Tag Archive | "al-Ahdab"

Capital Gain Tax on IOCs in Iraq


By Ahmed Mousa Jiyad.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Many countries impose capital gain tax on individuals, companies and corporations when a profit realized from the sale of assets. National and state legislation often has a large array of fiscal obligations and regulations regarding capital gains, however, these fiscal obligations may vary from jurisdiction to jurisdiction.

In other words capital gain tax is a normal component of taxation systems on both national and international levels, and thus has a significant contribution to the state revenues and fiscal policies. Iraq is no different and should consider doing the same.

In Iraq the signed service contracts provide the IOCs with a possibility to assign (sell) wholly or partly their participating interests as specified by a common clause in the signed contract, “any Company shall have the right to assign any of its Participating Interest, shares, rights, privileges, duties or obligations under this Contract to an Affiliate.” Such right for assignment is subject to and governed by a set of provisions outlined in the signed contract.

Due to the long duration of the contracts (the Term) that extend beyond 20 years, and due to the usual practice of Merger and Acquisition (M&A) in the international petroleum business it is highly probable that IOCs might “farm in” and “farm out” by acquiring, selling or exchange participation interests in the related petroleum field.

The transfer of participation interests between IOCs involves financial transactions or transfer of “asset” ownership between the concerned parties: the buyer and the seller.  This assignment deal may (though highly likely) results in significant realized gain (profit) for the selling party compared to the actual cost (investment) it made as a consequence to its participation in the related upstream petroleum development project.

 This realized gain is known to be “capital gain” and in most countries it is taxable. The “Capital Gain Tax” is imposed on individuals, companies and corporations and in many countries it is imposed in addition to other direct taxes such as “Property/Wealth Tax” and “Income Tax” among others. The percentage of Capital Gain Tax differs according to the taxation systems and fiscal policies across the world. 

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Ahdab Oilfield Hits 140,000 Barrels Per Day


By John Lee.

Aswat al-Iraq reports that crude oil production at the al-Ahdab oil field has reached 140,000 barrels per day.

According to an official statement from Wassit province, the field has 170 operational wells.

The field, in central Iraq, is being developed by Chinese firm CNPC.

(Source: Aswat al-Iraq)

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Oil Output to be Increased at al-Ahdab


Iraq’s Oil Ministry has formally approved a proposal to raise production at the al-Ahdab oil field to 200,000 bpd.

The Chinese National Petroleum Company (CNPC) that started exploring the field in June.

It is considered to be CNPC’s largest oil investment in the Middle East and the first oil field to be newly explored in Iraq for 20 years, according to AKnews.

CNPC signed contracts for Ahdab in 2008 after previous agreements with the regime of Saddam Hussein in 1996 were put on hold by UN sanctions. The state-owned company invests $3 billion USD (3.5 trillion IQD) for this 23-year contract.

China, desperately in need of energy for its growing economy, makes only 1% profit with its investment in Ahdab, according to Chinese officials. However, a Chinese oil executive told the New York Times that Ahdab was a good way to “get a foot in the door” of the Iraqi oil industry.

(Source: AKnews)

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Al-Ahdab Oil Contract has Many Flaws


Ahmed Mousa Jiyad is an independent development consultant, scholar and Associate with Centre for Global Energy Studies (CGES). He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN. He is now based in Norway.  The opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

A recent ceremony for Al-Ahdab oilfield commencement of commercial production was attended by former minister of oil Dr. Shahristani, now the deputy prime minister for energy affairs, and his successor, Mr. Abdul Karim al-Luaibi. This is significant development from more than one aspect:
  1. The contract for this oilfield was converted from a production sharing contract-PSC concluded under former régime in 1997 into a service contract concluded in November 2008.  Practically, the contract serves as a base, with modifications, for the “model” service contracts that followed for the three bid rounds concluded so far. Thus an end to the PSCs in Iraq’s upstream petroleum was consolidated;
  2. It also signifies a needed achievement for the ministry and the Shahristani strategy of opening of the sector before the IOCs, as the ministry been heavily criticized for not delivering substantial results;
  3. The early local resentments seems to be fading away and this field alone would secure three important privileges for the governorte/province of Wasit: more revenues through the known “petrodollars” allowances for every barrel of produced oil; the oil and gas produced from the oilfield will be used for generating power in the Zubeidiyah power station which is being set up by China, also in Wasit; and a place at the Federal Oil and Gas Council when this council is established under the proposed Federal Oil and Gas Law currently under consideration.
That said and though it is surely welcoming and encouraging news to see the development of this oilfield is coming on stream, however, AlAhdab contract with CNPC requires serious attention with highly justified revision.


