* Fee structure change to cut subcontract costs
* Auction to boost Iraq oil and gas reserves
* Companies look for foothold in Iraq despite risks
By Rania El Gamal
AMMAN, Sept 13 Iraq's fourth auction for
exploration rights will offer international energy companies a
revised remuneration fee formula designed to benefit bidders
while encouraging them to minimise costs.
The Iraqi oil ministry held a roadshow in Amman, Jordan, on
Sunday for 46 pre-qualified companies interested in bidding for
12 exploration oil and gas blocks.
Iraq expects to add 29 trillion cubic feet of gas and 10
billion barrels of oil to Iraqi reserves from the auction --
part of a three-stage plan set by the Oil Ministry to boost
The ministry has made a few alterations in the new service
agreement from contracts signed with oil companies after three
bidding rounds in 2009 and 2010, said Abdul-Mahdy al-Ameedi,
head of the oil ministry's contracts and licensing directorate.
"There are not many differences from the previous contracts.
But we recognised that there are some minor mistakes in the
previous contracts, not substantial," he told Reuters. "So we
were able to overcome this in our current contract."
One of the main changes was the way the remuneration fee is
calculated in the new contract, Ameedi said.
"If the total production is 1 million barrels per day and
the cost recovery is (the value of) 300,000 bpd, then we will
deduct the 300,000 from the net production and the remainder is
700,000 bpd, so we will pay remuneration for the 700,000 only,
not for the 1 million," Ameedi said.
"The remuneration will be higher so it is in our interest
and I think it is in the interest of the contractor."
The calculation change is aimed at cutting the cost of
subcontracts, which was inflated by some oil companies under the
current deals signed with Iraq, Ameedi said.
"We will deduct the cost of subcontracts from the total
production and the remaining production will pay remuneration
for it," he told reporters on the sidelines of the roadshow.
"If that share of production is less, remuneration of the
contract will be affected negatively, and if it is high, they
will get more remuneration," he said.
"It coincides with the idea of production sharing in this
sense only. That there would be 'cost oil' but there would not
be 'profit oil'."
The contract length will be a maximum of 30 years including
four years for exploration and 20 for development, Ameedi said.
The model contract was not final and could be changed.
Any new oil reserves discovered will be used to maintain and
boost reserves, while companies who make gas discoveries will be
allowed to produce it.
"We may or may not develop and produce (from) the oilfields,
if any," Ameedi said.
"Regarding the gas, we are keen to find gas accumulation to
be produced in order to use the produced gas as a fuel for power
generation, petrochemicals and other industries."
The holding period will be up to seven years for oil
OPEC member Iraq sits on the world's fourth-largest oil
reserves and flares around 700 million cubic feet of gas every
day at its southern oilfields. It needs to harness gas for
electricity to end chronic power blackouts that still plague the
country almost eight years after the U.S.-led invasion.
The fourth bid round will help Iraq maintain and increase
reserves to offset expected depletion and could strengthen its
case among its OPEC peers to set an export quota for Baghdad.
Baghdad has signed a series of deals with international
firms in a bid to boost production capacity to 12 million bpd.
The world's biggest oil and gas explorers showed up in
Amman, weighing the benefits of gaining access to Iraq's vast
and largely underdeveloped oil and gas fields, and shrugging off
security fears and infrastructure challenges.
More than 100 executives from oil majors such as ExxonMobil
, Chevron , Total , BP and Lukoil
attended the show, where Iraqi officials presented the
service contract and licensing process for the auction,
scheduled for Jan. 25-26.
Many small and medium-sized firms that do not have a
foothold in Iraq, one of the last opportunities to access cheap
Middle East reserves, have also been pre-qualified to bid.
Some firms were optimistic about the opportunities while
others took into account the risks due to the tough terms under
Iraq's service agreements. Many favour production-sharing deals.
"The remuneration fee is going to be much bigger, there is
no question about that. But that does not necessarily
automatically make it more economically interesting because the
risks are high," an oil executive attending the workshop said.
"Access to the crude is far more important than the
economics for some, which could make this fourth bidding round,
most probably, a success."
(Editing by Jim Loney and Jason Neely)