Iraq Offers Oil Fields Under New Contract Terms

Iraq's oil ministry has launched a new round of bidding to develop 12 small to medium-sized oil fields and will directly negotiate terms with oil companies as it seeks to move away from the service-based contracts it agreed for the development of its giant fields.

The 12 fields now on offer straddle three provinces: four in Basra, five in Misan and three in the Central province, according to a tender document on the ministry's website.

The ministry pre-qualified 19 companies for the round including six Japanese firms, the UAE's Dragon Oil (DRAGY), Mubadala Oil, and Crescent Petroleum, Glencore Exploration Ltd, as well as firms from China, Russia, Italy, Kuwait, Indonesia, Vietnam, Thailand and Romania.

The new invitation to tender allows oil companies to "submit their own proposals for contractual, commercial and financial terms and conditions," a clear shift from the service contracts used for the country's giant southern fields.

The ministry will hold direct negotiations with individual IOCs or consortia and use those talks as the basis for awarding development and production contracts for the fields.

Under the service contracts used for Baghdad's post-2003 bidding rounds including those for its giant southern fields like Rumaila, West Qurna 1 and 2 and Majnoun, the ministry pays IOCs a fixed dollar-denominated fee every barrel of oil produced.

While the model worked well for Baghdad when oil prices were high the slump in prices over the past two years left Baghdad paying the same fees to firms like BP, Exxon, Lukoil and Shell at a time when revenue from oil sales was significantly lower.

The oil ministry has repeatedly said it wishes to renegotiate the terms of its service contracts with IOCs to link fees they receive for developing its fields to oil prices and have them share the burden when markets go down.

Companies that have not been prequalified may also participate in the tendering after paying a $15,000 fee and submitting proof of their technical and financial capabilities.

A data package costing $50,000 is available for purchase from the oil ministry.

(By Ahmad Ghaddar)