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By John Lee.

Bashneft, a subsidiary of Russia's Rosneft, has found oil at its Salman-1 exploratory well at Block 12 in Iraq.

In a statement, the company said that an exploration well was successfully drilled to depth 4,277 metres; oil was found, "which gives grounds for expecting the discovery of industrial reserves".

Rosneft said it views this discovery as an important milestone in the development of exploration and production projects abroad.

China-based company Zhongman Petroleum and Natural Gas Group (ZPEC) was previously announced as the general drilling contractor.

(Source: Rosneft)

By Ruslan Mamedov for Al Monitor. Any opinions expressed here are those of the author and do not necessarily reflect the views of Iraq Business News. 

By Alessandro Bacci.

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

Iraq’s Fifth Licensing Round: Some Preliminary Considerations After the Auction

On the morning and afternoon of April 26, 2018, I participated in a petroleum scholar workshop organized in London by the Association of International Petroleum Negotiators (A.I.P.N.). There I gave the presentation “Current Trends Concerning Petroleum Service Contracts in the Middle East.”

I explained the difficulties that Iraq was experiencing with its technical service contracts (T.S.C.s) and that, exactly while we were discussing in London, Iraq was holding in Baghdad its fifth licensing round after the introduction of some amendments to its service contracts in the previous weeks. After the end of the workshop, I stopped in café where I started collecting information concerning the results of the licensing round.

Iraq’s fifth licensing round was related to the offering of 11 blocks. In specific, 10 onshore blocks located along the Iraqi borders with Kuwait and Iran, and 1 offshore block in the Persian Gulf waters. In the end, six blocks were awarded, while five of the exploration blocks did not receive any bids. So, what is a correct evaluation of this fifth licensing round? Probably, a balanced answer would be that Iraq’s fifth licensing round ‘on the day of the auction’ obtained a mixed result.

In fact, if, on the one side, it’s true that six blocks were awarded, on the other side, it’s also true that no major international oil company (I.O.C.) won any bids. Of the big names in the petroleum industry, Italy’s E.N.I. alone decided to participate and made two unsuccessful bids. U.A.E.-based Crescent Petroleum obtained three blocks, China’s Geo-Jade two blocks, and China’s United Energy Group one block.

One initial explanation for the mixed result might be that the Iraqi government had previously changed the date of the auction. Initially, the Ministry of Oil wanted to have the auction in June 2018, but, then, it moved the date of receiving the offers of the international qualified companies for the licensing round forward to April 15. At the same time, the Oil Ministry’s Petroleum Contracts and Licensing Directorate sent the document concerning the final form of the tender, the conditions of the tender, and the formula of the exploration, development, and production contract (E.D.P.C.) and of the development production contract (D.P.C.) only on April 13.

However, when the Oil Ministry realized that the I.O.C.s—fourteen companies had purchased the documents required to participate in the bid round—would have had only two days to study the new contracts and submitting an offer, it postponed the deadline for submitting an offer to April 25. Then, the Oil Ministry held the licensing round on April 26.  In any case, the time for studying the dossier relating to the 11 blocks was limited according to either deadline. On top of this, Iraq will hold its national elections on May 12, and, before committing to investing on a long-term basis in additional projects in Iraq, investors might want to know the results of the coming elections.

For sure, political reasons played a role for changing the date of the bid round. Until a few months ago, the official schedule required that the final contract and tender protocol be issued by the end of May 2018 and that the submission of bids and the awards occur in June 2018 (see also BACCI, A., Iraq’s Fifth Licensing Round, in Iraq Business News, Dec. 20, 2017). Honestly, because Iraq has not been investing in the development of the border fields for the last 50 years, it’s is difficult to see what would have been the economic loss for Iraq’s government if Iraq had organized the auction two months later, i.e., in June, as it had previously planned. Two months would not have been a stark difference for the government, but it would have been a consistent difference for the I.O.C.s, which might have studied more completely the offered blocks and the new contract.

