OilVoice - Iraq Approves Outstanding Foreign Oil Contracts

Iraq Approves Outstanding Foreign Oil Contracts

Wednesday, January 06, 2010

After being forced to wait a number of days, Baghdad has finally approved all pending deals with foreign oil companies, updating their contracts to develop several major fields in Iraq. All the oil firms involved have agreed to technical and legal amendments to their contracts that were introduced in order to ensure the deals' compliance with Iraqi law. Oil ministry spokesman, Assem Jihad, commented that they had received official documents from firms including: Anglo-Dutch industry giant Shell, Malaysia's Petronas, Japex of Japan, and Angola's Sonangol giving their assent to the changes.

Nine technical service contracts were awarded to oil companies in late 2009, two of which were tendered in the first bidding round and the remainder in the second. The inked contracts now pave the way for more than $100 billion in investment, according to the Iraqi oil ministry. Counting together the production pledges made by the winning bidders in the first and second licensing rounds, Iraqi output is set to rise from its current level of 2.5 million barrels per day (bpd) to 12 million bpd within a matter of years, according to the Iraqi oil minister Hussain al-Shahristani. Should such projections prove to be accurate Iraq could become one of the world's biggest crude producers, providing a much-needed stream for a country presently embarking upon a long rebuilding process. Iraq relies on oil sales for 85% of government income.

However, one note of caution: with a number of risks involved with exploration both above and below the surface, the 12 million bpd production target should be viewed with scepticism. In particular, security and dilapidated infrastructure remain obstacles to Baghdad achieving its target.

The Middle Eastern country is home to the world's third largest oil reserves - behind only Saudi Arabia and Iran. It is estimated to hold some 115 billion barrels. However, decades of neglect of the oil fields have been compounded by the effects of war and sabotage in the wake of the 2003 US-led invasion. The violence has meant that Iraq has been unable to even reach its pre-war output levels of crude oil.