Big Oil Must Start Work Fast In Iraq Or Lose Deals

Iraq will brook no delays on deals to boost oil output by 1.5 million barrels per day despite oil company concerns on security.

International oil companies will lose contracts at Iraq's biggest producing oilfields if they fail to start operating in the country within six months of deals taking effect, an Iraqi oil official said on Saturday.

Iraq will brook no delays on deals to boost oil output by 1.5 million barrels per day despite oil company concerns on security, said Abdul Mahdy al-Ameedi, deputy director general at Iraq's petroleum contracts and licensing directorate.

"If any company has been awarded a contract and it doesn't mobilise and perform activities on the ground six months from the effective date, the contract will be terminated," Ameedi told reporters on the sidelines of a workshop in Istanbul for firms interested in bidding for deals.

"We don't want any company to just put the contracts in their pocket without implementing them."

Oil firms would need to have staff on the ground by February next year if there are no delays to the time-frame for the first oil and gas bidding round since the U.S.-led invasion of Iraq in 2003. Most oil firms still consider it too risky to send staff.

Iraq expects to receive bids from oil firms in late May and early June and to award contracts by the end of June, Mahdy said. Deals should be validated within two months of award.

Iraq is offering 20-year service contracts on the giant fields, which contain a third of Iraq's oil reserves. (For a FACTBOX on the fields click)

Four companies have dropped out of the running for the first bidding round but Iraq expected a good number of bids from the 32 firms still in the race, Mahdy said. (For a FACTBOX of firms competing in the first round click, BG Group, Premier Oil, and BASF unit Wintershall, Ameedi said.

Turkey's state-owned Turkish Petroleum Corp had been added to the list of companies qualified to bid, but as a member of a consortium rather than an operator, he said.

SWEETENERS

The deals would be ratified by Iraq's cabinet, rather than by parliament, he said. If a draft oil law is passed, then power to ratify would pass to a newly formed federal oil and gas council, he added.

Firms bidding for the multi-billion dollar contracts are concerned that changes in the oil law or in Iraq's government could leave the contracts open to renegotiation or even render them invalid. The draft law has been stuck with feuding politicians for years.

Iraq has sweetened the terms of the contract after feedback from oil companies concerned that they would be taking on risky contracts for minimal reward.

Ameedi confirmed that a rate of output decline of 5 percent per year would be built into the contract, as reported by Reuters on Thursday.

That should make it easier for oil firms to beat their output target and allow them to cover costs more quickly.

Oil firms would have a 75 percent stake in the joint ventures with state-owned Iraqi operators at the fields holding the rest. That was up from the 49-51 percent stake initially proposed and should also allow faster cost recovery as the oil firms will have a bigger share of the improved oil output to pay their bills.