Iraq seeks to link oil firms’ fees to crude price
BAGHDAD, January 22, 2016
Iraq is in talks with foreign oil companies to link the fees they receive for developing its fields to oil prices and have them share the burden when markets go down, Iraqi Oil Minister Adel Abdul Mahdi told Reuters on Thursday.
Current service agreements with oil companies are straining Iraq's budget as the government pays the firms a fixed fee for increasing production at ageing fields, when its own revenue is dropping with falling oil prices.
Iraq also pays the cost of infrastructure investment by the companies.
In an interview in Baghdad, the minister said separate talks are under way with the companies to link the fees they obtain to the price of oil, increasing their remuneration in good market conditions and reducing it during bad times.
"We are still in the process of agreeing on a new model," he said.
"The talks seek to establish a correlation between the remuneration fee and the movement of oil prices," he added, calling this model revenue-sharing and ruling out the possibility of production-sharing.
The talks also aim to compress costs that the companies pass on to Iraq, he said.
"We don't want the companies to compensate for their lower profits by increasing costs like hiring many employees abroad, high salaries, sub-contracts offered for their subsidiaries."
Iraq generates 95 per cent of its public budget from oil sales. It has service agreements with companies including CNPC, BP, Shell, Eni, Exxon Mobil and Lukoil, which get paid for the extra barrels of crude produced at fields awarded to them through a bidding process. - Reuters