So, politics played a role. In Iraq, 320 members out of the 329 members of the Parliament are elected through the open list form of party-list proportional representation—the remaining 9 seats are reserved for the minorities. Iraq’s 18 governorates act as the constituencies. The ten onshore offered blocks are in the following Iraqi governorates: Basra, Diyala, Wasit, and Missan. In total, in May, these four governorates will be responsible for the election of 60 seats, or more than 18% of the seats (Basra, 25; Diyala, 14; Missan, 10; and Wasit, 11). However, at the same time, these governorates are home to the majority of Iraq’s most important oil fields (in particular Basra Governorate). And, because in Iraq the economy is dominated by the petroleum sector, which provides about 90% of government revenues and 80% of foreign exchange earnings, it’s easy to understand the pivotal economic role played by these governorates.

Moving forward the development of the additional blocks located in the above-mentioned governorates to before the elections may indeed provide a political support to Oil Minister Jabar Ali al-Luaibi who is a member of the Victory Alliance, which is led by Prime Minister Haider al-Abadi. In practice, holding the fifth licensing round would be a sort of additional tool to increase the chances of victory for a specific political group in the affected areas, because this move shows that the present government is concerned with the economic development of the above-mentioned governorates. And considering Iraq’s present fragile political environment, this political move has a certain logic. Now, according to the schedule, the deals must be signed on May 10. If they are not approved by the present government, it will be the task of the new government to approve them.

Considering these political reasons, it’s difficult to say whether we can consider the fifth licensing round finished and not just a politically useful stopgap. In any case, what is surprising is that important amendments to the structure of the offered service contract have been carried out with limited input from the industry and the stakeholders. In fact, the basic truth of the petroleum industry is that if a contractor is able to generate a return exceeding its planned internal rate of return (I.R.R.) threshold, it will go ahead with its investment. If the planned return is less than the I.R.R. threshold, the contractor will not invest.

This problem stood out very clear in 2009 during Iraq’s first licensing round. The day of the auction the result was negative because the companies did not see any profitability in what was offered. In practice, only after a few months of additional negotiations, was the government able to transform a failed licensing round into a success. What happened at that time was that the average cash outlay was renegotiated so that the I.O.C.s could have an improved profitability. And in just a few months, Iraq could sign contracts for the Rumaila field, the Zubair field, the West Qurna 1 field, and the Maysan field.

Moreover, after the end of the fifth licensing round, the Ministry of Oil correctly affirmed that the lack of bids for five exploration blocks— Zurbatiya and Shihabi on the border with Iran, Jebal Sanam and Fao on the border with Kuwait, and the offshore block—was also linked to additional difficulties, which could have increased the costs for the contractors. In fact, some blocks cover former battlefields (Zurbatiya and Shihabi), some have an infrastructural gap, and the offshore block lacks complete data.

Crescent Petroleum, a subsidiary of the multinational conglomerate Crescent Enterprises, is the first and the largest private upstream oil and gas company in the Middle East. It has operations in the U.A.E. and in the Kurdistan Regional Government (K.R.G., a.k.a. Iraqi Kurdistan). In the U.A.E., the company operates the Sharjah onshore concession and the Sir Abu Nu’ayr concession, while in the K.R.G. it operates the Khor Mor and the Chemchemal gas fields. In addition, Crescent Petroleum is the founder and the largest shareholder in Dana Gas, which is the first and largest publicly listed private-sector natural gas company in the Middle East.

Geo-Jade Petroleum is an oil exploration and production company with operations in Kazakhstan and Russia. This company started its oil and gas investments only in 2010—before the company was involved exclusively in real estate. Today, it is independently operating six exploration blocks and three development blocks. United Energy Group (U.E.G.) is an oil and gas exploration company having projects in Pakistan and Indonesia. In 2017, U.E.G. had an annual production of more than 4 million tons. After the acquisition of BP Pakistan in 2011, the company has expanded its operations in the country, and, today, U.E.G. and United Energy Pakistan Limited (U.E.P., U.E.G.’s Pakistani subsidiary) are the largest foreign E&P company and investor in Pakistan.