I have since January 2010 reputedly exposed the weaknesses and problems with Al-Ahdab contract and how, in comparative sense, it works against the Iraqi interests. Credible information indicates that the negotiating team at that time was “instructed” from the office of the prime minister to accept these unfavourable terms.


To be specific, this contract has many flaws regarding the following variables, which has significant financial implications for the Iraqi interests:


The “signature bonus” was extremely insignificant amount (of only 3 million dollars) that is not commensurate with the corresponding signature bonus paid for the oilfields under the second bid round taking into consideration the envisaged Production Plateau Target-PPT, as measure of proportionality.



With original 115 thousands barrels per day-tbd PPT for AlAhdab, which is between 110 tbd for Najmah and 120 tbd for Qaiyarah oilfields, CNPC should pay 100 million dollars NOT 3 million dollars. Upgrading the PPT to 200 tbd as recent data indicates, the signature bonus should be even higher. This is the least to ask, considering that another Chinese oil company had paid $2.2 billion signature bonus for two exploration blocks only in Angola.

The payment “cap” for petroleum cost and remuneration fee was fixed at 100% of the “deemed revenues”. This implies that CNPC gets its investment and remuneration fees first, and unless there is surplus in the deemed revenues, Iraq would not get any revenues from the field. Therefore, the payment “cap” ought to be reduced to 50% of the “deemed revenues”.


Level of “commercial production”, which decides the commencement of payment could be specified at 25000bd (again somewhere between that for Najmah and for Qaiyarah oilfields as reference points) or proportionately higher if the 200 tbd PPT is adopted.


Unpaid dues carry “LIBOR+3” interest. Due to this Iraq paid in July 2010 some $250 million as its 25% share in the investment requirements to “avoid paying the interest”. So far the development cost mounts to $1.5 billion, meaning Iraq has already paid $375 million in cash.


These unmet payments should be interest free, similar to the provisions of the model contracts for rounds 1 and 2. Therefore, the “LIBOR+3” interest on these unpaid dues should be deleted from AlAhdab contract.


The overhead charges for AlAhdab is 2% compared with 1% for all other contracts. Hence this charges should be cut to that paid by other IOCs.


The corporate income tax of (15%) should be amended to become (35%) and the provisions relating to  “stabilization” should also be amended to that effect to be in line with other service contracts.


The R-factor should also be adjusted to be in line with those applied for green- fields offered under the 2nd bid round. The remuneration fee will thus be reduced from the maximum of $6/b to a minimum of $1.2/b, instead of the current minimum of $3/b. The scale of R-factor would also be adjusted from 4 to 5 levels accordingly.


Unfortunately, the parliament had missed good opportunity few months ago to remedy these shortcomings, safeguard Iraqi interests and assert its authority and constitutional role, and thus
continues in pacifying itself and accepting circumvention by the executive branch.


On 27 March 2011 the Parliament voted to abrogate a former law, of 1997, that ratified the Development and Production Contract and the Memorandum of Understanding related to AlAhdab oil field signed in Baghdad on 4 June 1997 between MoO and CNOC and CNI, represented by Alwaha Co. (China).

 

The parliament, in my view, should have insisted that AlAhdab Contract of 2008 must also be revised and if approved then ratified by law, and thus the parliament should have seen that contract before abrogating the old law. Thus, not only the parliament had missed excellent opportunity to set powerful legal precedence for having all other contracts enact by law, the parliament had in fact gave its consent to remain passive and be on the sidelines of effective authority regarding such oil contracts.
Ahmed Mousa Jiyad,
Iraq Development Consultancy and Research (I/DC&R)
Norway.
26th July 2011

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CNPC Completes First Phase of Al-Ahdab Field


Reuters reports that the China National Petroleum Corp (CNPC), the first foreign oil company to sign an oil service contract in Iraq after former president Saddam Hussein was toppled, said on Monday said that it completed construction of the first phase of the Al-Ahdab oilfield.

