Iraq's Fourth Licensing Round (2012)

Iraq's fourth licensing round took place on 30-31 May 2012, with twelve areas on offer, covering a total of 80,700 square kilometers. The bidding round included both unexplored areas and newly discovered fields that had not yet been exploited.

Seven of the twelve blocks included in the round were gas prone, while the rest have oil potential, containing a combined 29 billion cubic meters (bcm) of gas and 10 billion barrels of crude oil.

Iraq did not necessarily plan to begin development or production from any oil fields discovered, using them instead to maintain and boost reserves, according to Abdul-Mahdy al-Ameedi, head of the Petroleum Contracts and Licensing Directorate (PCLD). Reserve increases could offset expected depletion in other fields and strengthen Iraq's case in convincing OPEC to set an export quota for the Iraqi industry. Companies discovering gas, on the other hand, would be allowed to produce it.

The twelve sites offered lie in the provinces of Nineveh, Diyala, Wasit, Basra, Muthanna, Qadisiya and Babil, as well Najaf, Karbala, Samawa, Diwaniya and Anbar, which were not included in the previous rounds. Eight of the twelve blocks are situated in the west of the country along the Iraq-Syria and Iraq-Saudi borders.

=Process=

The fourth round of licensing was the first to offer exploration contracts compared to the technical contracts offered in the first three rounds. I

The auction had originally been scheduled for November 2011, but was delayed repeatedly, first to January 2012 and then to 7-8 March before finally taking place in May. As for the cause of the delay, an Iraqi parliamentary committee had requested that the Oil Ministry defer the bid round and not sign any more contracts until a new hydrocarbon law had been approved; but Oil Minister Abdul Kareem al-Luaibi rejected this request during a meeting in May 2011, and the cause of the eventual delays to the auction round were technical, according to the PCLD.

The fourth bid round included 47 international oil companies (IOCs). All companies that qualified for the previous three rounds of licensing automatically qualified for the fourth, whether or not a contract was signed in previous rounds. The US oil firms Hess and ExxonMobil were excluded from participating in the fourth licensing round because of contracts they signed with the Kurdistan Regional Government (KRG), which the central government in Baghdad considers illegal.

=Changes to model contract and criteria=

The contract models used for the fourth auction round featured several changes compared to earlier rounds. The remuneration fee, or the amount the government pays to the companies for each barrel of oil produced, was calculated differently under the new contracts. Under the new formula companies were not paid for oil they pay subcontractors to produce. Instead the Iraqi government deducts the cost of subcontracts from total production and then pays remuneration on the remaining production. In other words, if total production is 1 million barrels and the contractor has spent the value of 300,000 barrels on a subcontractor, the contractor will receive payment only for the remaining production, or 700,000 barrels. This new formula was aimed at cutting the cost of subcontracts and effectively ties companies' compensation to their cost-efficiency.

Another change from previous rounds was the criteria on which bids were judged. Previous rounds took into account not only the remuneration fee each bidder would charge, but also the amount of oil they agreed to produce. In the fourth round, with many of the bidding areas yet to be explored and with actual production therefore less certain, the remuneration fee was the only criterion. Under the new deals, contractors also faced restrictions on their ability to pump oil and gas in order to avoid over-supplying the market and overwhelming Iraq's underdeveloped infrastructure.

=Results=

The fourth bidding round was seen by many in the industry as a failure, having failed to attract the expected interest. Following the bidding round the Iraqi government began to speak of making changes to its contracts. Deputy Prime Minister Shahristani said in late 2012 that the plateau production target would be "slightly adjusted" and the period for reaching the plateau was likely to be extended, giving investors longer to recoup their investment and make a profit.

The table below shows the make-up of the consortia which submitted bids, along with agreed per-barrel remuneration fees:

=References=