Iraq Says It Will Auction Giant Nassiriya Oil Field

AMMAN - The Iraqi oil ministry is planning to auction the giant Nassiriya oil field in southern Iraq on Dec. 19, a senior ministry official said Monday at a workshop held in Amman, Jordan, for international companies interested in the billion dollar project.

Abdul Mahdy al-Ameedi, head of the ministry's petroleum contracts and licensing directorate, or PCLD, said a total of 52 international oil companies would be able to take part in the bidding round for the integrated project--developing a $4.4 billion oil field and building a 300,000 barrel-a-day refinery nearby.

The ministry has accepted seven new international oil companies, including France's Total, to join some 45 firms that had already qualified for the previous bidding rounds. The ministry is also processing documents from a further five companies, Mr. Ameedi said.

The newly-qualified firms are: Russia's Zarubezhneft, China's CNPCI, U.S.'s Brown Energy, India's Reliance Industries, Russia's OAO Lukoil Holdings, Total and Japan's JGC and Tonen General, Mr. Ameedi said. The five firms whose qualifications are in process include Daelim, Essar, GS E&C, Pak-Arab Refining and Maurel et Prom, he said.

Mr. Ameedi briefed the companies on a preliminary draft contract prepared by the PCLD. According to the draft, terms will be different from the technical service contract awarded to companies during previous bidding rounds for oil and gas fields. The changes include amendments to investor costs and a pay per barrel remuneration fee.

Unlike the previous contract, the new one will offer investors a share in project revenues, but only when production begins. The ministry will pay recovery costs from the date of commencement of work, which differs from the previous contract where the costs were only paid when the contractor raised production by 10%.

Investors would have to pay some 35% taxes on the profit they made from Nassiriya project, the same amount as in previous deals.

Oil firms have complained that the terms of ministry's previous contracts were tough and fell short of their expectations. They prefer production sharing contracts rather than the technical service deals that Baghdad previously signed with many of them.

"Terms are not clear yet, but at first glance they are better than previous contracts," a western company executive said. "Now the ministry begins to understand how to make contracts more attractive to companies."

The Nassiriya oil field was offered to a Japanese consortium in 2009 but negotiations were cancelled at the last minute for financing reasons.

Total has been invited to bid, despite angering Baghdad by acquiring stakes in Iraq's semi-autonomous region of Kurdistan last year.

Mr. Ameedi said Total was allowed to invest in the Nassiriya refinery but it wouldn't be allowed to work in the field unless it cancels its projects in Kurdistan. If Total and its partners win the Nassiriya project, it will be allowed to operate the refinery but not the field, he added.

Total, like Exxon Mobil Corp. and Gazprom Neft, signed contracts with the federal oil ministry and then signed subsequent deals with the Kurdistan Regional Government, or KRG.

The oil ministry called all these deals illegal and refused to include companies with KRG contracts in its bidding round. It also issued ultimatums to the three companies saying they must choose between their contracts in the south or their stakes in the north.

Iraq's three aging refineries--Baiji, Daura and Basra--are producing at 70% of capacity, equivalent to around 560,000 barrels a day which is enough to meet 60% to 70% of Iraq's total needs.

Copyright (c) 2012 Dow Jones & Company, Inc.


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