OilVoice - Baghdad Sets Terms on Second Round of Oil Field Auction in Iraq

Baghdad Sets Terms on Second Round of Oil Field Auction in Iraq

Monday, December 07, 2009

Iraq has released further details of bidding terms for the second licensing round auction of a group of ten groups of oil fields, scheduled to be held on December 11-12. The national government has said that developing the fields could add another 2.6 million barrels per day (bpd) to Iraqi oil output. The fields on offer under the second round have extra attraction for foreign investors as they are largely undeveloped. This means that significant additional reserves and production potential could be available, and that the fields have not been subject to the poor reservoir management techniques that have damaged the productivity and longevity of the pre-developed fields on offer in the first round. To put it simply, the fields on the table at auction offer higher synergies to bidders. A number of international oil companies have shown considerable interest in the bidding round. According to Sabah Abdul Kadhim from Iraq's oil ministry, of the 45 companies that had pre-qualified for the licensing round, 40 companies have paid the $250,000-$500,000 participation fees, with the exact sum depending on the field.

So, which oil fields are in line to be spun off by the government? Baghdad has put 10 groups of fields, covering a total of 15 fields, on offer in the second tender: Najmah, Qaiyarah, East Baghdad (Central and North), the Eastern Fields (Gilabat, Khashem Al-Ahmar, Nau Doman, Qumar), Badra, Middle Furat (Kifl, West Kifl, Merjan), Halfaya, Garraf, Majoon and West Qurna phase 2. Importantly, as in the first licensing round, all contracts will be technical service contracts (TSCs), rather than the production sharing contracts (PSCs) favoured by the interested international oil firms. Baghdad is looking to sign 20-year TSCs for the fields.

Iraq's Petroleum Contracts and Licensing Directorate (PCLD) is reported to have set two main bidding requirements: the remuneration fee and production plateau target, with 80% of the weighting in the awarding of the contracts to be put on the remuneration fee. The service fee paid to foreign companies will reportedly be higher than in the first bidding round when it was $1.90-$2.00 per barrel, because the fields are undeveloped. The Iraqi oil minister, Hussein al-Shahristani, previously commented that he expects the service fee bids in the second round to be 'a better match between [Iraqi government] expectations and what the companies will bid'.