Iraq’s fourth energy bidding round takes place on Wednesday and Thursday, but Reuters reports that tough contract terms mean Baghdad may struggle to drum up major interest.
The 12 new oil and gas exploration blocks are some of the last potentially rich unexplored territories left.
As in previous auctions, foreign energy companies would prefer production-sharing contracts, through which explorers can claim a share in profits, to the service contracts that are being offered, under which they would be paid a fee for their services.
In February, Baghdad made concessions to lure participants to the round, dropping a clause that required companies to partner with a state oil operator. But Iraq Oil Report says that the terms insist that companies recognize Baghdad as Iraq’s sole oil authority, preventing them from signing deals with the Kurdistan Regional Government (KRG).
Reuters says the companies that win bids will be able to extract gas discovered in the blocks immediately, but the Iraqi government has retained the option to pay companies compensation to keep oil in the ground and boost its own reserves.
These latest exploration blocks are mostly in remote parts of western and central Iraq, making them harder to protect against possible insurgent attacks.
“Neither the terms nor the acreage on offer are attractive, so I wouldn’t be surprised if there were little interest from the international oil companies,” one anonymous senior Western oil executive told the agency.
According to a final tender document, the outcome of the bidding will be decided only according to the remuneration fee companies seek for each barrel of oil equivalent produced. The bid with lowest fee will win an exploration block.
Industry sources said companies would have to bid $10 to $20 a barrel for the service fee to compensate for the risk involved.
On the other hand, Baghdad-based oil analyst Hamza al-Jawahiri told Reuters, “who could miss such a golden opportunity to invest in such promising areas. The crude and gas are there and it only needs someone to poke them.”
(Sources: Reuters, Iraq Oil Report, Ministry of Oil)