Iraqi requirements fend off bids for oil investment and exploration

Iraq recently put up six new oil fields for auction, but ended up selling only one due to stringent terms and conditions.

This is Iraq’s fourth round of auction on its oil assets and sales proceeds are supposed to help expand the country’s oil industry, which has suffered from years of political turmoil.

According to Abdul-Mahdy al-Ameedi, Iraqi Director in charge of contracts and licensing, the agreements consider both the interests of Iraq and the awardee, but some tend to disagree.

Under the agreement, the awardee shall be receiving remuneration instead of a share in the profits from oil exploration and production.

Iraq holds the world’s fourth largest oil deposits and still has vast oil-rich areas just waiting to be tapped.

However, some experts noted that the opportunity to invest in oil exploration in Iraq has lost some of its appeal among investors in view of the recent surge in non-traditional gas supplies from the Americas, gas discoveries in Africa, and developments in China’s oil and gas industry.

Iraq failed to solicit foreign bids on four oil blocks while negotiations on the fifth auctioned block were curtailed because of a disagreement on service fees.

The lone group which has closed a deal with Iran consisted of Kuwait Energy, TPAO of Turkey and Dragon Oil of Dubai. The consortium placed a bid of $6.24 per barrel of oil equivalent, and eventually won Block 9. It is able to bid at this level since it has already started mobilization works at the Siba oil field near the southern portion of Iraq and Azadegan oil blocks of Iran.

The group acquired this block during the third bid rounds, October of last year.  According to geologists, the block holds oil, but it may already be part of Azadegan.

There is no contesting Iraq’s huge reserves, but first-time bidders will have to weigh the pros and cons of the deal before moving forward. Government’s energy regulations are weak and there aren’t enough laws that would protect firms who are investing in oil exploration and production in the country.

Iraq is at liberty to hold oil within their reservoirs even if these have been auctioned off already.  In lieu of this, it will just be compensating affected companies.

Meanwhile, the Kurdistan and Baghdad governments do not see eye to eye and are fighting for control over some oil regions. Most of the areas offered are also in the distant parts of Iraq. Some are inhabited by Sunni Islamists, a group identified with the al Qaeda. Security could thus be another pressing issue.