Tuesday, Oct 14, 2008
(Adds comments from oil minister and U.S. oil company official; details on licensing round, production targets and provincial elections; and background)
LONDON (Dow Jones)--Iraqi Oil Minister Hussain al-Shahristani laid out details Monday of the country's first- ever oil licensing round, and said the national government will have firm control over several oil fields that will be jointly developed with foreign companies.
Shahristani said Iraqi state-run entities will have 51% control in projects to rehabilitate six oil fields already producing crude and two natural gas fields yet to be developed. Foreign companies will have 49% in projects and operate under fee-based service contracts.
Shahristani, in London to address companies on details of the licensing round, made clear that Iraq wants to move fast with the licensing round after endless delays getting its oil sector back on its feet since the end of the U.S.-led invasion in 2003.
Foreign companies are expected to submit bids within six months and the government wants deals in place by June. Only the Iraqi cabinet, not the Iraqi parliament, will get to approve whatever deals end up being signed, he said.
"We can't afford any more delays," Shahristani told journalists after meeting officials from 35 oil companies earlier in the day.
Shahristani said the profits companies made depended on how efficiently they run their operations and how much added crude production they're able to help state-run companies squeeze from the existing fields. He wouldn't specify what type of financial fees companies stood to gain for their work.
Baghdad hopes contracts for the fields, which are expected to run for 20 years, will help boost the country's crude production capacity to 4.5 million barrels a day by 2012 from 2.5 million barrels a day now.
The details of Iraq's first licensing round come at a time when security in Iraq has improved greatly over the past year.
But political uncertainty abounds.
Iraq is expected to soon hold provincial elections, which could unleash violence. Iraq is also moving forward with the licensing round despite having no federal oil law in place, a sign of the angst Iraq's government has in boosting oil production and oil revenue. The proposed federal oil law has been delayed by almost two years due to bickering between the Northern Kurds and Baghdad over issues such as who should control which oil fields and whether the Kurds should be allowed to sign their own oil deals.
It's quite possible the licensing round itself will get caught up in political disagreements between Iraq's different factions - especially since parliament, with all its factions, won't get to vote on the deals.
Such political dissent already torpedoed Iraq's plans for a handful of much talked-about technical service contracts that were aimed at increasing Iraq's pumping capacity by 500,000 barrels a day. Those short-term deals were canceled in September.
International oil companies, including Exxon Mobil Corp. (XOM) and Total SA (TOT), are now poring over details of the licensing round and finding their work will be cut out for them.
One official from a major U.S. oil company said the company's initial problem with some details of the bidding round was the ambitious targets for hiring mostly Iraqis for positions to execute much of the work.
"If Iraqi folks we have to hire aren't meeting deadlines, and the deadlines are tight, do we get to bring in more of our own people?" the official asked. "We don't know yet. Do we lose the contract if we don't hire enough locals?
"There are many details we have to find out more about," the official said.
Shahristani said signature bonuses, or fees companies pay to the government after being awarded a deal, will start at $10 million and run significantly higher. Corporate taxes will be levied at 35%.
Companies will get full cost recovery for their investments and basically get paid either in fees or "in kind," or hydrocarbons.
But it was unclear exactly what being paid in hydrocarbons would entail, and Shahristani didn't elaborate.
Around two-thirds of the 35 companies that have been "prequalified" to place bids for the eight fields are international firms like Total SA and Exxon. The other one-third are national oil companies.
Under Iraqi dictator Saddam Hussein the country's Oil Ministry signed deals with companies purely on a bilateral basis, not through open bidding rounds, said Natik Al-Bayati, who heads Iraq's petroleum contracts and licensing department.
-By Spencer Swartz, Dow Jones Newswires; +44 (0)207 842 9357; spencer.swartz@dowjones.com
(END) Dow Jones Newswires
14-10-08 0438GMT
