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Iraq sets oil majors contract ultimatum

by Reuters on Wednesday, 23 April 2008
Iraq may drop oil service deals with oil majors if they fail to sign the contracts by June, Iraqi Oil Minister Hussain Al-Shahristani said on Tuesday.

Iraq is negotiating five short-term oilfield service contracts worth around $500 million each aimed at boosting its output by around a quarter. The Opec member had hoped to sign the contracts in March.

"June is a bit late, if they are not ready by then we might not really require technical service contracts... we may drop them if they are not signed soon," he told reporters.

BP, Royal Dutch Shell and Exxon Mobil were negotiating a deal each. Shell is negotiating another deal together with BHP Billiton, while Chevron and Total together are working on a fifth deal.

Each deal was to boost Iraqi output by around 100,000 barrels per day (bpd). But Iraq was making progress on its own on the fields, and the longer the contracts take to sign, the harder it will be for majors to add 100,000 bpd of additional output at each field, he said.

Al-Shahristani blamed the delay in signing on the oil companies, which he said were concerned about the mechanism of payment in oil through the Iraq Development Fund.

Iraq wants long-term development contracts that it will offer in a first bidding round this summer to come into effect from the middle of next year, Al-Shahristani said.

He declined to give the length of the contracts or more details on payment. The terms of the contract would be based on service contracts, as there was no risk involved in developing already-producing fields, he said.

The contracts will be for Iraq's already producing giant oilfields in the south and around Kirkuk in the north. The list of fields to be offered in the round had yet to be finalised, he said.

A second and third round of bidding may be held next year, the minister said. The type of contracts to be offered was yet to be finalised, but a royalty tax of 12.5% and a windfall oil tax would be included in the clauses, he said.

Iraq has disqualified companies that have oil deals with the Kurdish government from bidding in the first round, the minister said.

"Any company that breaks Iraqi laws would not qualify for the contracts, the computer would automatically disqualify them," he said. "We have informed the companies ahead of time."

Baghdad says the Kurdish oil deals are illegal. Al-Shahristani said the Kurdish government had not offered the oifields in a bidding round, so the contract awards lacked transparency.

Four oil deals signed in the Saddam-era would be respected, although the terms of all the deals would be negotiated, Al-Shahristani said.

One of those deals was with Chinese National Petroleum Company for the Ahdab oilfield, he said. Iraqi officials had met Chinese officials to renegotiate the contract and expected to conclude it soon.

Before the 2003 Iraq war China had agreed a $700 million deal with Saddam Hussein's government to develop the field

The deals needed to be renegotiated to ensure they were in line with a draft oil law agreed in Iraq in February last year, he said.

The three other contracts were oil service contracts. The companies that held those contracts were unlikely to want to proceed as the deals were made when oil services were a lot cheaper, Al-Shahristani said.

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