Iraq to Alter Signature Bonuses on 2 Oil Field Deals

AMMAN (Dow Jones), Apr. 15, 2010

The Iraqi oil ministry is seeking unrecoverable signature bonuses, rather than recoverable five-year soft loans, from international oil companies planning to develop two of the country's giant oil fields, a senior Iraqi oil official said Thursday.

"We have asked companies to pay signature bonuses instead of the soft loans for West Qurna Phase 1 and Zubair oil fields," Mr. Abdul Mahdy al-Ameedi, director-general of the oil ministry's Petroleum Contracts and Licensing Directorate said. "We have sent our proposal to the council of ministers for approval."

The cabinet, which holds an ordinary meeting every Tuesday, needs to issue a decision on the move.

Iraq had set a recoverable five-year soft loan of $400 million for the super-giant West Qurna Phase 1 oil field to be paid by ExxonMobil Corp. (XOM) and Royal Dutch Shell PLC (RDSA). Ameedi said the ministry asked them instead to pay an unrecoverable $100 million signature bonus. Both firms signed in January a deal with Iraq to develop the field.

Italy's giant oil company Eni SpA (E) and its partners Occidental Petroleum Corp. (OXY) and South Korea's KOGAS would pay a $100 million signature bonus instead of a $300 million soft loan, Ameedi said. The firms clinched a deal with Iraq to develop the field in January.

ExxonMobil declined to comment on the changed terms. Shell and Eni could not immediately be reached for comment.

The signature bonus is a sizable reduction from the $400 million-$500 million the Iraqi government had sought months ago. It is also considerably less than the signature bonuses some companies have been required to pay out in places like Libya.

BP PLC (BP) and its partner China National Petroleum Corp., which won the right to develop Iraq's largest producing oil field Rumaila, had already paid Iraq $500 million as recoverable soft loan. Ameedi said that wouldn't be altered. "The money was already paid and it was put in Iraq's account."

The three Iraqi oil fields--West Qurna Phase 1, Zubair and Rumaila--were listed in the first licensing auction, Iraq's first major competitive energy tender in decades and one of the biggest in history, in June 2009.

In the seven oil deals that Iraq awarded to international oil companies during the second post-war bidding round held last December, the government set signature bonuses ranging between $100 million and $150 million in accordance with the size of the field.

Asked why the ministry decided to alter these loans to signature bonuses for the fields in the first bidding round except for Rumaila, Ameedi said: "When we set the recoverable loans earlier last year, oil prices were very low hovering around $38 a barrel and Iraq was in dire need of cash. Now oil prices are much higher [around $85 a barrel] and Iraq earns more money from its oil sales. So Iraq is now in better situation."

Iraq, which rests on the world's third largest oil reserves, signed 10 major oil deals with the aim of boosting its production to 12 million barrels a day in six to seven years from now, up from current 2.4 million b/d.

(Spencer Swartz in London contributed to this article.)

Copyright (c) 2010 Dow Jones & Company, Inc.

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