11 July 2008
The Iraqi oil ministry has asked Western majors to submit new proposals for technical support contracts (TSC) running for one year, rather than the planned two years — raising questions about the viability of the new deals, industry and Iraqi sources told International Oil Daily this week.
Majors were expected to sign two-year TSCs at the end of last month, but Oil Minister Hussein al-Shahristani put the contracts on hold at the last minute, without giving a reason. At a press conference he organized on Jun. 30 to launch Iraq’s first bid round since the US-led invasion of 2003, the minister said the agreements were not reached because majors had “asked for a share of production.” That assertion was denied by companies that had finalized the TSCs with ministry staff in June.
The two-year, fee-based TSCs were negotiated by BP, Chevron with Total, Exxon Mobil and Royal Dutch Shell at the oil ministry’s invitation late last year. The aim is to help raise oil output by a total of 500,000 barrels per day at five producing fields — Rumaila, West Qurna-1, Zubair, Kirkuk and Missan.
One Iraqi source told International Oil Daily from Baghdad that the cancellation of the TSC signings was due to “internal and external political pressure” placed on the ministry over the past few weeks. Another source said that cutting the contract term to one year is designed to avoid clashing with the June 2009 timeline announced for awarding long-term service contracts.
Companies were asked to resubmit proposals based on a one-year contract in a letter sent on Jul. 3 and signed by a junior executive in the oil ministry’s contracts and licensing department, industry sources said. It did not give a deadline for submission. The letter said the shorter contract term should not affect the output target, the industry sources added.
“We are working on a revised work program and budget,” one executive with an oil major told International Oil Daily this week.
The contracts involve offering remote support in areas such as equipment procurement on the ministry’s behalf, as well as with specifications for equipment and material, design and engineering, and market follow-up.
But industry sources said they doubt one year will be enough to deliver and deploy the equipment. International oil companies are also reluctant to commit to boosting output by 100,000 b/d per field since they won’t be operating the fields themselves. The contracts were supposed to be in partnership with state North Oil Co. and South Oil Co.
By Ruba Husari, Dubai
(Published in International Oil Daily July 11, 2008)