Posted on 21 February 2012.
Iraq has reportedly made “favourable” changes to some of the terms of the 20-year technical service contracts offered under the 4th energy licensing round.
International companies have been invited to compete for the rights to explore for oil and gas in 12 blocks to be auctioned in May.
According to Dow Jones, the most important change to the original model contract is that international firms would have 100% stake in the projects, up from the 75% stake initially proposed, with state-owned Iraqi companies holding none.
This would allow faster cost recovery as the companies will have bigger shares of the discovered and produced oil and gas output.
Oil and gas companies such as France’s Total had expressed concern that the potential rewards of the contracts were not enough to compensate for the risks.
The Iraqi oil ministry is expected to meet its advisors, the U.K.-based Gaffney, Cline & Associates, in Istanbul in March to finalize the draft model contract before handing it to companies in April.
An unidentified source said the ministry has changed a provision that allowed the Iraq ministry to postpone development of fields, to a period of up to seven years from the date of the announcement of commercial discovery, which was mentioned in the previous model contract and was one the terms disliked by potential bidders.
“In case of oil discovery and the Iraqi government decides to put on hold development of the field, contractors are liable to reimburse costs of appraisal and exploration plus interest at Libor +3% during the years that the development is on hold,” the source said.
In the previous draft contract, contractors were not liable for such interests.
“For special costs which include de-mining, building roads, etc, contractors are liable to receive interest at Libor +5% during the years that development of fields is on hold,” he added.
Nine companies are believed to have dropped out of the fourth bidding round but Iraq expected a good number of bids from the 37 firms still in the race, oil ministry officials had previously said.
(Source: Dow Jones)
Dr. Mark A. DeWeaver
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