Iraq deals timetable slips again

By Upstream staff 

Photo by Roozbeh Feiz / http://www.flickr.com/photos/rfeiz

Iraq is unlikely to sign technical support contracts with foreign players for work on some of its biggest oilfields until later in the second quarter, a few months later than Baghdad's target, oil company executives said today.

The deals are designed to boost Iraq's oil output by around 500,000 barrels per day within a year, adding more than 20% to current production of 2.27 million bpd.

Oil Minister Hussain al-Shahristani said last month that he hoped the contracts would be signed in March.

But negotiators have yet to thrash out details of the scope of the work, payment, and the link to long-term development of the fields that players crave, executives said.

"I should think it will be mid-year at the earliest," one oil executive familiar with the negotiations told Reuters.

Iraqi officials and representatives from BP, Chevron, ExxonMobil, Shell and Total begin a new round of negotiations on the two-year contracts in Amman, Jordan, tomorrow.

Foreign players have jostled for position for years to gain access to Iraq's oil reserves, if and when the country opens up the oil sector to foreign investment.

A vital oil law that would set the framework for foreign oil companies' involvemenmt has been stalled in parliament for over a year. The enhanced technical service contracts are part of stop-gap measures to boost output until the law is passed.

Even so, companies want to see a link between the service contracts and future involvement in the fields before they go ahead. Some players will be remoulding their business models by taking on short-term service contracts, rather than long-term production deals.

"It is not clear yet how that long-term link can be established, nor what it would be," another executive told the news agency.

Foreign players were concerned that after two years servicing the fields they could be underbid in future competitive tenders for long-term contracts, the executive said. They would at least like the right to match the best bid in any auction, he added.

Another concern was whether any link established now would be honoured if Iraq's government were to change.

Talks in Amman on some of the deals were closer to completion than others, with BP and ExxonMobil's the least advanced, one source said.

BP was negotiating for the southern Rumaila field. Chevron and Total together were looking at the West Qurna oilfield, while Exxon was eyeing Zubail, the executives said.

Shell is looking at the northern Kirkuk field. It is also looking at the southern Maysan field with BHP Billiton.

Each of the five deals was expected to boost Iraqi output by around 100,000 bpd.

Another factor complicating the deals is how the companies can undertake the work. Due to the lack of security in the country, they are unable to send in their own staff and must work through making recommendations to Iraq's state operating companies.

The contracts give the majors a bigger role than they previously had in project management of field maintenance and development.

The majors have for years provided field studies, technical assistance and training on the same fields as they look to curry favour with Baghdad.

13 March 2008 16:41 GMT  | last updated: 13 March 2008 16:41 GMT