A consortium led by Kuwait Energy, which also includes Turkey’s state-run Turkish Petroleum Corporation (TPAO) and Dubai-based Dragon Oil, has won an oil exploration block in southern Iraq.
Iraq has put 12 oil and gas exploration blocks up for sale at a two-day auction that opened yesterday. Of the six blocks offered yesterday, however, just two received bids and only one was accepted by Baghdad.
The consortium will operate at a 900-square-kilometer oil exploration block in the southern province of Basra, for a service fee of $6.24 per barrel of oil. The companies must pay a $25 million signing bonus, while their minimum expenditure is set at $90 million.
During the first day of auctioning, foreign firms made no offers on four blocks and a group led by UK-based Premier Oil rejected a government offer on the fee for a fifth block, scuttling an agreement there.
The Iraqi Oil Ministry had approved the participation of 47 international energy companies, although only 39 paid the participation fee. Six blocks were auctioned yesterday. Another six will be auctioned today.
Top among the approved companies are the Anglo-Dutch Royal Dutch Shell, the U.K.’s BP, Chevron and Occidental of the U.S., China’s CNOOC and CNPC, Japan’s Japex, and Russia’s Lukoil.
“This competition is transparent and public,” Oil Minister Abdelkarim al-Luaybi said in remarks to open the auction. “Many qualified companies will participate. The round is considered very important for the ministry and the country to develop and improve the economy.”
The sale, the fourth such auction to be organized by Iraq since mid-2009, comes as the country ramps up its oil exports, which account for the vast majority of government income, and looks to raise gas production to increase woefully inadequate electricity output.
But unlike the three previous sales, which offered contracts to foreign energy firms to raise output at existing oil and gas fields, Iraq will this time be showcasing areas earmarked for exploration.
Conditions appeared less attractive than in the three previous rounds held since 2009. Only areas with undetermined hydrocarbon resources are on offer, while previously the rights to known big and medium oil and gas fields were being auctioned off. Operating costs for energy companies could be high because most of the 12 exploration blocks are in remote and unsafe areas and lack infrastructure.
Baghdad is also now mandating that firms winning contracts agree not to sign deals with the autonomous Kurdish region, or any other sub-national authority, without the central government’s approval, according to the head of the oil ministry’s petroleum contracts and licensing department.
The new requirement comes with Baghdad and Arbil authorities in Arbil at loggerheads over the dispersal of oil revenues, and with an oil and gas law that would regulate the sector still languishing in Parliament.
Crucially, ExxonMobil, which has a contract to increase output at one of Iraq’s biggest oil fields, will not be taking part in the auction, after Baghdad barred the U.S. energy giant for having signed a deal with the Kurdish region without the central government’s go-ahead.
Kurdistan has signed dozens of contracts with foreign energy firms, but Baghdad regards them as illegal because they were not approved by the federal oil ministry.
Crude sales account for the vast majority of Iraq’s government revenue, and two-thirds of its gross domestic product, and the country is looking to ramp up its exports in the coming years from its current level of around 2.5 million barrels per day.