With reference to the contracts, the Ministry of Oil has introduced some amendments that have changed the structure of Iraq’s service contracts. During the previous four licensing rounds, Iraq had used service contracts in which there was a per-barrel fee remuneration linked to an R-Factor. The amended contract is different in that it sets a link between oil prices and the remuneration given to the I.O.C.s. At the same time, it introduces a 25% royalty on gross production.

In practice, out of the overall revenue, first, the contractors will pay a 25% royalty on gross production, second, they will recover the incurred costs according to a specific formula, third, they will split the remaining part, i.e., the net revenue share, with the government according to the percentage established at the time of the bid round, and fourth, they will pay the 35% corporate income tax (C.I.T.) on their percentage of net revenue share. Moreover, the amended contract does not consider any longer oil byproducts (for instance liquified petroleum gas) as companies’ revenue.

The key to understanding the new contractual framework is Article 19 of both the exploration, development, and production contract (E.D.P.C.) and of the development and production contract (D.P.C.). Art. 19 explains that in any quarter, Iraq’s involved regional oil company (R.O.C.) shall be entitled to a royalty of twenty-five percent (25%) of the deemed revenue, which is the value of net production in barrels of oil equivalent. With reference to the petroleum costs, Art. 19.5 explains that

[i]n respect of Petroleum Costs, in any Lifting Quarter due and payable Petroleum Costs shall be paid to Contractor to the extent of the Percentage of Net Deemed Revenue. The Percentage of Net Deemed Revenue shall be determined by reference to SOMO’s [the contract here means the State Oil Marketing Organization or its successors] average OSP [official selling price] during the Spending Quarter and in accordance with the following formula:

Percentage of Net Deemed Revenue= (Average OSP / 50) * (70%) * Net Deemed Revenue

The said formula shall be applied throughout the Term, provided that where the average OSP is equal to or less than twenty-one point five US Dollars (US$ 21.50) per Barrel, the Percentage of Net Deemed Revenue shall be thirty percent (30%) of Net Deemed Revenue and where the average OSP is equal to or greater than fifty US Dollars (US$ 50.0) per Barrel, the Percentage of Net Deemed Revenue shall be seventy percent (70%) of Net Deemed Revenue.

The percentage of net deemed revenue means the available portion of net deemed revenue allocated for the payment of the petroleum costs. The net deemed revenue means deemed revenue less royalty.

Then, the contractor shall be entitled to a remuneration equal to the product of the remuneration percentage bid and the remaining net deemed revenue. The remuneration percentage bid means the percentage of the remaining net deemed revenue bid by the contractor. And the remaining net deemed revenue means the net deemed revenue that remains after the payment of the petroleum costs to the extent of the percentage of net deemed revenue.

And then, the contractor shall pay the corporate income tax at a percentage of thirty-five percent (35%) on the actually received remuneration generated from the implementation of the contract to the General Taxation Commission in accordance with the Law No.19 for year 2010.

These are the remuneration percentage bids according to the six awarded blocks:

• Khashim Ahmer-Injana (gas, Diyala Governorate): 19.99%, Crescent Petroleum
• Naft Khana (oil and gas, Diyala Governorate): 14.67%, Geo-Jade
• Khider al-Mai (oil, Basra Governorate): 13.75%, Crescent Petroleum
• Gilabat-Qumar (gas, Diyala Governorate): 9.21%, Crescent Petroleum
• Huwaiza (oil, Missan Governorate): 7.15%, Geo-Jade
• Sindabad (oil, Basra Governorate): 4.55%, United Energy Group

A first consideration is that the percentage of the remuneration varies consistently according to the considered block. However, this should not be surprising because these blocks might well, for instance, have different geological characteristics. In fact, already with the technical service contracts used in the first four licensing rounds, the per-barrel fee was different according to each auctioned field. Now, with the new contract model, the Oil Ministry is trying to provide a fee that is based on commodity prices and costs.

At least on paper, the Oil Ministry should be able to give in this way more flexibility to its contracts. In fact, the three main factors that determine the amount of resource wealth linked to a petroleum field (oil and gas) are the produced volume; the price of the petroleum; and the involved exploration, development, and production costs. From an economic point of view, the best option for both the contractor and the government would be when the following three factors coexist: a high production level; low exploration, development, and production costs; and high oil prices in the international markets.

