Dialogue on Contentious Oil Issues in Iraq

Category one includes small companies that were not, or could not, be prequalified by the federal ministry of oil to take part in the bid rounds;

Category two includes companies that were prequalified by the federal ministry of oil to take part in the bid rounds but then “blacklisted” after they signed PSCs with KRG;

Category three includes companies that were prequalified by the federal ministry of oil to take part in the bid rounds but they failed to win any bid;

Category four includes companies that had concluded LTSC with the federal ministry of oil and afterwards they signed PSCs with KRG. This category includes the three IOCs – Exxon Mobile, Total and Gazprom. Available information indicates that these three IOCs are using all efforts to keep these contracts with Baghdad. To what extent they will be able to keep these contracts with the federal ministry depends on the resolve of the government in Baghdad. Only time will tell!

6: What are the differences between Iraq and Kurdistan agreements in protecting the interests of the country?

AMJ answer on Q6:

As I mentioned in answering Q5 the LTSCs serve the interest of the country much more and better than KRG ‘s PSCs. The reasons are briefly as follows:

1- The PSC, by definition, implies sharing in the ownership of the petroleum reserves. This means KRG gives the IOCs what is known in the international business a “marketable title” and this constitutes the base for “book-reserve” practice under this type of contracts. Any foreign sharing, claim, title in the ownership of oil and gas contravenes the ownership principle of oil and gas enshrined in the Iraqi Constitution.

2- Financially, the “marketable title”, which gives shared ownership under PSCs, could become liability to the KRG. Under such PSC the IOC is entitled to recover all its capital/ investment expenses under the term “cost oil” and part of the “profit oil”; both types are, eventually, donated in barrels and constitute the net interest or “booked reserves” for the IOC.

Let me take the following case to explain this issue.

DNO International annual report for 2012 assert that proved and probable oil reserves for the Tawke field were 722.2 MMbbls, of which 447.7 MMbbls were net to DNO International on a company working interest (CWI) basis as at yearend 2012.

This means DNO has 62% net interest in the discovered reserves of this oilfield. At $50/b the liability to KRG for not delivering the title for Tawke field to DNO would be $22.4 billion. At a higher oil price the liability to KRG would be proportionally higher too.

In other words if KRG decides, for whatever reason, to terminate DNO Tawke PSCs then KRG has to compensate DNO with an amount commensurate with the value of the remaining booked-reserves at the then prevailing price of oil, taking into consideration relevant provisions in the related PSC.

If we take all the signed PSCs the liability to KRG would obviously be a huge burden on the shoulders of the Kurdish people.

This is in my view why and should the federal government oppose these PSCs, and if the federal government approves these PSCs concluded by KRG that could make the federal government itself legally liable too.