The Freeland File
Global Market Data
Tales from the Trail
Lucy P. Marcus
David Cay Johnston
The Great Debate
Jack & Suzy Welch
Macro & Markets
Lipper Awards 2012
Personal Finance Video
Our best photos from the last 24 hours. See more
Images of April
Powerful "Flame" cyber weapon found in Iran
Miami witness describes horror of cannibalistic attack
Doctors disagree on when to stop PSA screening
European shares knocked by Spain bank worries
Spanish debt costs spiral as crisis deepens
Iran has enough uranium for five bombs: expert
Protests planned after minister calls for gays to be fenced in
Biden tells West Point cadets: prepare for new threats
A look at the UK’s most beautiful face
Thu, May 10 2012
Violence erupts as Nepal fails to pass new constitution
Sun, May 27 2012
Tony Blair on Rupert Murdoch, spin and politics
Iraq set to auction new oil, gas blocks
Iran, big powers agree to hold more nuclear talks in June
Thu, May 24 2012
UPDATE 11-Oil up as Iran talks extended, weak data eyed
Thu, May 24 2012
Exclusive: Draft of Nigeria oil bill being finalized
Thu, May 24 2012
Powers, Iran discuss detail of possible nuclear deal
Wed, May 23 2012
Battle for Cove Energy heats up as PTT trumps Shell
Wed, May 23 2012
Analysis & Opinion
Indigenous women lead land rights struggle in Ecuadorean Amazon
Goldman renewable energy dash more than greenwash
By Ahmed Rasheed
Mon May 28, 2012 12:53pm EDT
BAGHDAD (Reuters) - Iraq will auction 12 new oil and gas exploration blocks this week in a fourth energy bidding round, as it seeks the rapid expansion of a sector vital to its economy, but tough contract terms mean Baghdad may struggle to drum up major interest.
The country, a member of the Organization of the Petroleum Exporting Countries (OPEC), has the world's fourth largest oil reserves and can offer some of the last potentially rich unexplored territories after its energy sector was left under-developed by decades of war and economic sanctions.
Foreign energy companies are hesitant over Iraq's offer of service contracts, under which they would be paid a fee for their services. Such deals are seen as less advantageous than production-sharing contracts, through which explorers can claim a share in profits from output.
The auction, now scheduled for Wednesday and Thursday, has already been postponed several times by the oil ministry to address complaints by potential bidders about contract terms.
In February, Baghdad made concessions to lure participants to the round, notably by dropping a clause that required companies to be partners with a state oil operator.
"Everything is in place to make this a success and as part of that we have eased the contract terms," Abdul-Mahdy al-Ameedi, director of the oil ministry contracts and licensing directorate, told Reuters.
Companies will still have to weigh the limited advantages of service contracts, especially if they are not immediately given access to any crude oil, against risk from Iraq's political instability and the absence of a formal legal framework for the contracts due to delays in passing a national oil and gas law.
Companies that win bids will be able to extract gas discovered in the blocks immediately, but the Iraqi government has retained the option to pay companies compensation to keep oil in the ground and boost its own reserves.
The exploration blocks on offer are mostly in remote parts of western and central Iraq, making them riskier investments since the sites would be harder to protect against possible insurgent attacks.
"Neither the terms nor the acreage on offer are attractive, so I wouldn't be surprised if there were little interest from the international oil companies," said one senior Western oil executive, who asked not to be identified.
While violence in Iraq has fallen sharply since the height of the war in 2006-2007, Sunni Islamists tied to al Qaeda are still capable of bombings and attacks, mainly hitting security forces or government targets.
An important drawback is the Iraqi parliament's failure to agree on new hydrocarbon legislation because of a long-standing dispute over oil and land between the autonomous Kurdish region and Baghdad's Arab-led central government.
Without the new laws, Baghdad relies on legislation dating back to the nationalization of Iraq's oil industry in 1972.
According to a final tender document, the outcome of the bidding will be decided only according to the remuneration fee companies seek for each barrel of oil equivalent produced. The bid with lowest fee will win an exploration block.
Industry sources said companies would have to bid $10 to $20 a barrel for the service fee to compensate for the risk involved.
"The remuneration fee bids will have to be at least that high to make any sense of the economics," said an oil company source.
Iraq qualified 47 energy companies, ranging from oil majors such as BP to Russian state-run operator Gazprom, to participate in the auction, which is expected to add 29 trillion cubic feet of gas and 10 billion barrels of oil to Iraq's current reserves of 143.1 billion barrels.
U.S. oil major Exxon Mobil was disqualified from participating in the fourth round after it had signed an exploration deal with the autonomous Kurdish region, a move the central government in Baghdad viewed as illegal.
The sprawling exploration blocks could be among the world's last major unexplored territories with such potential.
"Who could miss such a golden opportunity to invest in such promising areas. The crude and gas are there and it only needs someone to poke them," Baghdad-based oil analyst Hamza al-Jawahiri said.
Iraq's gas reserves of 112 trillion cubic feet are the world's 10th largest, according to U.S. Department of Energy data.
In light of the potential legal, political and security difficulties, national oil companies, willing to accept tougher conditions, are likely to be the most determined bidders.
"I'm certain there will be bidders and they will likely be aggressive, albeit dominated by national oil companies," a senior oil executive said, referring to state-run companies who analysts say would be more willing be accept tougher conditions.
The exploration deals are expected to help Iraq maintain and increase reserves to offset expected depletion and could strengthen Baghdad's case within OPEC for a large export quota when it returns to the exporter group's quota system.
(Additional reporting by Peg Mackey in London; Editing by Patrick Markey and Anthony Barker)
Related Quotes and News
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Back to top
New York Legal
Support & Contact
Connect with Reuters
Our Flagship financial information platform incorporating Reuters Insider
An ultra-low latency infrastructure for electronic trading and data distribution
A connected approach to governance, risk and compliance
Our next generation legal research platform
Our global tax workstation
About Thomson Reuters
Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.
NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.