Thanks to the new contractual structure, the government would like to force the contractors to act in a more efficient manner, while at the same time, because the remuneration fee is based on the remuneration percentage bid, the contractor would now be affected positively by the increase and negatively by the decrease in oil prices. At the same time, the new contracts have a time limit concerning the requirement for the contractors to stop flaring. Iraq would like to stop completely flaring by 2021.

Iraq has currently a daily oil production of about 4.43 million barrels from Baghdad-controlled oil fields (March 2018). The country’s exports averaged 3.45 million barrels a day last month from the southern ports. According to a 5-year development plan, the government wants to reach a production of 6.5 million barrels per day by 2022.

Alessandro Bacci is an independent energy consultant in relation to business strategy and corporate diplomacy (policy, government, and public affairs). Much of his activity is linked to the MENA region, an area where he lived for four years. Alessandro is now based in London, United Kingdom (www.alessandrobacci.com), and he is a member of the Association of International Petroleum Negotiators (A.I.P.N.). A multilingual professional, Alessandro holds a Bachelor of Laws and Master of Laws from the University of Florence (Italy), a Master of Public Affairs from Sciences Po (France), and a Master in Public Policy from the Lee Kuan Yew School of Public Policy (Singapore).  

By John Lee.

Iraq's Ministy of Oil has awarded all four development projects, and two of the seven exploration blocks, that it offered in its fifth auction of oil licences.

Only nine of the 26 companies originally pre-qualified took part in the auction, with majors such as Lukoil (Russia), ExxonMobil (US) and Total (France) not bidding.

Development blocks:

• Gilabat-Qumar, in Diyala: Crescent Petroleum (UAE)
• Khashim Ahmer-Injana, in Diyala: Crescent Petroleum (UAE)
• Huwaiza, in Missan (Maysan): Geo Jade Petroleum (China)
• Khudher Al-Mai [Khider al-Mai], in Basra and Muthana: Crescent Petroleum (UAE)

Exploration blocks:

• Naft Khana, in Diyala: Geo-Jade Petroleum (China)
• Sindibad [Sindbad] field in Basra: United Energy Group (UEG) (Hong Kong)
• Zurbatiya [Zarbatia, Zurbatia], in Wasit and Diyala: not awarded
• Shihabi in Missan and Wasit: not awarded
• Fao, in Basra: not awarded
• Jabal Sanam [Jebel Sinam, Jebel Sanam], in Basra: not awarded
• Offshore Gulf block: not awarded

Abdul Mahdi al-Ameedi, director general of the Petroleum Contracts and Licensing Directorate (PCLD), told Reuters that the failure of five blocks to attract bids was due to a combination of factors, including the fact that some of them cover former battlefields, some are hard to access, and the one offshore plot needs more data.

He said another round could be held for those five blocks.

More details here from Iraq Oil Report (subscription required)

(Sources: Iraq Oil Report, Reuters, Associated Press, AFP)

By Elena Kornienko.

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

Once upon a time, there lived a widow woman and her son, Jack, on their small farm in the country. Every day, Jack would help his mother with the chores -- chopping the wood, weeding the garden and milking the cow. 

But despite all their hard work, Jack and his mother were very poor with barely enough money to keep themselves fed. And one day he was told by his mother to go and sell their cow and use the money to buy seeds to plant a good crop. On his way to the market he met a man who offered to buy the cow for three magic beans.

The boy did this deal, however his mother got very upset that he brought home only three beans…. Long story short, the magic happened and this family started making money and had a decent living. Fairy tale, right? We have been raised by so many stories like that, but did we relate any of them to our adult lives? Just last week I felt like this boy planting the magic seeds. The seeds of knowledge. The seeds to grow the expertise of local Iraqi companies which work with international oil companies (IOCs).

It’s no secret that upon completion of any tender exercise, most of the bidders do not get any feedback from Procurement team on what made them lose that contract. And in most of the cases it is not price, but the technical proposal itself. Even having all capabilities to perform services, most of the contractors struggle to understand how to put their proposals in the best way.

