BAGHDAD: A South Korean-led consortium walked away with the biggest prize yesterday in Iraq’s third energy auction since Saddam Hussein’s ouster, while a Kuwaiti company nabbed a gas field along its border with its larger neighbor in a win as politically symbolic as it was a business coup. Iraq had offered up three gas fields holding about 10 percent of its proven gas reserves. The auction was seen as key to helping the OPEC member revamp its dilapidated energy sector and boost gas supplies sorely needed t
o fuel its reconstruction.
Korea Gas Corp, or KOGAS, and Kazakhstan’s KazMunaiGas EP JSC beat out a consortium grouping France’s Total SA and the Turkish Petroleum International Co, or TPAO, for the 5.6 trillion foot Akkas gas field in western Iraq, the largest of the three fields offered during the licensing round. Meanwhile, Kuwait Energy and TPAO teamed up to win the 1.1 trillion cubic foot Siba field near the Kuwait border, marking Kuwait’s first foray into Iraq’s energy sector since Saddam’s invasion of the state in 1990. KuwaIt Energy beat out Kazakhstan’s KazMunaiGas EP JSC with an offer of $7.50 per barrel of oil equivalent and a targeted plateau production of 100 million cubic feet per day. “This moment represents a turning point in relations between the two countries, and their improvement in the future,” said Sara Akbar, Kuwait Energy’s chief executive.
Iraq, which sits atop the world’s third largest proven reserves of crude, has already opened up its coveted oil fields to international firms in two licensing rounds last year that attracted a strong turnout. The country relies on oil for over 90 percent of its foreign revenues and desperately needs cash to rebuild after the 2003 US-led invasion and the earlier decades of sanctions, war and neglect. In stark contrast to the oil auctions, interest by foreign companies in the gas fields had appeared muted.
Ahead of yesterday’s licensing round, only 13 of the 45 firms that pre-qualified for the event paid a participation fee. Only five companies submitted bids for the fields, a showing that will likely disappoint Iraqi oil officials.
Opening the auction, Oil Minister Hussain Al-Shahristani sought to assure the companies they would have the government’s full backing in developing the projects. He noted the technical and logistical challenges in boosting Iraq’s oil and gas production, but said, “we are committed (to providing) all the support and help to the winning companies today, and we assure them that they will enjoy all the kinds of cooperation we are providing the oil companies that won contracts in the previous two bidding round
s.
Reflecting the companies’ unease, only one bid was submitted for the second largest field on offer. Turkey’s TPAO teamed up with Kuwait Energy and KOGAS to offer $10 per barrel of oil equivalent for the 4.5 trillion foot Mansouriya field in the restive province of Diyala. Iraq, however, rejected that offer and the companies requested a brief delay to evaluate the country’s counteroffer of $7 per barrel of oil equivalent before accepting. Akkas was the main prize of the auction. The field is located in the
deserts near the Syrian border in Anbar, an overwhelmingly Sunni province and former insurgent stronghold. It was offered in one of the earlier oil auctions, but not awarded, since most foreign firms were reluctant to stake claims to fields in the more volatile parts of the country.
The KOGAS-led consortium offered $5.50 per barrel of oil equivalent produced, with plateau output projected at 400 million cubic feet per day. France’s Total and TPAO had wanted $19 per barrel of oil equivalent, with peak production targeted at 375 million cubic feet per day. But in a window into the challenges they face, hundreds of people demonstrated in Ramadi, Anbar’s capital, against the Oil Ministry’s plan for developing Akkas. The demonstrators argued that the local government was not consulted and
demanded that the winning bidders hire workers solely from the province.
Sunnis, a minority in Iraq, have been at the heart of the fight against the US-backed central government in Baghdad, arguing that they are being marginalized by the country’s Shiite leadership. Security in Iraq, or the lack thereof, has been a major factor restricting the country’s efforts to rebuild and attract investment since Saddam’s fall. The withdrawal of US forces in August has hiked concerns whether Iraq’s security forces are up to the task amid persisting sectarian tensions. The political process
remains fragmented, with no government yet in place after the March elections.
As in earlier bidding rounds, the companies were vying for 20-year service contracts that offer them a fixed fee for their services. The contracts, which can be extended for five years, are a stark contrast to the more lucrative production-sharing contracts most companies prefer. The latest auction was pushed back from its intended Sept 1 start as Iraq sought to sweeten the terms. The main changes included dropping a condition that the winning companies should find an export client for 50 percent of the o
utput. Other changes including dropping signature bonuses and reducing the annual training commitment to $1 million from $5 million.
Iraq plans to channel much of the new production from the fields to its strained domestic power sector where shortfalls mean that most Iraqis find the lights on for just five to seven hours of power per day. The country currently produces 950 million standard cubic feet per day, of which about 40 percent is burned off – or flared – at the well because of inadequate gas capture and sequestration facilities – Kuwaittimes
