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Iraq Improves Terms for 4th Energy Bidding Round

Source: Reuters 2/22/2012, Location: Middle East

Iraq has improved the terms under which it will auction off 12 oil and gas exploration blocks in a fourth energy bidding round, an oil ministry official said, after firms said the deals were unattractive. The auction has been postponed several times by the oil ministry to give interested companies more time to study an amended version of the draft contract. The auction is now scheduled for May 30-31.

"We have amended the initial contract to encourage more firms to attend the auction," Sabah Abdul-Kadhim, the head of the legal section of Iraq's Petroleum Contracts and Licensing Directorate, told Reuters on Wednesday. "We have made major amendments to the initial contract, and all of them are positive and serve interests of foreign firms," Abdul-Kadhim said.

Iraq has removed the state partner from the contract, paving the way for companies to have a 100 percent stake in the projects on offer. The previous version said a state-run oil company had to have a 25 percent share of each block.

Iraq has qualified 47 energy companies to participate in the auction, which is expected to add 29 trillion cubic feet of gas and 10 billion barrels of oil to Iraqi reserves.

Thirty-seven companies bought a data package with the initial tender terms during a roadshow held in Amman in September. Many of them have since complained that those terms are not attractive enough, oil ministry officials said.

The exploration blocks on offer are mostly in remote parts of western and central Iraq, making them riskier investments since the sites are harder to protect against insurgent attacks.

Companies will be able to extract gas discovered in the blocks immediately, but the Iraqi government has retained the option to prevent companies from extracting oil in exchange for paying them compensation.

"When a firm discovers oil reserves, then the oil ministry has the right to halt development of the field for up to seven years and the contractor can still recoup exploration costs during that period along with interest of LIBOR plus 3 percent," Abdul-Kadhim said.

If a company decided to withdraw from the project during that suspension it would not be paid interest and would lose the chance to develop the block when production began, he added.

These terms are designed to help Iraq maintain and increase reserves to offset expected depletion and could strengthen Baghdad's case within OPEC for a large export quota when it returns to the cartel's quota system. Iraq has the world's fourth-largest oil reserves. Its gas reserves of 112 trillion cubic feet are the world's 10th largest, according to U.S. Department of Energy data.

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