Iraq Sends Model Contract, Terms for Bid Round to International Oil Cos

AMMAN (Dow Jones Newswires), Apr. 27, 2009

The Iraqi oil ministry has sent out to international oil companies the final model contract and tender protocol for the eight oil and gas fields included in its landmark first bid round, ministry sources and company officials said Monday.

The delivery of the model contract and tender protocol is the first in a series of timelines fixed by the ministry. International oil companies are to pay participation fees for the fields on which they choose to bid by June 1, ministry sources told Dow Jones Newswires.

Companies have to submit by June 15 a bid bond of $5 million to the oil ministry for each field on which they choose to bid. The money is recoverable for companies that don't win contracts. By May 15 companies need to submit details about their representatives to obtain Iraqi visas in order to attend the bidding session.

Next is the bidding and award session on June 29 and 30 to be held in Baghdad, where international companies will submit their bids and the ministry will award contracts and name the winning firms. The session will be public and open to the press, they said.

They said that the signing of contracts is to take place in August as the Iraqi cabinet needs to approve draft contracts before it can sign them with winning companies. The ministry expects the contracts will be approved by the cabinet by July.

The producing oil fields in question are Kirkuk and Bai Hassan in northern Iraq, West Qurna phase 1, North and South Rumaila, Zubair and Missan in southern Iraq. The two non-producing gas fields are Akkas in western Iraq and Mansouriya in the center.

Payment of a participation fee entitles a company to receive these documents and to bid for the fields, subject to qualification. Some 32 international companies have so far bought these documents out of the 35 companies pre-qualified by the oil ministry, ministry officials said.

The oil ministry has already announced a $250,000 fee for each of the two nonproducing gas fields of Akkas and Mansouriya, $350,000 for the Missan field and $500,000 for each of the remaining five oil fields. A $2.5 million flat fee has been fixed for all eight fields, the company officials said.

The final tender protocol which was also delivered to companies constitutes the definitive process document for the licensing round and includes additional details on the bidding process and evaluation parameters, the bidding timetable, each field signature bonuses, and a baseline production level for each field.

The most important change the directorate had made to the original model contract was that oil firms would have a 75% stake in the joint ventures, with state-owned Iraqi operators at the fields holding the rest, he said. That was up from a 49-51% equity stake initially proposed.

The tender protocol outlines the bidding parameters. Ministry officials have mentioned some of the these parameters: cost per barrel of maintaining the same output over 20 years, an incremental remuneration fee, and the cost per barrel of raising output above a predefined production baseline. Oil companies would recover their costs from oil they pump above the baseline.

These are 20-year service contracts, which mean that winning companies would receive remuneration in kind for each produced barrel as well as cost fees. Big oil companies prefer deals that give them a share of profits and allow them to book reserves.

Baghdad hopes contracts for the fields will help boost the country's crude production capacity to 4.5 million barrels a day by 2012 from 2.4 million barrels a day now.  

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