Posted on 10 February 2014.
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.
Posted in Ahmed Mousa Jiyad
Posted on 02 May 2013.
South Gas Company, Shell and Mitsubishi today officially announced the commencement of operations of Basrah Gas Company, which will be the largest gas project in Iraq’s history and the world’s largest flares reduction project.
Basrah Gas Company is a 25-year incorporated Joint Venture between Iraq’s South Gas Company holding 51% of its shares, Shell 44% and Mitsubishi Corporation 5%. The Joint Venture captures associated gas that is currently being flared from three oil fields in southern Iraq – Rumaila, West Qurna 1 and Zubair.
Iraq has estimated natural gas reserves totaling 112.6 trillion cubic feet, the 10th largest in the world. However, due to decades of wars and sanctions that led to the deterioration of the gas infrastructure, preliminary estimates indicate that Iraq’s losses from gas flaring could amount to billions of dollars annually.
Mr. Ali Khudair, South Gas Company Director General said:
“Basrah produces only around 1 billion cubic feet a day of associated gas and some 700 million cubic feet are being flared, which is wasting millions of dollars of the country’s resources every day.
“Partnering with world class companies like Shell and Mitsubishi will help Iraq fulfil its goal of developing its gas infrastructure to eliminate flaring and provide fuel to the Iraqi industry, power generation as well as income to the state.”
Under the agreement signed with the Iraqi Ministry of Oil, BGC will sell processed gas to state-owned South Gas Company. BGC will be dedicated to the rehabilitation and upgrade of the current facilities to put them back to work safely as well as building new assets which is expected to increase the production capacity from a current 400 million cubic feet per day to 2 billion cubic feet per day.
Posted in Construction & Engineering, Oil & Gas
Posted on 29 March 2013.
By John Lee.
The Basra Gas Company (BGC) — a joint venture between the state-run South Gas Company (SGC), Shell and Mitsubishi — is processing around 400 million cubic feet per day (mcfd) of gas, and is on track to treat 2 billion cubic feet per day by 2017.
SGC general director, Ali Khudhier, told Reuters:
“Iraq should stop importing LPG in second half of 2014. We are producing now around 2,000 tonnes of LPG and we expect to reach production of 3,000 tonnes in second half of 2014.
“The produced LNG will be exported to east Asia by ships.“
The $17-billion project started processing small amounts of raw gas in mid-2012, and is now producing gas suitable for power plants along with liquid petroleum gas (LPG), cutting Iraq’s fuel import requirements.
Providing Iraq’s own modest gas needs are met first, the deal also gives BGC the right to build a liquefied natural gas (LNG) export terminal fed with at least 600 mcfd of gas in a few years time.
(Picture: Gas flaring at Rumaila)
Posted in Oil & Gas
Posted on 24 January 2013.
WorleyParsons has been awarded a three year contract by Shell Gas Iraq BV to provide project management support and services for the rehabilitation of gas facilities and infrastructure that are part of the scope of Basrah Gas Company (BGC).
In November 2011, as part of a push to make better use of its gas resources, Iraq’s government signed a deal with Shell and Mitsubishi to develop the world’s largest flares reduction company, BGC. BGC is expected to commence operations early next year.
It is a 25-year joint venture with state run South Gas Company holding a 51% stake, Shell 44% and Mitsubishi 5%. This joint venture is designed to capture, treat and monetise associated gas currently being flared from three southern oilfields, wasting more than 10 million dollars per day of the country’s natural resources.
WorleyParsons will provide project management, technical and construction supervision personnel to support BGC in the rehabilitation inspection, engineering, procurement and construction (EPC) activities. WorleyParsons will also provide an established Project (Quality) Management System which will help manage and control the project effectively during its execution from the plant inspections through to engineering and design concluding with commissioning.
The contract will be executed from WorleyParsons’ offices in Iraq and the United Arab Emirates, and will involve working in different locations around the world with front end engineering design and EPC contractors. The man-hours to be performed by WorleyParsons over the life of the contract are estimated to exceed 500,000 man-hours.
