Iraq offers seven contracts in second licensing round

Iraq—hailing the successful end of its second postwar bidding round and hopeful of boosting output to record levels—has awarded 7 oil field service contracts out of the 10 it offered.

Dec 17th, 2009

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Dec. 17 -- Iraq—hailing the successful end of its second postwar bidding round and hopeful of boosting output to record levels—has awarded 7 oil field service contracts out of the 10 it offered.

"It is a very successful bid round," said Iraq’s Oil Minister Hussain al-Shahristani, adding that current production of 2.5 million b/d eventually could be increased to 4.765 million b/d if the companies that won fields meet production pledges.

According to al-Shahristani, one of the largest contract areas on offer in the bidding round was 12.58 billion bbl Majnoon field, awarded to a venture led by Royal Dutch Shell PLC together with Malaysia's Petronas (OGJ Online, Dec. 11, 2009).

That was followed by the 12.9 billion bbl second phase of West Qurna field, which was awarded to a venture of OAO Lukoil and Statoil ASA.

The 4.1 billion bbl Halfaya oil field was awarded to a consortium led by China National Petroleum Corp. in partnership with Petronas and Total SA, while 863 million bbl Garraf field was won by Petronas with partner Japex.

Angola’s Sonangol was awarded Najmah and Qaiyarah fields with 800 million bbl and 858 million bbl of reserves respectively, while the 109 million bbl Badra field was awarded to a consortium of state-controlled companies, including OAO Gazprom, Petronas, TPAO, and Kogas.

Following the awards, al-Shahristani claimed that—in addition to pledges from companies who won earlier field-development contracts—international oil companies have committed to boosting Iraqi production capacity to 12 million b/d, a figure that would rival capacity of world leader Saudi Arabia.

Such production would certainly come under the scrutiny of the Organization of Petroleum Exporting Countries, which in the 1990s exempted Iraq from its quota system. However, in view of al-Shahristani’s claims, OPEC will eventually want Baghdad to accept an output target and work with other members in sticking to it.

Caveats
Analyst BMI issued a caveat regarding the oil minister’s claims, saying that, “Although the second round was certainly a great success when compared with the disappointing first licensing round…a plethora of above and below-ground risks means that the 12 million b/d target should be viewed with caution.”

Legal hurdles are among the risks as work has stalled in parliament on a new petroleum law for Iraq which aims at establishing the legal framework for exploration and development by international companies. Following elections in January 2010, a new government could raise objections to the current contracts.

Security risks remain high, too, highlighted by a series of bombings in Baghdad, where 100 people were killed in early December.

Industry analysts suggested that security concerns explain the lack of bids for three contracts.

BMI also noted that the untapped fields on offer in the second round may prove to be “more technically challenging” than expected, which could result in reserves being downgraded.

For the producing fields that were offered in the first licensing round, BMI said “the overproduction and poor reservoir management that persisted for decades may have irreparably damaged the fields, which could result in production coming in lower than targeted.”

Contact Eric Watkins at hippalus@yahoo.com.

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