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Iraq unveils oil, gas exploration auction details

Baghdad, April 21, 2012

Baghdad has unveiled a list of signing bonuses and the final contract for a forthcoming energy auction, the latest stage in a bold oil expansion plan that moves on from developing existing oilfields to searching for new reserves.

After targeting production capacity in three post-war licensing rounds, Baghdad is now focusing a fourth tender mostly on finding gas in remote parts of western and central Iraq.

The country is potentially one of the world's last great unexplored territories after decades of neglect due to wars and sanctions. 

According to a 'Final Tender Protocol' obtained by Reuters, the 12 oil and gas exploration blocks up for grabs on May 30-31 could net the central government up to $235 million in non-recoverable signing fees if they are all taken up.

Those companies awarded contracts will each be obligated to spend a minimum of $90 million to $130 million, depending on the block.

Companies will be able to extract gas discovered in the blocks immediately, but the Iraqi government has retained the option to make companies wait up to seven years to start extracting oil and pay them compensation in exchange.

The auction was repeatedly pushed back as potential bidders had strong complaints about the terms of the initial service contract. Baghdad made some improvements in February.

 'It was a move in the right direction, but there is still potential for a delay in development - especially if oil is found,' said a senior oil executive. The definitive model contract issued on Friday has only minor changes compared with the draft, said an Iraqi oil official. 

'The economic terms in the final contract are more lucrative and favourable to the foreign firms compared to the service contracts of the previous rounds,' he said.

US oil major Exxon Mobil did not make the final list of 47 pre-qualified bidders for the fourth round, because it had signed a deal with the semi-autonomous Kurdish north.

But Exxon, along with other companies that have existing Iraqi licenses such as BP, Eni and Royal Dutch Shell, may look to explore for oil below and beside their existing oilfield projects, instead of competing for new assets.

Total has also provoked Baghdad by expressing interest in Kurdistan. But Chief Executive Christophe de Margerie, long a critic of Iraq's service contracts, said the French major will not seek deals in the exploration round.

'The majors that participated and were successful in the (first three) oil rounds have their fill of southern Iraq by now,' said a Western oil company source.       

The fourth round could present an opportunity for those not involved in Iraq's upstream such as oil major Chevron, for trading companies and Middle Eastern energy firms.

'There are a number of newcomers on the shortlist that have lots of money,' said a Western industry source.

Following its earlier oil licensing rounds, Iraq raised its proven oil reserves by 25 percent to 143 billion barrels, and experts say tens of billions of barrels are still to be found.

Baghdad now wants to prove up even more. The 12 blocks on offer are expected to add 29 trillion cubic feet of gas and 10 billion barrels of oil to reserves.

The government is also keen to show that it is tackling an acute power crisis by searching for more gas.

Industry sources say the potentially gas-rich blocks on offer are attractive but that Baghdad has no clear strategy for the transport and use of any resulting gas production, which could make some loath to bid.

Political instability in nearby Syria, a destination and transit route for proposed gas pipeline exports, may also give some investors cold feet.

Iraq already has significant volumes of associated gas that are produced alongside oil at the giant southern fields of Rumaila, West Qurna-1 and Zubair. But most of that is flared. For those hoping to find oil, the big prize is Block 9 in the southeast near the border with Iran.-Reuters




Tags: Oil | Iraq | gas | exploration | Auction |

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