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By John Lee.

Iraq's cabinet has approved three oil and gas contracts awarded to foreign firms in the 4th round energy auction in May.

Government spokesman Ali al-Dabbagh (pictured) said cabinet approved an initial gas exploration contract with Pakistan Petroleum for gas Block 8, another deal led by Russia's Lukoil along with Inpex of Japan to develop oil Block 10, and the deal with Russia's Bashneft to develop oil Block 12.

Approval of a contract with a consortium led by Kuwait Energy, along with Dragon Oil and Turkiye Petrolleri, to develop oil Block 9 on the Iranian border has been delayed until the oil ministry "completes some of its procedures," added Dabbagh.

(Sources: Bloomberg, Reuters)

By John Lee.

An Iraqi Oil Ministry spokesman has said the Ministry will make future energy exploration contracts more lucrative, to encourage foreign firms to compete in auctions for exploration blocks.

"Economic and financial aspects will be reviewed in light of our experiences", said Assem Jihad. "The final details of the contracts will be worked out between the foreign companies and the oil ministry."

In recent weeks the deputy prime minister responsible for energy affairs, Hussein al-Shahristani (pictured), admitted that the recent fourth round auction of exploration blocks had not been as successful as officials had hoped.

(Source: AFP)

Our Expert Blogger Ahmed Mousa Jiyad talks to Robert Tollast about Iraq’s energy revolution.

RT: The involvement of major US IOC’s such as Exxon and Chevron in Iraqi Kurdistan has sparked a war of words between Baghdad and Erbil. Possibly concerned about a breakdown in relations between the KRG and Baghdad, the US State Department has warned US IOC’s to be cautious, as a US State Department spokesperson recently said:

We speak about it in Iraq. With regard to our own companies, we continue to tell them that signing contracts for oil exploration or production with any region of Iraq without approval from the federal Iraqi authorities exposes them to potential legal risk, and we continue to tell them – obviously, they’ll make their own business decisions, but unless and until we have federal legislation in Iraq governing these things, something that we’ve been urging, that there are risks for them. So that’s our message to our companies.

This has provoked a furious response from Kurdistan’s Minister for Natural Resources, Ashti Hawrami. Is it correct to say that US IOC’s should pay more attention to Iraqi politics and be a lot more careful?

AMJ- This question covers a plethora of issues.Firstly, it is my humble view that all IOCs should be careful and refrain from getting involved in the internal politics of any country, especially Iraq, and this is particularly true for IOCs with an unfavourable image in the national memory of Iraqis. They are oil companies and they should work as operators to develop the upstream petroleum sector as stipulated in their related service contracts, and thus should not assume any political or diplomatic function- it is not their job to do so. Politics should not be their preoccupation especially when their involvement in domestic politics will add more “fuel on the fire,” to borrow the title of an excellent book by Greg Muttitt.

Second, there is nothing new in the above position of the American administration on the issue under discussion. This citation reconfirms the content of a letter from the American President to Mr. al-Maliki answering the request of the latter for intervention in the ExxonMobil case with the KRG. However, misquotation, misinterpretation and different interpretations become probable depending on who reads this statement, how and why; and this applies to both sides of the isle. Nevertheless, this does not change the fact that production sharing contracts signed by IOCs with the KRG carry serious and daunting legal risks and face very serious uncertainties.

Third, with regards to ExxonMobil I believe the company might have made a grave error of judgement. The views expressed by my contacts among many Iraqi and non-Iraqi professionals suggest that ExxonMobil acted probably out of arrogance, short-sightedness, a misreading of Iraqi national memory and a disrespect for sovereignty with a covert and overt agenda.

We have to remember that ExxonMobil (along with Shell) did not win West Qurna 1 (giant Iraqi oil field- WQ1) during the first bidding round held in June 2009. It did so only after its competitor (Russia’s Lukoil) announced its decision to accept the ministry of oil’s remuneration fees of $1.9/barrel in October 2009. Then and only then ExxonMobil acted quickly by accepting the same term, which it refused in June, and proposed a higher production plateau target or PPT of 2.350 million barrels a day (mbd.) The ministry favoured ExxonMobil over Lukoil!

By John Lee.

Iraq's Deputy Prime Minister with responsibility for energy affairs, Hussein al-Shahristani (pictured), has reportedly said that Baghdad was considering offering foreign oil firms more lucrative contracts.

According to a report from Aswat al-Iraq, he admitted that the recent fourth auction of exploration blocks had not been as successful as officials had hoped.

(Source: Aswat al-Iraq)

By John Lee.

An Iraqi oil ministry statement on Tuesday said that Chevron, the second largest U.S. energy company, will be barred from contracts in central and southern Iraq as a result of buying stakes in two oil-exploration blocks in Iraqi Kurdistan.

“Chevron is barred from any agreement or contract with the federal ministry of oil and its companies …unless it retreats from the contract it signed in Kurdistan region,” the oil ministry statement said.

Chevron purchased 80% stakes in the Sarta and Rovi blocks in Iraqi Kurdistan from India's Reliance Industries; Austria's OMV holds the remaining 20 percent.

Baghdad has already blacklisted companies that maintain deals with the Kurds, excluding them from working elsewhere in Iraq. Among those is New York-based Hess, which was barred last year from competing in the fourth energy auction. Exxon Mobil was also banned from the same auction.

(Sources: Reuters, Wall Street Journal, AKnews)

By John Lee.

Iraq signed the gas exploration contract with Pakistan Petroleum Ltd. (PPL) on Sunday for gas Block 8, which lies in the Diyala and Wassit provinces in the East of the country.

