| 2008: Iraq asks oil majors to shorten service contracts worth $3bn |
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July 22, 2008 Iraq has asked international oil companies to revise proposals for technical service contracts worth about $3bn that aim to boost the country’s oil output by about a quarter. The revisions could delay the signing of the six contracts worth around $500mn each—until August or September, an executive at one oil company said yesterday. Iraq’s Oil Ministry said on June 24 it wanted the deals signed within a month. Oil Minister Hussain al-Shahristani has expressed frustration over delays in finalizing the contracts. But Baghdad has asked oil majors for revised proposals for contracts that will last just one year to 18 months, rather than the two years previously stipulated, executives at two of the oil companies said. The short-term deals are being negotiated by Royal Dutch Shell; Shell in partnership with BHP Billiton; BP; Exxon Mobil; and Chevron in partnership with Total. A consortium of Vitol, Dome and Anadarko is negotiating the sixth contract. The deals aim to boost oil output by 100,000 bpd at each of six of Iraq’s largest producing oilfields, adding to current production of around 2.3mn bpd. The contracts had called for the output boost within a year, although that target was not binding and was seen as ambitious by some of the companies negotiating. The executives questioned how much work they could do in the shorter timeframe. “A lot of the equipment we will need takes at least 12 months to deliver. So there is a limit to what we could do in a year,” said one executive. “You have to ask the question as to how serious is the oil ministry really about these deals?” Still, oil companies were making their revisions and preparing to resubmit proposals, executives said. “There is a certain amount of work you can do,” said one. “I think we’d rather get started than wait another year for the next round of contracts.” Iraq asked for the revisions in early July after Shahristani on June 30 laid out plans for a bidding round for longer-term development contracts at the same fields. Baghdad aims to finalize those long-term contracts in June 2009. Iraq wants minimal overlap between the short-term and long-term deals. Shahristani initially wanted the short-term deals signed at the beginning of this year, and showed frustration with delays when the contracts were not signed by the last self-imposed deadline of June 30. Lawmakers said earlier this month that Shahristani had told them the deals may not get signed at all. “The companies were supposed to put them (the contracts) forward at the beginning of the year, but it has been delayed until now,” Oil Ministry spokesman Asim Jihad told Reuters. “The fundamental issue is that there are proposals to shorten the period (of the technical support contracts) so they will not interfere with the round of initial licenses.” Jihad said the longer-term contracts may take a year and a half to finalize. In that scenario, the short-term contracts would last 18 months, he said. Another sticking point for the contracts is how Iraq pays the oil companies, executives said. Iraq had planned to pay the fees in oil through the Iraq Development Fund but is now looking at cash payments, they said. International oil firms hope the short-term contracts might give them a head start in the race for the long-term deals. Big oil firms have jostled for position for years to take a role in developing Iraq’s massive reserves. Iraq’s proven reserves, at 115bn barrels, are the largest after Saudi Arabia and Iran. But decades of war and sanctions have hobbled production. The short-term deals have attracted some criticism in Iraq due to lack of transparency on how the companies were chosen. There was no bidding round. In most cases, the companies had been providing advice, technical assistance and field studies for free to Iraq’s government on the same fields under agreements signed after the US-led invasion in March 2003. Source: Reuters |