ONGC Videsh Close to $1.5bn Iraq Oil Deal

ONGC Videsh Ltd (OVL), the overseas arm of the Indian state-owned Oil and Natural Gas Corp (ONGC), may invest over $ 1.5 billion in exploring for oil in Iraq in a block that was awarded to it by the regime of Saddam Hussein, according to a report in the Economic Times.

“We are nearing finality on the contract for Block-8. It is likely to be signed in next six months,” an official said.

Block-8, located in the western desert in southern Iraq, bordering Saudi Arabia and Kuwait, was awarded to OVL in November 2000. However, the government formed after the US invasion in 2003 sought re-negotiation of the contract which has now been concluded.

The post-Saddam Hussain regime had initially agreed to the signing of a Production Sharing Contract (PSC), where OVL would have got ownership of the oil it produced from Block-8. But the success of post-war licensing rounds, where global majors committed to develop oilfields for a small fee, has reportedly seen Baghdad change track and offer a service contract to OVL.

The block already has a discovery and is estimated to hold 645 million barrels of in-place reserves, of which 54 million are recoverable, he said, adding OVL has committed investing $86 million in two phases of exploration and $ 1.45 billion in development of the reserves thereafter.

The contract would be a service contract whereby OVL will be paid about 18 per cent return on its investment. The company holds a 100 per cent interest in the block.

“We are currently agreeing on finer details of the contract,” the official told the Economic Times.

The service contract now being drawn would be similar to the one China National Petroleum Corp (CNPC) had signed recently for developing Al-Ahdad oilfield in central Iraq.

Baghdad has, however, refused the Tuba oilfield, for which OVL, in consortia with Reliance Industries and Algeria’s Sonatrach, were in negotiations before the US attack on Iraq.

(Source: Economic Times)

One Response to ONGC Videsh Close to $1.5bn Iraq Oil Deal

  1. Ahmed Mousa Jiyad September 8, 2011 at 5:50 am #

    Yes. But!
    Information available indicates that the production sharing contract-PSC is not applicable anymore. Three conditions have to be considered first before OVL could claim anything regarding Block 8.
    First, conversion of the PSC into Service Contract;
    Second the Iraqi ministry of oil decides whether the service contract is for exploration only, or exploration and development or exploration, development and production. The details of each type of service contract are very complex and the model contracts for each type are different as well. Probably the model contract issue becomes clear next week when the Ministry of Oil start its “road-show” for the fourth bid round in Amman.
    Third, Alahdab contract with CNPC has many disadvantages to Iraq in comparison with the service contracts concluded in the previous three bid rounds, and thus its terms might not anymore be accepted by the Ministry.

    Ahmed Mousa Jiyad,
    Iraq/ Development Consultancy and Research,
    Norway.
    [email protected]
    8 Sept 2011