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Source: Reuters 2/14/2009, Location: Middle East
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Iraq has proposed to sweeten the terms of the service contract it is offering to international oil firms to boost output at its biggest producing oilfields. The following lists some of the changes in the 20-year contracts proposed during a three-day workshop Iraqi officials hosted for oil firms in Istanbul that ended on Saturday.
BIDDING:
There will be three items for oil firms to bid:
- A short-term improved production target at the oilfield to be reached 18 months after the contract takes effect.
- A long-term enhanced production target at the field to be reached six years after the contract takes effect. The enhanced target must be maintained for a minimum of seven years.
- The cost per barrel of reaching the enhanced production.
Initially, the bidding parameters were:
- A maintenance fee in cost per barrel for maintaining oilfield production at current levels.
- A fee in cost per barrel for increasing output to a set level.
- A fee in cost per barrel for reaching an enhanced output target within seven years and maintaining it.
DECLINE:
- Iraq will write into the contract a five percent decline rate in production rates from the oilfields, which will kick in after the improved production target is reached.
- There was no decline rate in the initial baseline contract, a cause of concern for oil firms as some of the fields were old and were expected to go into decline over the course of the contracts.
- This was one of the most important changes for oil companies as they will receive payment only from output above the baseline rate. If they fail to pump above the baseline, in theory they will not get paid. Lowering the baseline should ensure there is enough output to pay.
STAKE:
- Iraq has changed the ownership structure of the joint field operating units that will be established to run the fields and boost output. Iraq will own 25 percent of the units, while international oil companies will own the rest. The initial split was 49-51 percent.
- The change should ensure oil companies get paid more quickly for their services. Oil firms can receive up to 50 percent of the 75 percent of increased oil output at the fields that in theory corresponds to their stake until costs are paid.
- The stake change will make no difference to investment for oil firms, as they were expected to invest for the Iraq unit and carry the cost.
TIMELINE:
- Iraq will receive feedback until March 6 from oil companies on the contracts. It will issue the final model contract in April. Bids were due in at the end of May or early June, a final date has yet to be set. The contracts would be awarded in June.
ABOUT THE CONTRACTS:
- The contracts are oil service contracts with a flat fee. They are not production sharing contracts, which international oil companies prefer because they give oil companies a share of any profits and allow them to book reserves.
- Iraq's oil ministry prefers to pay with oil.
- Discovered but undeveloped reservoirs at the fields should be developed under separate terms in the contract.
- New reservoirs discovered at the fields will be negotiated separately and developed under new agreements.
AWARD:
- The bids will be opened in front of oil company representatives and scored and awarded to the best bid immediately. Companies will then have time to revise offers for the next field, if they put in bids for multiple fields, before that is awarded.
QUALIFICATION:
- Iraq has qualified some companies as unlimited operators, meaning they can compete for the biggest fields on offer at Rumaila and Kirkuk. Other firms are classified as limited operators and can bid for fields other than Rumaila and Kirkuk.
- Some firms have been qualified as gas operators, and others as non-operators. Iraq has not disclosed the names of the firms in each category.
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