghirab — by Royal Dutch Shell. The other two fields slated for the tender are Qayarah, a heavy oil field in the northwest producing about 5,000 b/d, and Akkas, a gas field near the Syrian border.
Iraqi officials had previously said only undeveloped fields would be offered in the tender, in line with the draft hydrocarbon law, which stipulates that producing fields should be operated by the still-to-be-created Iraq National Oil Co. (INOC). But the thinking in Baghdad is that Iraq is more likely to boost output quickly by introducing adequate investments and reservoir management techniques at producing fields. The initial aim would be to arrest ongoing declines at Rumaila and Kirkuk before reversing the trend.
“The majors came up with fantastic plans and high production-to-reserve ratios of between 7%-14%, which would have a high impact on all those fields, including doubling the production at some of them, such as South Rumaila,” the government official said. The plans include using unconventional recovery methods.
Most of Iraq’s producing fields have partly developed or undeveloped reservoirs; once tapped, output could jump significantly. Iraq’s southern fields, which include North and South Rumaila, West Qurna, Zubair and Missan, are together producing 2 million b/d, with minor volumes coming from Majnoon and Subba-Luhais. Northern Iraq is contributing about 500,000 b/d, most from the mature Kirkuk field.
Iraqi officials admit that the redevelopment contracts would have to run for at least 20 years. With Iraqis still divided over whether to allow production sharing contracts, the bid round guidelines under discussion in Baghdad center on reintroducing service deals similar to those in the 1970s, which allowed long-term investment and the booking of reserves. One option, backed by the government, is for the contractor to set up a joint operating company with a local entity — either South Oil Co. or North Oil Co. — until INOC is established, but be offered better terms and a long-running deal to compensate for the risks of not being the 100% operator.
“Paying the companies in kind under a long-term service contract would be commensurate with allowing them to book reserves but without the stringent terms of the production sharing model contract,” one official said.
The proposed stake in the joint operating company is yet to be determined. Formulas under discussion include a 50-50 partnership, or limiting the national entity’s stake to 25%. Ideally, Iraq would like its national company to provide just 25% of the investment, but operate on an equal basis.
In their TSC discussions, the majors have sought guarantees they would play a long-term role developing fields they have worked on, but Baghdad insists on an open competition for any long-term contracts that involve investment. Under the prequalification process — for which ministry sources say over 100 companies have registered — the ministry could, however, short-list firms according to their technical and financial capabilities, which would eliminate small players from big fields. That would alleviate some of the majors’ concerns about being outbid by small operators.
Furthermore, the tender documents could include a clause allowing the ministry to recommend that a company with a TSC that loses out on a long-term deal for the same field join the winning bidder in a consortium, on the same terms offered by the winner.
The oil ministry had originally hoped to conclude the bid round within 18 months of prequalifying companies, but is now targeting early 2009 for contract awards. Insiders say that date will most likely slip.
Oil Minister Hussein al-Shahristani is under political pressure to deliver on deals to develop Iraq’s oil sector, particularly with the Kurdistan Regional Government justifying awards in the northern semiautonomous Kurdish region on the stalemate in Baghdad. He has announced an ambitious plan to increase production by 2 million b/d in five years.
By Ruba Husari, Dubai
(Published in International Oil Daily March 11, 2008)