Cursor International executes projects and collaboration activities across several industries.
By John Lee.
The Ministry of Oil has announced that BP has signed a contract to develop the Kirkuk oil fields.
According to Reuters, the deal with the North Oil Company (NOC) will see BP will boost output capacity from the six fields in the Kirkuk region to more than 1 million barrels of oil per day (bpd), three times current capacity.
In the past, BP has provided technical assistance to help develop the Kirkuk fields.
(Sources: Ministry of Oil, Reuters)
By Alessandro Bacci.
Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.
Iraq’s Fifth Licensing Round: Some Preliminary Considerations After the Auction
On the morning and afternoon of April 26, 2018, I participated in a petroleum scholar workshop organized in London by the Association of International Petroleum Negotiators (A.I.P.N.). There I gave the presentation “Current Trends Concerning Petroleum Service Contracts in the Middle East.”
I explained the difficulties that Iraq was experiencing with its technical service contracts (T.S.C.s) and that, exactly while we were discussing in London, Iraq was holding in Baghdad its fifth licensing round after the introduction of some amendments to its service contracts in the previous weeks. After the end of the workshop, I stopped in café where I started collecting information concerning the results of the licensing round.
Iraq’s fifth licensing round was related to the offering of 11 blocks. In specific, 10 onshore blocks located along the Iraqi borders with Kuwait and Iran, and 1 offshore block in the Persian Gulf waters. In the end, six blocks were awarded, while five of the exploration blocks did not receive any bids. So, what is a correct evaluation of this fifth licensing round? Probably, a balanced answer would be that Iraq’s fifth licensing round ‘on the day of the auction’ obtained a mixed result.
In fact, if, on the one side, it’s true that six blocks were awarded, on the other side, it’s also true that no major international oil company (I.O.C.) won any bids. Of the big names in the petroleum industry, Italy’s E.N.I. alone decided to participate and made two unsuccessful bids. U.A.E.-based Crescent Petroleum obtained three blocks, China’s Geo-Jade two blocks, and China’s United Energy Group one block.
One initial explanation for the mixed result might be that the Iraqi government had previously changed the date of the auction. Initially, the Ministry of Oil wanted to have the auction in June 2018, but, then, it moved the date of receiving the offers of the international qualified companies for the licensing round forward to April 15. At the same time, the Oil Ministry’s Petroleum Contracts and Licensing Directorate sent the document concerning the final form of the tender, the conditions of the tender, and the formula of the exploration, development, and production contract (E.D.P.C.) and of the development production contract (D.P.C.) only on April 13.
However, when the Oil Ministry realized that the I.O.C.s—fourteen companies had purchased the documents required to participate in the bid round—would have had only two days to study the new contracts and submitting an offer, it postponed the deadline for submitting an offer to April 25. Then, the Oil Ministry held the licensing round on April 26. In any case, the time for studying the dossier relating to the 11 blocks was limited according to either deadline. On top of this, Iraq will hold its national elections on May 12, and, before committing to investing on a long-term basis in additional projects in Iraq, investors might want to know the results of the coming elections.
For sure, political reasons played a role for changing the date of the bid round. Until a few months ago, the official schedule required that the final contract and tender protocol be issued by the end of May 2018 and that the submission of bids and the awards occur in June 2018 (see also BACCI, A., Iraq’s Fifth Licensing Round, in Iraq Business News, Dec. 20, 2017). Honestly, because Iraq has not been investing in the development of the border fields for the last 50 years, it’s is difficult to see what would have been the economic loss for Iraq’s government if Iraq had organized the auction two months later, i.e., in June, as it had previously planned. Two months would not have been a stark difference for the government, but it would have been a consistent difference for the I.O.C.s, which might have studied more completely the offered blocks and the new contract.