And Iraq, unfortunately, is not unique in that. It is a common situation that Procurement departments are detached from their bidders and contractors. Some of IOCs run workshops on understanding their specific requirements in tenders and systems, however what is still missing in the industry is a good education system for local contractors on requirements to tenders from IOCs.

Last week, 10th April 2018, the first training in Iraq on tendering skills for oil and gas contractors took place in Basra, which was run independently from IOCs. It was specifically dedicated to local Iraqi companies and all participants got to benefit from learning what exactly is happening in Procurement teams of IOCs operating in Iraq and what makes bids win the contracts.

It was the biggest surprise to all participants that 70 percent of bids do not even make through the technical evaluation, and Procurement teams do not even get to see their prices! And while this training was a matter of planting the seeds, the watering is still to happen.

From the left to the right: Majid A. Abdullah from Basra Chamber of Industry, Sabeeh H. Al-Hashemi, Iraqi Businessmen Union Basra, Elena Kornienko, InfoCORE Consultancy, Najih Shinawa Ahmad Alqanas, Basra Chamber of Commerce

After the training, the meeting with Basra Chamber of Commerce, Basra Chamber of Industry and Iraqi Businessmen Union took place to discuss the future opportunities for local companies. Whenever it comes to education and training, it is about the future vision.

It might seem that these three beans are too small for the exchange of a milking cow, but the magic of those beans should not be underestimated. All these organizations have a great understanding of the importance of the development of local Iraqi companies, and agreed to provide support in conducting future training sessions for local companies in Basra.

What was unique and magic about that meeting is the understanding that all participants are on the same level of grasping the needs of local companies development. It was planting those magic beans and start watering them to grow the capabilities of local Iraqi contractors to make the economy of Iraq more sustainable.

Elena Kornienko has more than 15 years of professional experience in contracts, procurement and tendering in various roles from demand-identification to contract close-out. She has worked on major international oil and gas projects, including the Sakhalin-1 and Sakhalin-2 fields in Russia, and Iraq's West Qurna-2. Now based in Dubai, she provides consultancy services to the oil and gas industry. Elena is a fluent English and Russian speaker, and a graduate of the Moscow State University of Commerce, holding a degree in Economics. She also graduated with distinction from the School of Business Administration at Portland State University and holds a CIPS diploma.

By Elena Kornienko.

In the previous blog post we have talked about Procurement’s role within organization and today I will share with you one more story when Procurement could’ve done a job of SuperMan but end up with selecting a wrong subcontractor and that choice made a tremendous impact on production.

At the beginning of 2018 Tesla’s share price fall 20% from last year’s all-time high. What is the story behind it and how we – people involved with Oil and Gas in Iraq – can related to it? In 2017 Tesla forecasted the production of 5,000 Model 3 sedans and in the last quarter it announced that it had made 2,500.  It was a “production hell” and one of the factors to it was Procurement’s fault for choosing a sub-contractor which did not perform. As a result, billions of dollars in stock value was lost.

What can we, procurement professionals in the oil and gas industry, learn from this story?

First of all, no matter how big or small a purchase order, it should be assessed against criticality for oil production. It might be a relatively small and standard valve, however if that is to be installed on a critical part of a pipeline, it could impact the operation of the whole line. This is where I see Procurement and Production/Operation teams working together as one team which is still unfortunately a rare case.

Another important question is the pre-qualification of contractors and suppliers. Not all IOC’s in Iraq perform pre-qualification as it should be done based on best industry practises. Some IOCs have a simple registration process which is based on data collection only, some IOCs run a bit more sophisticated process which is still have a room for improvement.

What is still not understood and appreciated in pre-qualification process is that based on selecting qualified bidders in a first place would improve the quality of tender submissions as well as create healthy price competition between companies which are of the same expertise level.

It is wrongly assumed that having more bidders in one tender would increase the chances of having more competitive offers. In reality un-qualified or even not capable bidders participate in tenders barely passing technical evaluation, getting a contract and trying to execute it, while qualified top performers were not even invited to bid.

