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Iraq Backtracks On Oilfield Auction As Prices Doom Budget

Oil pipelines

The Iraqi authorities are postponing bidding on 12 oil fields, back-tracking on an October auction announcement, and indicating that plans to change production contracts will be reviewed again.

In October, the Iraqi Oil Ministry suggested that there would be a shift from the traditional service contracts for large Iraqi oil fields—largely due to depressed oil prices and the government’s inability to balance its budget while paying a fixed price per barrel of produced oil.

At the same time, the Ministry announced an auction for 12 oil fields in three provinces—Basra, Misan and Central.

According to the Ministry, as of Thursday, 10 November, contractual terms will now be reviewed again.

“[The] Ministry of Oil announces that there are essential changes in the previous announcement, where some of the fields mentioned in the said announcement will be developed by the national efforts of [the] Ministry of Oil, in addition to new fields [that] will be added to this project,” a Ministry announcement read. “Therefore, [the] Ministry of Oil will iterate its announcement of this project by mid-2017.”

The postponement is of an action that had already pre-qualified 19 bidders from over 10 countries. The deal at that time was that the bidders would be able to negotiate new contract terms.

The big picture here is that Iraq is struggling to make ends meet while funding a war against the Islamic State (ISIS). The current service contracts the country has with large oil players developing fields in the south—the key oil area in Iraq—are too expensive. From the Iraqi government’s point of view, these contracts are forcing the state to foot the bill in the form of repaying development costs to oil companies while oil prices are persistently low.

As of yet, there is no indication of what new contract models may entail in the run-up to the government’s plans to announce the new auction date by the middle of next year.

By Charles Kennedy of Oilprice.com

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