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Tough contract terms weaken interest in 2nd day of Iraqi licensing round

Oilfield Technology,

The second day of Iraq’s fourth oil and gas licensing round has been met with a continued lukewarm response as many potential investors are put off by harsh contracts and political insecurity.

Only 2 more blocks were awarded in the second day of bidding. A group led by Lukoil was awarded Block 10, a 5500km2 area in the south of the country covering the Muthanna and Dhi Qar provinces. Inpex was the other member of the group.

Pakistan Petroleum was awarded Block 8, which covers the eastern provinces of Diyala and Wasit. Four new blocks were offered along with two from the previous day, none of which received any bids.

Sabah Abdul-Kadim, of the Iraqi Oil Ministry, was reported as saying, “We have to say we didn’t expect this weak turnout from the companies, but we acknowledge terms for the contracts were tough … We tried to make sure the economics served our interests and the companies, but it’s a difficult balance.”

Many companies were put off by the style of the contracts, which offer a remuneration fee per barrel produced rather than a share of the actual profits. As a rule, companies prefer contracts that allow them to share profits resulting from the sale of hydrocarbons rather than those that bind them to a set per-barrel fee.

Additionally, the contracts available also contained a new clause, which prohibited companies from making deals with the Kurdistan Regional Government without the express permission of the central government in Baghdad. As the region controlled by the KRG has access to large oil reserves as well as the possibility of more relaxed contracts (despite the fact that the Baghdad government views such agreements as illegitimate) it is perhaps not surprising that few companies wish to agree to refrain from such deals.




Edited from various sources by David Bizley

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