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Middle East energy briefing (page 1 of 3)

  • Middle East: Sunday, March 16 - 2008 at 12:17

Global Insight provides a perspective on Middle East energy briefings and the significance of projects.

Iraq's oil-contract awarding schedule seen to slip again



Iraq will not be able to award technical service contracts to oil majors for some of its largest producing fields by March as Oil Minister Hussein al-Shahristani had hoped, oil executives familiar with the ongoing negotiations have told Reuters.

With oil majors ExxonMobil, BP, Chevron, Shell, and Total embarking on a new round of negotiations with the Iraqi Oil Ministry in Jordan's capital, Amman, vital details such as the scope of work, payment, and the link to the long-term development work on the field (which the majors are hoping for and the government has promised), still remain unresolved.

Awarding and signing is unlikely before mid-year, according to one oil executive Reuters spoke to, especially since the companies are seeking some kind of legal guarantees that a new Iraqi government will respect their long-term involvement and provide them with legal security of operations and investment.

The technical-service contracts have been portrayed by the oil minister as a stop-gap arrangement, in the absence of an oil law allowing IOCs to sign production-sharing agreements (PSA) and invest in long-term production capacity.

Significance: As Global Insight has previously said, awards by mid-year have looked increasingly likely for the past couple of months and if so, not much actual work by the IOCs will get under way before October-November.

This does not mean that Iraq's expansion of it oil production capacity will stop; rather, the full hoped-for 500,000 b/d incremental output rise might not be achieved during the year.

Majors are already assisting local state-owned production companies by advising them on work and providing training, in programmes that have proven to be very successful. Unfortunately the long-term link guarantee against political changes to their involvement that the companies are asking for will remain a stumbling block, as the government will not be able to rush any laws to that extent through parliament in the current political stalemate, especially regarding the increasing sensitivity of the issue.

However, if it bypasses the parliament—by the issuing of a decree of some sort—the chances of it being seen as illegitimate by a successor government will be very substantial, raising the risk of its overturn.

DNO cuts stakes in Iraqi Kurdistan fields to bring contracts into line with Iraqi law



Norway's DNO has taken a cut in its licence shares for two Iraqi Kurdistan tracts, the company said in a statement.

Its Dohuk licence has been divided into two licence areas, where DNO will retain a 55% stake in the tract that includes its Tawke field discovery, while cutting its share to 40% in the licence comprising the remainder of the Dohuk area.

The company has also cut its Erbil licence stake to 40%, from the 55% stake it previously held in both its original Iraqi Kurdistan exploration and production (E&P) licences.

DNO also revealed that it has agreed to altered cost recovery and profit oil rates, in which the revenue-sharing mechanism will be set to DNO receiving 60% of revenues up to a gross revenue of $484m, after which standard cost recovery rates will apply.

The Norwegian company also announced initial successful results from its Hawler-1 discovery well, which it hopes will lead to development of its second field in the region. The well flowed 9,000 b/d in initial tests, but will be drilled to deeper levels.

Significance: DNO has updated and brought its production-sharing contracts (PSCs) in line with the oil law enacted by the Kurdistan Regional Government (KRG) last year.
 
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