Iraq oil bid delay seen as positive

Iraq is amending contract terms amid signs that ExxonMobil's move into Kurdistan will go unpunished.

A worker at the West Qurna oilfield in Iraq's southern province of Basra. Reuters

Iraq has further delayed its latest oil exploration bidding round amid signs it is improving the terms under which international oil companies (IOCs) operate.

The country has also refrained from disqualifying ExxonMobil in spite of its move into the Kurdistan region of northern Iraq against the wishes of Baghdad.

"We have made major changes and amendments on the initial contract that concern the economic and contractual terms and the result was a new model contract," Abdul Mahdy Al Ameedi, the director of the oil ministry contracts and licensing directorate, told Reuters.

The fourth bidding round is Iraq's first auction for exploration rights in three decades. It has been delayed several times, and is now scheduled to begin on May 30. The delay will help oil companies study changes made by the ministry of oil, according to Mr Al Ameedi.

"The changes and amendments on the exploration contract were mainly touching the pricing formula and profits of the companies, and how to determine their shares in the contract," he said.

International oil companies have long complained about the nature and the profitability of previous contracts.

The latest announcement could give hope to companies that terms will be amended in their favour.

"The [existing] technical service contracts are very tight, the Iraqis managed to squeeze companies quite heavily on the terms," said Sam Ciszuk, an analyst at the consultancy KBC Energy Economics.

"IOCs were still moving forward with this because of potential future opportunities. Now it seems like those opportunities look fairly unattractive and the Iraqis have seen that they need to do something about that."

The technical service contract model used to revive the giant fields in Iraq's south is not suited for exploration and production work, Mr Ciszuk said. Iraq's existing contracts pay producers only above a minimum production threshold.

The bidding round is for 12 new oil and gas exploration blocks that are expected to yield 29 trillion cubic feet of gas and 10 billion barrels of oil.

The government has qualified 46 energy companies to take part in the auction, of which 37 have expressed an interest in bidding.

ExxonMobil, which incurred the wrath of the central government by defying its implicit ban on developing reserves in the Kurdish autonomous region, is still one of the companies qualified for bidding.

The US company in November signed a contract with the Kurdish Regional Government to explore six blocks in the northern region. Baghdad's reaction culminated in a threat by an Iraqi oil official to remove Exxon from its concessions in the south.

Iraq's reluctance to act against Exxon is because of fears that would jeopardise the government's production targets, Mr Ciszuk said.

Exxon is developing the huge West Qurna 1 field near Basra, and also has the lead role in a desalination project that will provide water needed to enhance production in southern fields.

Punishing the company would also deter other international operators at a time when a fraught security situation and a long-standing deadlock in political decision-making is discouraging investment in the country.

"If you are going to enforce a tough line on Exxon you might see companies leaving," Mr Ciszuk said.

While production in Iraq has so far focused on oil, the coming bid rounds are expected to address the country's shortage of natural gas that is hampering electricity generation.

Iraq harbours the world's fourth-largest oil reserves. Its gas reserves are estimated at 112 trillion cubic feet, making them the world's 10th largest, according to US department of energy data.

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