Meanwhile on Monday, a consortium led by Kuwait Energy signed the contract for oil Block 9, having bid fee of $6.24 a barrel in the fourth round energy auction at the end of May. Kuwait Energy will be the project’s operator, with a 40 percent share, while Turkiye Petrolleri and Dragon Oil will each have 30 percent.

Russia’s Lukoil and Japan's Inpex Corp. are due to sign an agreement on Tuesday for crude exploration rights in Block 10 in southern Iraq, for a fee of $5.99 a barrel. Lukoil will hold 60 percent, and Inpex the rest.

(Sources: Reuters, Bloomberg)

Bloomberg reports that Iraq is to offer more attractive terms in its next auction of exploration rights for natural gas.

Oil Minister Abdul Kareem al-Luaibi [Elaibi] (pictured), told the agency in an interview:

“Bidding will be next year, but we will start now to prepare the data package, and we will hold a roadshow for the companies before the end of the year ... We will be open with the companies, and we will listen to their remarks regarding the contracts and how we can develop them and make them better.”

Iraq awarded just three of 12 oil and gas licences it offered in the fourth round auction last month -- two for oil and only one for gas.

(Source: Bloomberg)

Nearly a week has passed since the finalisation of Iraq's fourth round of oil licences, this time relating to oil and gas exploration blocks.

In the meantime, the debate has rumbled on regarding the results of the auction, with some regarding it as a success and others as a failure.

Among the professionals, the consensus is very much that the process was a disappointment as it failed to secure exploration agreements for nine of the twelve blocks on offer:

"The Iraqis are working with a service contract model that is not conducive with exploration ... It works with a discovered resource basis, it works with proven reserves."

-- Alex Munton, analyst at Wood Mackenzie.

"The drawbacks were the conditions, as they were only pure service contracts, so they did not have upside potential if they found a big field."

-- Manouchehr Takin, analyst at the Centre for Global Energy Studies.

"It was not a success because the main aim of Bid Round Four was to find gas and develop it ... Until you drill, and make a discovery and you appraise that discovery, and until it is declared commercial, you cannot tell how much you want to be paid for that, to make the project feasible ... you cannot monetise the discovery because you will only start receiving remuneration once you start producing, and you cannot produce if this infrastructure is not ready."

-- Ruba Husari, of Iraq Oil Forum.

Against this we have the comments of Abdul Mahdi Al Ameedi, director of the oil ministry's Petroleum Contracts and Licensing Directorate (PCLD), which ran the auction:

"We believe the contracts serve the interests of the companies and Iraq. But they have a different view ... With the three contracts today, there are 18 contracts ongoing across the country -- this is a huge task for the country."

So which is it?

As the Ministry of Oil starts preparing for the fifth round of energy licences, why not voice your opinion in the comments section below.

Reuters reports that Iraq’s central bank, struggling to stem an illicit tide of dollars into sanctions-bound Iran and Syria, has had some success in steadying its own dinar by pumping dollars to Iraqis through two state-run banks.

Late last month the central bank allowed U.S. dollars to be sold at a fixed rate through two state-run banks, Rafidain and Rasheed, helping to push the dollar from 1,280 dinars to 1,210 dinars and closing the gap between the official rate and the market price.

The central bank has started channeling $6 million a day through the two banks, Mudher Kasim, deputy governor of the Central Bank of Iraq (CBI), told Reuters. "The difference in the value of the Iraqi dinar between the central bank price and the market was seven percent but now it is less than four percent ... We are expecting it to drop below two percent in a few weeks", he said.

The central bank usually sells about $250,000 to private banks and $75,000 to currency exchange and money transfer shops on a weekly basis.

For months, traders have been snapping up dollars at the central bank’s daily auctions for sale in neighboring Syria and Iran, buying up to $400 million on some days in December from a previous average of $150 million, according to central bank data.

Kasim said the CBI had since extended the clearance period to six months to allow for more flexibility in the importing process. Four private banks have also asked the CBI for permission to sell dollars at a fixed rate.

The CBI has said Iraq’s large foreign reserves, which have risen to a record $60 billion on the back of high oil prices, will shield its financial system from damage.

However, some economic analysts say the measures may not sustain dinar stability in the long run.

"We are still importing more than 85 percent of our needs and there is still pressure from Syria and Iran," said economic expert Majid al-Souri.

(Source: Reuters)

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Iraq Business News is delighted to bring you the latest Iraq Market Tracker report from Dunia Frontier Consultants. The market tracker highlights the activities and market performance of a basket of publicly traded firms who derive a significant percentage of their revenues from operations in Iraq, but are traded on foreign exchanges: a proxy Iraq play as much as practicable. It also identifies and analyzes the primary political and security events that occur in country that have market-moving implications.

Click here to access the report.

Companies Mentioned:

DNO, Dragon Oil, Genel, Kuwait Energy, Inpex, Lukoil, Pakistan Petroleum, Shell, Turkish Petroleum, WesternZagros

Action Calls:

• 4th Round Auction fails to impress: Will failure lead to convergence or divergence between Kurdish and central government approaches to oil and gas?
• WesternZagros mulling London listing: Critical mass of Kurdish plays may be emerging in London.

Headlines:

• Sadr invites Maliki to Najaf, only to be rejected: No-confidence rhetoric takes on fevered pitch.
• Barzani: Peshmerga to be unified by end of the year: Long time coming, but timely now, given debate with Baghdad.
• Turkish consulate protesters dissipate: Potential indicator of Baghdad's, and possibly Erbil's, relations with Ankara.

Calendar Events Discussed:

• June 15 - Parliament returns from 6 week break

Click here to access the report, or to add your email address to Dunia's mailing list to receive the Iraq Market Tracker via email.