Baghdad's Promotion Efforts

APS Diplomat Operations in Oil Diplomacy, Jan 26, 2009

Launched in June and pursued on a full scale in October 2008, Iraq's first round of bidding for TSAs is aimed at boosting Iraq's crude oil production to 4m b/d by 2011/12, with six oilfields and two gas fields offered. On Dec. 1, Minister Shahristani announced that in a second round of bidding his ministry would name 14 more oilfields and two additional gas fields in the course of 2009. These are all fields already discovered by not developed.

The Oil Ministry held an international conference in Baghdad on Dec. 5 to promote the first round. This was Iraq's first major post-war petroleum conference, to which a handful of major IOCs and a big number of smaller ones braved still-dicey security conditions. Several IOC executives then expressed hope they will soon be setting up offices in Baghdad.

The well-attended conference and the promise of a permanent presence by some of the best-known names in the industry was a boost of confidence for the struggling Iraqi petroleum industry, beset with many challenges. It was indicated at the conference that Iraq's producing fields needed maintenance and investment, at a time when the security situation across the country, while improving, was still essentially a war zone by the standards of most IOCs.

Sharply falling oil prices presented Iraq oil officials with another big challenge: Falling revenue is likely to translate into more competition for government funds, which Oil Ministry officials desperately needed for their own oilfield investment plans. Still, the conference was buzzing with prospective IOC executives.

Representatives of Nippon Oil Exploration of Japan, Lukoil Overseas Holding Ltd (a unit of Russia's integrated LUKoil giant), and the oil subsidiary of Danish conglomerate A.P. Moller-Maersk Group all said they would be considering establishing footholds in Iraq.

Also attending the conference were executives from US majors ConocoPhillips and Marathon Oil Corp, along with big state-owned NOCs like China National Petroleum Corp (CNPC), Oil and Natural Gas Corp (ONGC) of India and Indonesia's Pertamina. Ryunosuke Onogi, general manager at Nippon, said with the improvements in the security situation, he expected the Japanese Foreign Ministry to lift a ban on companies working there, and Nippon may look to establish an office in Baghdad in 2009.

Alexander Byrikhin, a spokesman for Lukoil Overseas, said "The sooner the better". He said his company was looking to have a presence in Iraq and was already working on three projects with the Oil Ministry in technical training for Iraqis.

CNPC is ahead of the pack, having signed in August a $3 billion TSA with the Oil Ministry to develop an oilfield in the south-east. It was the first major TSA signed with a foreign company and the first revival of a deal made under the Saddam regime (see details in Part 35b).

Shaikh Faisal al-Thani, head of business development at Maersk Oil's Qatar office, said he was surprised by the large crowd at the conference. He added: "We are all eager to get our foot in the door and establish a presence here".

Again at the Dec. 5 conference, Minister Shahristani said: "We are in serious discussions with the (KRG) about several issues, but the position on the EPSAs that were signed without the approval of the central government remains unchanged. Those contracts [have no] standing with Iraqi law". His comments were a further sign that the government of Maleki and KRG officials in Erbil, the Kurdish capital, were loathe to back down as they vied for control of considerable oil resources in Kurdistan.

IOCs have been invited to the workshop in Istanbul on Feb. 12-14 to discuss the bid procedures for the first round and contract models. IOC representatives intending to attend the meeting say several key issues are likely to be raised, particularly over bid criteria. The Oil Ministry says the winner for each TSA area will be the company or consortium which offers the most competitive bid based on three parameters: a per-barrel fee for baseline crude oil production, a per-barrel fee for incremental production, and an enhanced production target (see Part 23b).