Iraq starts first auction of O&G exploration rights

May 30, 2012 | Licensing & Concessions, Middle East

Iraqi Oil Minister Abdelkarim al-Luaybi

Kuwait Energy Co.,Dragon Oil Plc and Turkiye Petrolleri AO won rights to explore an oil block in Iraq’s first sale of exploration rights since the 2003 ouster of Saddam Hussein.

The group won rights to Block 9, the second area offered, which is located in the south of the nation near the border with Iran. No bids were received for Block 2, a gas region that was the first to be auctioned in Baghdad today.

“We aim from this round to produce free gas to meet the internal consumption and export the surplus and to increase the oil reserves,” Oil Minister Abdul Kareem al-Luaibi said in a speech in Baghdad before bidding started. “The fourth round bids will be competitive and include the participation of 47 companies from 25 countries.”

The auction marks another step in an energy-industry revival that has vaulted Iraq into third place among the 12- member Organization of Petroleum Exporting Countries, nine years after the U.S.-led invasion that toppled Hussein. In its three previous bid rounds since 2003, Iraq auctioned rights to produce at oilfields already discovered or in operation, whereas today’s is for new exploration. The Gulf state has boosted crude output to more than 3 million barrels a day and is poised to overtake Iran as OPEC’s No. 2 producer within months.

Iraq is auctioning oil and natural-gas exploration rights in six areas today and will conclude bidding on six more tomorrow. The blocs to be offered today are numbers 2, 9, 6, 12, 1 and 11, according to a program handed to reporters at the hall in Baghdad where the auction is being held. Three of those are oil and three gas.

Production from the 12 areas will result in revenue of $5 trillion over the next 20 years with 94 percent of the income going to the government, al-Luaibi said.

Companies that win the bidding won’t own the resources that they may find. Iraq is offering service contracts that pay its partners a fee for each barrel of crude produced, whereas oil companies tend to prefer production-sharing agreements under which they are compensated with a share of their output.

Another potential source of concern for investors is an impasse over the sharing of oil revenue between the central government and the Kurdish region in northern Iraq.

The dispute threatens projects of Exxon mobil Corp. and other investors. Companies operating in the self-ruled Kurdish area are barred from taking part in tomorrow’s auction because the central government didn’t approve the production-sharing agreements they signed with the Kurds. Exxon, which agreed to explore in the Kurdish region, is banned from bidding.

47 companies were pre-qualified by Iraq’s government to participate in the auction, according to the Oil Ministry website. Sabah al-Saiedi, director general of the legal department in the oil license and contracts directorate, said today that 38 companies bought data on the areas.