Iraq Issues Biding Rules for 2nd Licensing Auction

AMMAN (Dow Jones), Nov. 23, 2009

The Iraqi oil ministry has released bidding rules and final model contracts for Iraq's second post-war oil licensing auction to develop some of the country's prized fields with estimated proven reserves of more than 35 billion barrels.

For the auction scheduled Dec. 11-12, the ministry's Petroleum Contracts and Licensing Directorate, or PCLD, has set two bidding parameters: U.S. dollar per barrel remuneration fee and production plateau target, according to documents obtained by Dow Jones Newswires.

Unlike the first bidding round held in June this year, best scores in the second auction would be calculated on the basis of giving some 80% weight toward the remuneration fee.

This would stop bidding companies from raising the production plateau too high in order to gain more returns from super-giant fields such as Majnoon, West Qurna-2 and Halfaya, all in southern Iraq.

Production plateau periods of the 10 groups of oil and gas fields on offer range between seven and 13 years.

For the second bidding round, the ministry again has given conservative estimates for minimum production targets. For example, Majnoon's minimum target is 700,000 barrels a day half what could be produced from the field, which holds proven reserves of more than 12.5 billion barrels.

The 10 groups of oil and gas fields in question are: Majnoon, West Qurna-2, Halfaya and Garraf in southern Iraq, East Baghdad and Badra in the center, Qayarah, Najmah in the north, Eastern fields Qumer, Gilabat, Nau Doman and Khashm al-Ahmar (gas field)--northeast of Baghdad, and Middle Furat fields Kifl, West Kifl and Merjan in the center of the country.

These could deliver at least another 2.6 million barrels a day, according to the ministry's estimates and would push the country's production target to more than 9 million barrels a day from the current 2.5 million barrels a day.

In June, China National Petroleum Corp. and BP PLC (BP.LN) were the only companies to secure one of Iraq's prized oil fields, Rumaila. They set a production plateau target of 2.85 barrels almost triple its current production.

Earlier this month, two consortiums accepted the ministry's tough terms and agreed to sign deals for oil fields listed in the first bidding round. Exxon Mobil Corp. (XOM) and Royal Dutch Shell PLC (RDSA) secured the giant West Qurna-1. Italy's Eni SpA (E) and its partners Occidental Petroleum Corp. (OXY) and Korea Gas Corp. (036460.SE) of South Korea clinched an initial agreement to develop Zubair. These two pacts are still awaiting the approval of the Iraqi cabinet.

PCLD officials had said that the remuneration fees for the second round would be slightly higher than in the June round when they ranged between $1.90 and $2 a barrel because most of the fields in the new round are non-producing fields unlike those in the first.

The tender protocol listed 44 companies prequalified to take part in the two-day bidding round. However, not all companies had paid the participation fees by last Friday's deadline. Sabah Abdul Kadhem al-Saadi, the PCLD's legal and commercial department head, said two to three companies hadn't paid but he didn't name them.

The document also defined the signature bonus that winning companies need to pay for each field. These bonuses are between $100 million and $150 million each depending on the size of the field.

Iraq aims to clinch 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.  

Copyright (c) 2009 Dow Jones & Company, Inc.

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