Iraq Reworks Fees for 4th Energy Auction

Iraq’s fourth auction for exploration rights will offer international energy companies a revised remuneration fee formula designed to benefit bidders while encouraging them to minimise costs, according to Reuters.

Abdul-Mahdy al-Ameedi, head of the oil ministry’s contracts and licensing directorate, told the oil ministry’s roadshow in Amman, Jordan, that the ministry has made some alterations in the new service agreement from contracts signed with oil companies after the three previous bidding rounds in 2009 and 2010.

“There are not many differences from the previous contracts. But we recognised that there are some minor mistakes in the previous contracts, not substantial,” he told Reuters. “So we were able to overcome this in our current contract.”

One of the main changes was the way the remuneration fee is calculated in the new contract, Ameedi said.

“If the total production is 1 million barrels per day and the cost recovery is (the value of) 300,000 bpd, then we will deduct the 300,000 from the net production and the remainder is 700,000 bpd, so we will pay remuneration for the 700,000 only, not for the 1 million,” Ameedi said.

“The remuneration will be higher so it is in our interest and I think it is in the interest of the contractor.”

The calculation change is aimed at cutting the cost of subcontracts, which was inflated by some oil companies under the current deals signed with Iraq, Ameedi said.

“We will deduct the cost of subcontracts from the total production and the remaining production will pay remuneration for it,” he told reporters on the sidelines of the roadshow.

“If that share of production is less, remuneration of the contract will be affected negatively, and if it is high, they will get more remuneration,” he said.

“It coincides with the idea of production sharing in this sense only: That there would be ‘cost oil’ but there would not be ‘profit oil’.”

The contract length will be a maximum of 30 years including four years for exploration and 20 for development, Ameedi said.

The model contract was not final and could be changed.

Any new oil reserves discovered will be used to maintain and boost reserves, while companies who make gas discoveries will be allowed to produce it.

“We may or may not develop and produce (from) the oilfields, if any,” Ameedi said.

The holding period will be up to seven years for oil discoveries.

46 pre-qualified oil and gas explorers showed for the 4th oil licensing roadshow in Amman.

More than 100 executives from oil majors such as ExxonMobil , Chevron, Total , BP and Lukoil attended the show, where Iraqi officials presented the service contract and licensing process for the auction, scheduled for Jan. 25-26.

“The remuneration fee is going to be much bigger, there is no question about that. But that does not necessarily automatically make it more economically interesting because the risks are high,” an oil executive attending the workshop said.

“Access to the crude is far more important than the economics for some, which could make this fourth bidding round, most probably, a success.”

(Source: Reuters)

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