Iraq Oil License Terms Forbid Deals With Kurdistan

The terms for Iraq’s latest energy licensing auction, scheduled for Wednesday and Thursday, will bar successful companies from signing contracts with the country’s semiautonomous Kurdistan region, oil industry officials said Tuesday.

The Oil Ministry has for the first time inserted a clause in the final contract model permitting the ministry to cancel contracts if the signatory signs an oil deal with the Kurdistan Regional Government, or any other local government, without obtaining prior approval.

The move comes after Iraq earlier this year barred Exxon Mobil Corp. from taking part in the upcoming licensing round, at which 12 exploration blocks will be awarded, after the U.S. energy giant signed a deal with the KRG. Exxon was told to choose between its contract in southern Iraq and those it signed with Kurdistan.

“We decided to include an obligation on the side of the companies…not to work in any area of Iraq–not just the Kurdistan region–without the approval of the federal government,” Abdul Mahdy al-Ameedi, the head of the Ministry’s petroleum contract and licensing directorate, told Iraq Oil Forum, a widely-read oil blog.

In a bid to lure companies to take part in the new licensing auction, the fourth Iraq has held since 2003, Baghdad has dropped a clause that required foreign companies to be partners with a state oil firm. In previous deals, the state company took 25% in all projects.

But a clause that gives the Ministry the right to postpone development of fields for up to seven years from the date of announcement of commercial discovery has been retained, despite being unpopular.

Baghdad is set this week to auction 12 promising exploration blocks, seven of which are believed to contain natural gas, and five to contain crude. The new bid round is expected to add some 10 billion barrels of crude oil and some 29 trillion cubic feet of gas to Iraq’s reserves. The Ministry is offering service contracts, which means winning companies will be paid a flat fee for their services rather than be given a share in the resources.

Of the 47 prequalified companies, 39 had paid participation fees. Analysts, however, aren’t expecting them all to bid and many think the round may attract smaller firms, while most existing participants in Iraq are expected to stay away.

“The conditions and terms of the new auction aren’t encouraging,” said an executive from a big Western firm, which won’t bid despite having prequalified and paid the participating fees.

If all 12 exploration blocks are awarded and signed, Iraq would make some $235 million in signature bonuses, an oil official said. Signature bonuses would differ from one block to another, with crude fields different from gas fields.

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