Gas Auction Postponed, but Terms Sweetened

Iraq is about to sweeten the contract terms for its third bidding round for its three prized natural gas fields, in an attempt to entice international companies to enter the auction, according to a report in the Wall Street Journal.

Unlike oil deals for the first and second bidding rounds for oil fields last year, winning companies won't need to pay 'signature bonuses' to the Iraqi government for the three natural gas fields on offer, a company executive said on the sidelines of two-day roadshow held by the Iraqi oil ministry in Istanbul.

International oil companies have had to pay bonuses of between $100 million and $500 million for deals they won in the first and second licensing auctions.

Iraq has also delayed the bidding by a month, with it now scheduled to be held Oct. 1, according to a reporf from Reuters.

Iraq's oil minister, Hussein al-Shahristani, said that one of the incentives for interested companies would be to allow them to export 50% of the natural gas produced from these fields. The Iraqi government will commit to purchasing half of the gas produced.

However, for some companies the export clause is a "negative condition," said another company official. Iraq hasn't the infrastructure to export gas from these fields, he said. So if half of the produced natural gas would be for exports, pipelines, reservoirs and gathering stations for exports would need to be built. Companies also need to look for customers for the Iraqi gas, he added.

Bloomberg reports that developers will be paid on the basis of barrels of oil equivalent, and will not be involved in setting the prices of gas exports.

The three natural gas fields to be bid for are:

  • the Akkas field in Anbar province, near the Syrian border, which the oil ministry puts at 5.6 trillion-cubic feet of gas reserves.  Discovered in 1998, Akkas already has six wells, and Iraq is interested mainly in exporting associated gas produced there along with oil. There was a single bid for this field last year, from a consortium of five companies led by Italy’s Edison, but it was rejected;
  • the Mansouriya field in Diyala, with 4.5 trillion-cubic feet of reserves. There were no bids for this last year. Discovered in 1979, this would be used first for domestic consumption, then later for exports, possibly supplying the proposed Nabucco pipeline; and,
  • the Siba field, located in Basra province, with 1.13 trillion-cubic-feet of reserves and three existing wells. Discovered in 1968, Siba was withdrawn from a previous auction last year.

Fifteen international companies have so far shown interest in taking part in the third bidding round, reports the Wall Street Journal. Sabah Abdulkadhem al-Saaidi, head of the legal and commercial section at the oil ministry's petroleum contracts, also said that Aug. 20 would be the last date for companies to register for the natural gas bidding round.

The roadshow in Istanbul was reportedly attended by companies including Total of France, Italy's Edison, South Korea's KOGAS, India's Oil & Natural Gas Corp Japan Oil, Gas and Metals National Corp (JOGMEC), Itochu Corp, Russia's TNK-BP (half-owned by BP), Kuwait Energy, Turkey's state-run TPAO, and Kazakh KazMunaiGaz

It is believed that companies like Total, Royal Dutch Shell, and KOGAS are favoured because of their experience; the state energy companies may also take stakes of up to 25% in the projects, similar to the earlier oil contracts.

Despite huge gas reserves estimated at 112 trillion cubic feet—the fifth highest in the region, according to U.S. Energy Information Agency data—Iraq is producing 1.65 billion cubic feet a day of gas, some 700 million cubic feet a day of which is flared due to lack of infrastructure.

The goal is to fuel turbines ordered for new power stations with gas instead of crude, and the fields on offer could start commercial production in one to two years.

(Sources: Wall Street Journal, Reuters, Bloomberg)

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  1. Iraqi Gas Auction to be Delayed? | Iraq Business News - 15th September 2010

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