Focusing On The Non-Oil Sector - Part 35b - Iraq: Oil Development Efforts.

The state-owned China National Petroleum Corp (CNPC) is the first international oil company (IOC) to have begun work on developing a major oilfield in Iraq under a 20-year technical service agreement (TSA). Shell and several other IOCs have been working with Iraq's Oil Ministry in recent years, providing it was technical advice and helping its staff train in the industry in their own countries. But CNPC is the first to operate in Iraq under a TSA since the country was invaded by the US in March 2003. There are some foreign firms providing services, but only under limited contracts and mostly in the north.

IOC operations in Iraq fall into two main categories: those under exploration and production sharing agreements (EPSAs) with the Kurdistan Regional Government (KRG) in the north, which are disputed by the central government and regarded as null and void by the Oil Ministry in Baghdad; and in the rest of Iraq under TSAs and engineering, procurement and construction contracts (EPCCs). TSAs are for 20 years based on fixed service fee, whereby the IOC operator cannot own any of the oil or gas reserves in the country. The holders of EPCCs leave after completing their jobs and earn at EPCC prices agreed on the basis of competitive tenders.

There has been one round of competitive bidding to TSAs launched in 2008 by the Oil Ministry in Baghdad, which offered six oilfields and two gas fields already discovered but never developed. In a second round for TSAs being launched this year, the Oil Ministry is offering another 11 of such oil and gas fields.

The winner for each TSA area will be the IOC or consortium which offers the most competitive bid based on three parameters: a per-barrel fee for baseline crude oil production, a per-barrel fee for incremental production, and an enhanced production target. IOCs have been invited to a workshop in Istanbul on Feb. 12-14 to discuss the bid procedures for the first round and contract models. IOC representatives intending to attend this meeting say several key issues are likely to be raised, particularly over bid criteria (see Part 23a in ood1-IraqOil-1-Jan26-09).

The dispute between Baghdad and the KRG, which has signed 17 EPSAs so far and is negotiating more despite a ban by the central government, is yet to be resolved. The Baghdad Oil Ministry has banned companies with EPSAs in Kurdistan operating in Iraq. They cannot export their crude oil through the country's pipeline system (as explained in Part 23a).

Al-Ahdab field went to CNPC outside the bidding round. The relevant TSA was negotiated directly by the Oil Ministry and CNPC, which in 1997 had signed a 23-year production sharing agreement (PSA) with Saddam's Sunni/Ba'thist regime. After the US invasion the Oil Ministry did not honour that accord as it refused to grant PSAs for any of Iraq's fields. But China revived close relations with the Baghdad government and CNPC agreed to Iraqi terms for a TSA.

During a visit to Beijing in August 2008, Oil Minister Hussein al-Shahristani signed an MoU on this with CNPC and the TSA for al-Ahdab was signed on Nov. 10. CNPC began sending its staff to Waset in late November and by end-2008 the number of its engineers there had increased (see profile of this venture and the others on the following pages).

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