Commenting, WorleyParsons’ CEO Andrew Wood (pictured) stated:
“We are pleased to continue our involvement in the development of Iraq’s gas infrastructure as well as being part of this project that will significantly contribute to the sustainability of the Iraqi economy and environment. We will work closely with the development partners to ensure we create the maximum value over the lifetime of the asset.”
Posted in Oil & Gas
Posted on 20 September 2012.
By John Lee.
Shell‘s commercial general manager for Iraq, Arne de Kock, has told Reuters that two key hurdles must be cleared before the company can move forward with its giant gas capture project in southern Iraq.
But he added that he was “optimistic” the government’s Council of Ministers will sign off on the issues of asset transfers and land leases.
“We want to make sure we have all the commercial legalities in place before we proceed”, said Kock.
Along with Mitsubishi, the company finalised an agreement with Baghdad late last year for the $17-billion Basra gas project, which is intended to handle 2 billion cubic feet per day by 2017.
Posted in Oil & Gas
Posted on 27 March 2012.
Iraq’s state-run South Gas Company says its output will exceed 2 billion cubic feet by 2013, according to a report from Azzaman.
The company’s director-general, Hussein Khudhair, said in a statement that “once the projects under construction are completed, the production will be in huge quantities surpassing two billion cubic meters”.
He said “gigantic projects” were being implemented and the company plans to add 5,000 more employees to its payroll.
Basra holds up to 70 percent of the country’s oil reserves, and is also home to the state-owned Basra Gas Company.
It is estimated that the three fields of Rumaila, Zubair and West Qurna together flare off more than 874 million cubic feet of gas a day.
Iraq’s proven natural gas reserves are estimated at 110 trillion cubic feet but oil ministry officials say there are another 150 trillion in probable reserves.
Posted in Oil & Gas
Posted on 31 January 2012.
Dow Jones reports that the gas capture project with Shell and Mitsubishi in Southern Iraq is expected to start production this year.
The head of the South Gas Company, Ali Hussein Khudhier, told the news agency that they expect to produce 50 Mcfd of gas this year.
He added that the floating LNG plant and terminal to be built off the Basra coast is expected to cost around $3 billion, and should be operational in 2017 or 2018. The project would export 600 MMcfd of gas in the form of LNG.
The consortium will soon invite international companies to tender to build the LNG facility.
Before this deal, Iraq was producing around 450 million cubic feet a day of gas from Rumaila, West Qurna Phase 1 and Zubair, but within two years Khudhier expects to also be capturing the 1.1 billion cfd that are currently flared.
Under the agreement, Iraq has to supply the Basra Gas Company with at least 2 Bcfd of raw gas even if it has to bring it from other fields, but it is expected that gas output from these three fields will exceed 2 billion cubic feet a day at full production.
(Source: Dow Jones)
Posted in Oil & Gas
Posted on 15 December 2011.
Vinson & Elkins and Cleary Gottlieb Steen & Hamilton are advising Iraq’s oil ministry in a $17.2 billion deal with Royal Dutch Shell and Mitsubishi to develop the infrastructure required to process natural gas in the southern part of Iraq.
The transaction agreements, which were signed on 27th November, came as Iraq attempts to rebuild its oil and gas industry following years of sanctions and conflict.
The 25-year contract, one of the biggest deals that Iraq has signed in recent times, will see the creation of a new company, the Basra Gas Company (BGC).
The BGC will process gas from three large fields near Basrah in Southern Iraq in order to satisfy domestic consumption requirements, and will also have the right to pursue a Liquefied Natural Gas (LNG) or other gas export project for any remaining gas.
The Vinsons team includes partners Christopher Strong and Ahmed el-Gaili, while the Cleary Gottlieb team includes partners Andrew Bernstein and Gamal Abouali. “We are thrilled to be working with the Ministry on such an innovative and large-scale project,” said Ayman Khaleq, Middle East managing partner at Vinson & Elkins, in a statement.
“The signing… was a key milestone for this deal, which is significant to the overall gas industry in Iraq, and it’s a privilege to be a part of that.”
(Source: Legal Business Online)
Posted in Industry & Trade, Investment, Oil & Gas