Selection of technically capable contractors is another challenge which directly impact Production. It is related not only to pre-qualification process, but also to setting right technical evaluation criteria during tender exercise. In my years of experience in Procurement I have seen it in extreme angles – from being very formal to criteria set to being flexible in evaluation. Both approaches can bring harm in contactor selection if not used correctly and balanced.

One of the extreme examples which I witnessed myself just recently: all bidders were requested to provide a list of at least 3 projects of a similar nature performed in 2014-2017 and the Operator did not accept a list of projects from one bidders which were performed in 2012-2016, while that bidder still demonstrated their capabilities and expertise in this area.

These areas are just a top of an iceberg in Procurement world and we will be covering more of them in the blog posts. In a mean time I have two questions: Firstly, what if Tesla selected technically capable contractor and delivered on projected number of vehicles? The answer is straightforward – no loss in the value of shares. And what if IOCs in Iraq would always use the best international practises on contractor selection? The answer is also straightforward – more competitive costs of contracts and no delay or loss of oil production, which has a direct impact of Iraq’s budget.

Elena Kornienko has more than 15 years of professional experience in contracts, procurement and tendering in various roles from demand-identification to contract close-out. She has worked on major international oil and gas projects, including the Sakhalin-1 and Sakhalin-2 fields in Russia, and Iraq's West Qurna-2. Now based in Dubai, she provides consultancy services to the oil and gas industry. Elena is a fluent English and Russian speaker, and a graduate of the Moscow State University of Commerce, holding a degree in Economics. She also graduated with distinction from the School of Business Administration at Portland State University and holds a CIPS diploma.

Gulf Keystone Petroleum (GKP) has announced the appointment of Jacobus ("Jaap") Huijskes as Non-Executive Chairman effective as of 11 April 2018, immediately following the announcement of the Company's 2017 Full Year Results.  

Jaap Huijskes, who replaces Keith Lough as Chairman, joined the Board of Gulf Keystone in November 2017 as a Non-Executive Director.  Today's news follows the January 2018 announcement of Mr Lough's intention to step down from the Board.  Mr Huijskes selection was the result of a process undertaken by the Nominations Committee and was unanimously supported by the Board. 

Jaap Huijskes has had a distinguished career in the oil and gas sector, including relevant experience in the Kurdistan region of Iraq.  He was most recently a Director at OMV (AG:OMV), the largest listed Austrian oil and gas company, where he was responsible for Exploration and Production (E&P) and oversaw the Company's expansion into new territories.  He also played a key role in OMV's operations in the Kurdistan region of Iraq. 

Prior to this, Mr Huijskes held a number of senior positions at Shell, including Executive Vice President of Upstream Major Projects and Project Director at the Sakhalin Energy Investment Company, which was set up to develop the Sakhalin-II oil and gas project in Russia.  He holds a Masters in Mechanical Engineering from Delft University of Technology in The Netherlands. 

In addition to serving on the Board of Gulf Keystone, Mr Huijskes is currently Non-Executive Chairman of the Dutch state-owned integrated oil and gas company, Energie Beheer Nederland. He was a member of OMV's Executive Board for E&P between 2010 and 2016.

Commenting on today's announcement, Jaap Huijskes, said:

"I am delighted to have been selected to take on the Non-Executive Chairman role.  Gulf Keystone has a strong investment case, underpinned by a great asset and management team. 

"With recent positive progress, including the signing of the important Shaikan Crude Oil Sales Agreement, we are looking forward to recommencing investment into the field and generating value for our investors, as well as the Kurdistan Region of Iraq.  I look forward to leading the Board and supporting the Company at this exciting time.

"On behalf of the Board and everyone at GKP, I would like to thank Keith Lough for his leadership and significant contribution to the business over the past two years.  It was a challenging period for the Company and we are grateful for his hard work and wise counsel.  We wish him the very best for the future."   

(Source: GKP)

By John Lee.

Russian oil company Lukoil has said that lower volumes of compensation crude oil from the West Qurna-2 project in Iraq had "a negative impact on EBITDA dynamics".

In its audited consolidated financial statements for the full year of 2017, it added that net of this project, EBITDA increased in 2017 by 17.8 percent year-on-year.