The parent of PetroChina Co Ltd said it started work on the Al-Ahdab oilfield in March 2009 after successfully renegotiating an old development deal, and hoped to pump 110,000-130,000 barrels per day (bpd) from the field, which had estimated reserves of 1 billion barrels.

Completion of the first phase, with a capacity of 60,000 bpd, was ahead of schedule, marking major progress in building Middle East oil and gas projects, reported the China Petroleum Daily, CNPC’s in-house newspaper.

The field was the first new oil capacity building project in 20 years in Iraq, the report said.

(Source: Reuters)

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Oil Ministry Denounces Police Raid in CNPC Oilfield


Further to our report yesterday on the police raid on CNPC’s al-ahdab oilfield, Iraq’s Oil Ministry said on Tuesday that security forces had violated the law, and expressed concern for the affect it could have on foreign investment in the oil sector.

Oil sites and facilities are under the control of the Central Government and the interference of any body or the provincial councils is a violation of the law,” the state-run daily al-Sabah quoted the ministry as saying.

Emergency forces in the eastern province of Wasit raided the facilities on Monday on the orders of some members of the provincial council. The council members claimed there was ‘manipulation in the documents’ of the al-Ahdab oil field and demanded to ‘review the conduct of business and production process’.

Two years ago, the Chinese National Petroleum Company (CNPC) and its Chinese partner, Zhenhua Oil, signed a 23-year service agreement to work in the al-Ahdab oil field, which has estimated reserves of 1 billion barrels.

CNPC contracts in Iraq have been in existence since the Saddam Hussein era, but the agreement to work in al-Ahdab was renewed after the US-led invasion of 2003.

(Source: Deutsche Presse Agentur)

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“Corruption” at Al-Ahdab, Execs Dismissed


A media department official in Wassit Council said on Sunday that they had expelled executives from the Al-Ahdab oil field accusing them of embezzling public funds.

Taha Hassan Abdul told AKnews that the decision came after a delegation from Wasit council including its deputy chairman visited the field, 30 km west of Kut, with a group of journalists in a bid to shed light on the oil field’s financial administration.

Hassan told reporters from AKnews that the al-Adhab oil field security force attempted to forceably prevent the delegation from entering the site.

“Verbal altercations occurred between the two sides before the administration agreed to receive the delegation, which included seven members of the Council who wanted to shed some light on allegations of the field’s management wasting public funds.”

Without giving precise details of the allegations, Hassan said that the council members demanded access to administrative documents concerning tenders, field projects, the site’s payroll and “some other issues” in which the delegation were looking for evidence of corruption.

The Chinese National Petroleum Company (CNPC) took on a 20 year service contract to develop the field in 2008, the first company to enter the Iraqi oil sector since the 2003 US-led war.

(Source: AKnews)

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Oil Production Expected to Rise 13% Next Year


Iraq expects to increase daily crude production by about 13 percent next year, an Oil Ministry official said.

“We expect an increase of about 300,000 barrels per day,” Abdul Mahdy al-Ameedi, deputy director general at Iraq’s Petroleum Contracts and Licensing Directorate (PCLD), said in a telephone interview with Bloomberg. “This includes about 60,000 barrels per day from the al-Ahdab field”, he said.

Iraq, reliant on oil for most of its income, is seeking foreign investors in all parts of its economy after years of conflict and sanctions. It currently produces about 2.4 million barrels of oil a day.

Al Ahdab in the eastern Wasit province was the first oilfield development to be awarded by the Iraqi government after the U.S.-led invasion that ousted the regime of Saddam Hussein in 2003. China National Petroleum Corp. won the $3.5 billion agreement to develop Al Ahdab in November 2008. Since then, Iraq has awarded 11 other contracts to international major oil companies and has announced a third round of bidding this year to develop the country’s natural-gas reserves.

(Source: Bloomberg)

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