The Iraqi oil minister hopes that halving the amount of upfront payments it will seek from foreign companies bidding to develop its oilfields will result in more deals. Ministry officials said yesterday that Iraq would seek US$1.2 billion (Dh4.4bn) in signature bonuses from firms signing long-term service contracts to develop oilfields in the country's second post-war bidding round, which is due to take place in November.
That is down from $2.6bn of bonuses sought in the first round, which was held in late June and resulted in seven of the eight contracts on offer being left on the table. "Some oil companies told us that the level of the signature bonus in the first bidding round has affected their fees in a very significant way," Dr Hussain al Shahristani, the Iraqi oil minister, said in Istanbul following a meeting with 45 firms pre-qualified to participate in the licensing round.
In the previous auction, bids on service contracts to raise production from six of Iraq's biggest oilfields were judged mainly on the basis of the payment per barrel the companies asked for their work. In most cases, those fees were higher than the government was prepared to pay. But a big snag with the new proposal is that the lower signature bonuses would be non-refundable payments to the government, instead of soft loans.
In other respects, not much about the contract terms has changed. As with the earlier bidding round, they will be for terms of between 20 and 25 years, and Iraq will take a 25 per cent stake in any project. Analysts said that would not be enough of an inducement to lure foreign participants to Iraq's oil sector under what are still extremely tough terms. "Companies were unwilling to go for the biggest fields on offer anywhere in the world in the first round," said Samuel Ciszuk, the Middle East energy analyst at IHS Global Insight. "Would they really go for smaller fields, some of them in riskier parts of Iraq, on the same terms? It doesn't look good."
The second licensing round would give foreign firms access to 10 groups of oilfields that are not yet producing. Failure to sign more development deals would be bad news for Iraq, which is desperately seeking to raise output from the world's third-biggest oil reserves in order to boost export revenues needed for reconstruction. It could also derail Dr al Shahristani's chances of remaining oil minister, as Iraq gears up for national elections early next year.
Despite the vast size of Iraq's crude resources, most oil companies have been wary about security issues and political instability, and about signing contracts that may not be legally enforceable. @Email:tcarlisle@thenational.ae Gulf Keystone lifts estimate, b4
