A new report from Deloitte, entitled "Mergers and Acquisitions in the Oil and Gas Industry -- Current upstream M&A issues and transaction considerations", looks at the factors affecting investment in Iraq:
"Iraqi production, which has now passed the 3 million barrel per day level, is benefiting from foreign investors with the expertise to exploit these resources.
"The question remains as to whether these nations will achieve optimum production levels or whether they will continue to face constraints due to outdated infrastructure, political challenges (such as in Iraq), policy uncertainty and continued security threats.
"The fiscal terms being offered by governments have been on the top of the agenda for contractors with assets in countries affected by the Arab Spring and consequent regime change. This issue has been under the spotlight recently in Iraq and the semi-autonomous Kurdistan Regional Government (KRG) in the north.
"Whilst some E&P companies have been involved in the auctions for new exploration rights during the first half of 2012, the fee-based service contracts on offer by the Government of Federal Iraq, rather than the production sharing framework, have discouraged many investors who have been required to price in additional risk as seen in the fourth Iraq licensing rounds in May 2012.
"Contracts on offer by the KRG that require more development expenditure are offering production sharing arrangements which are attracting more interest, although there is pressure from Baghdad on IOCs and super-majors from operating in Kurdistan; however, this has not prevented ExxonMobil, Total, Gazprom and Chevron from entering into such agreements.
"Although Iraqi oil is generally regarded as ‘Easy oil’ (low cost to produce), IOCs have been reluctant to commit to costly exploration projects on the terms on offer, especially as a Federal Oil Law has yet to be ratified and adopted.
"Recent press coverage about Exxon Mobil’s intention to leave the giant West Qurna-1 project in Federal Iraq is conceivably a result of less attractive terms currently on offer."