(Source: Lukoil)

By Padraig O’Hannelly.

This week at Iraq Business News, we are delighted to welcome a new Expert Blogger to our ranks:

Elena Kornienko (pictured), has more than 15 years of professional experience in contracts, procurement and tendering in various roles from demand-identification to contract close-out.

She has worked on major international oil and gas projects, including the Sakhalin-1 and Sakhalin-2 fields in Russia, and Iraq's West Qurna-2. Now based in Dubai, she provides consultancy services to the oil and gas industry.

Elena is a fluent English and Russian speaker, and a graduate of the Moscow State University of Commerce, holding a degree in Economics. She also graduated with distinction from the School of Business Administration at Portland State University and holds a CIPS diploma.

You can read her first blog here, and we look forward to reading more of her perspectives on procurement and tendering in Iraq over the coming weeks and months.

By Elena Kornienko.

Little did I know back in 1999 when I got my first job in procurement on the Sakhalin-2 project which became one of the mega projects in oil and gas industry not only in Russia but also worldwide.

I was young, ambitious and also very naive about what years later became my biggest passion. Procurement, Purchasing, Supply Chain – various organizations use different names for this function, but the truth about it is very simple – we do impact the production of our companies as a Superman hero, and also are treated internally as a Cinderella.

My first boss worked very hard – we could see him already in the office when we arrived. He was the last one to leave and always spent at least one weekend day at his desk catching up with all the requisitions, purchase orders and expediting reports. It was the first offshore platform in Russia, with nternational standards and a limited presence of contractors and suppliers who could help us, the Procurement team, to deliver goods and services to our internal client, the Production team.

I started working with a strong believe that no matter how hard you work, how many hours you spend in the office, how many phone calls and emails you do every day, there will be always someone to blame Procurement for a delay.  Our cruel “stepmother” and jealous “stepsisters” from the Production and Drilling teams constantly mistreated us by giving more and more unrealistic requisitions. Perhaps it was not that bad, but it felt like we are given impossible tasks.

Years later I realized that this was not bad treatment of the Procurement team, but rather a challenge for us to rise and shine. This challenge was accepted by us as we knew that there would not be a Fairy Godmother to make a change. The change has to come first from understanding that tne Procurement function brings the value for all levels of the organization.

Today’s focus is on sustainability as well as ethical and environmental factors, and the supply chain organization needs to ask itself “why” questions before any action. Why procurement makes this decision and why it is important to the organization. Why its sourcing strategy is like that and not anything else. Why the company spends that money on procuring goods or services. Why, why, why…. I will be answering these and so many other questions related to procurement in the blog articles here at Iraq Business News.

However, lets get back to the question “Is Procurement a Cinderella or a Superman?”. It is no secret that Iraq’s economy is dominated by the oil sector and most of the oil exploration and production is done by International Oil Companies (IOCs). It is estimated that on average between 70% and 80% of a company’s spend is related to procurement activities for purchasing of goods or services. That is quite impressive, right? And of course, the procurement process is regulated by the internal procedures.

It is questioned wherever regulations governing public procurement in Iraq apply to procurement procedures of the IOCs in relation to their subcontracts or not. And while it is debatable if procurement regulations and instructions are applicable to subcontracts or not, IOCs follow their internal procedures to govern the procurement process. What not everyone realizes is that procurement procedures always have room for improvement.

Very often the whole procurement process – from demand identification up to contract award – is quite lengthy and not always transparent to potential contractors. In the articles to come we will be reviewing all processes related to procurement and how they are applicable to IOCs operating in Iraq.

Elena Kornienko has more than 15 years of professional experience in contracts, procurement and tendering in various roles from demand-identification to contract close-out. She has worked on major international oil and gas projects, including the Sakhalin-1 and Sakhalin-2 fields in Russia, and Iraq's West Qurna-2. Now based in Dubai, she provides consultancy services to the oil and gas industry. Elena is a fluent English and Russian speaker, and a graduate of the Moscow State University of Commerce, holding a degree in Economics. She also graduated with distinction from the School of Business Administration at Portland State University and holds a CIPS diploma.