So, politics played a role. In Iraq, 320 members out of the 329 members of the Parliament are elected through the open list form of party-list proportional representation—the remaining 9 seats are reserved for the minorities. Iraq’s 18 governorates act as the constituencies. The ten onshore offered blocks are in the following Iraqi governorates: Basra, Diyala, Wasit, and Missan. In total, in May, these four governorates will be responsible for the election of 60 seats, or more than 18% of the seats (Basra, 25; Diyala, 14; Missan, 10; and Wasit, 11). However, at the same time, these governorates are home to the majority of Iraq’s most important oil fields (in particular Basra Governorate). And, because in Iraq the economy is dominated by the petroleum sector, which provides about 90% of government revenues and 80% of foreign exchange earnings, it’s easy to understand the pivotal economic role played by these governorates.
Moving forward the development of the additional blocks located in the above-mentioned governorates to before the elections may indeed provide a political support to Oil Minister Jabar Ali al-Luaibi who is a member of the Victory Alliance, which is led by Prime Minister Haider al-Abadi. In practice, holding the fifth licensing round would be a sort of additional tool to increase the chances of victory for a specific political group in the affected areas, because this move shows that the present government is concerned with the economic development of the above-mentioned governorates. And considering Iraq’s present fragile political environment, this political move has a certain logic. Now, according to the schedule, the deals must be signed on May 10. If they are not approved by the present government, it will be the task of the new government to approve them.
Considering these political reasons, it’s difficult to say whether we can consider the fifth licensing round finished and not just a politically useful stopgap. In any case, what is surprising is that important amendments to the structure of the offered service contract have been carried out with limited input from the industry and the stakeholders. In fact, the basic truth of the petroleum industry is that if a contractor is able to generate a return exceeding its planned internal rate of return (I.R.R.) threshold, it will go ahead with its investment. If the planned return is less than the I.R.R. threshold, the contractor will not invest.
This problem stood out very clear in 2009 during Iraq’s first licensing round. The day of the auction the result was negative because the companies did not see any profitability in what was offered. In practice, only after a few months of additional negotiations, was the government able to transform a failed licensing round into a success. What happened at that time was that the average cash outlay was renegotiated so that the I.O.C.s could have an improved profitability. And in just a few months, Iraq could sign contracts for the Rumaila field, the Zubair field, the West Qurna 1 field, and the Maysan field.
Moreover, after the end of the fifth licensing round, the Ministry of Oil correctly affirmed that the lack of bids for five exploration blocks— Zurbatiya and Shihabi on the border with Iran, Jebal Sanam and Fao on the border with Kuwait, and the offshore block—was also linked to additional difficulties, which could have increased the costs for the contractors. In fact, some blocks cover former battlefields (Zurbatiya and Shihabi), some have an infrastructural gap, and the offshore block lacks complete data.
Crescent Petroleum, a subsidiary of the multinational conglomerate Crescent Enterprises, is the first and the largest private upstream oil and gas company in the Middle East. It has operations in the U.A.E. and in the Kurdistan Regional Government (K.R.G., a.k.a. Iraqi Kurdistan). In the U.A.E., the company operates the Sharjah onshore concession and the Sir Abu Nu’ayr concession, while in the K.R.G. it operates the Khor Mor and the Chemchemal gas fields. In addition, Crescent Petroleum is the founder and the largest shareholder in Dana Gas, which is the first and largest publicly listed private-sector natural gas company in the Middle East.
Geo-Jade Petroleum is an oil exploration and production company with operations in Kazakhstan and Russia. This company started its oil and gas investments only in 2010—before the company was involved exclusively in real estate. Today, it is independently operating six exploration blocks and three development blocks. United Energy Group (U.E.G.) is an oil and gas exploration company having projects in Pakistan and Indonesia. In 2017, U.E.G. had an annual production of more than 4 million tons. After the acquisition of BP Pakistan in 2011, the company has expanded its operations in the country, and, today, U.E.G. and United Energy Pakistan Limited (U.E.P., U.E.G.’s Pakistani subsidiary) are the largest foreign E&P company and investor in Pakistan.
With reference to the contracts, the Ministry of Oil has introduced some amendments that have changed the structure of Iraq’s service contracts. During the previous four licensing rounds, Iraq had used service contracts in which there was a per-barrel fee remuneration linked to an R-Factor. The amended contract is different in that it sets a link between oil prices and the remuneration given to the I.O.C.s. At the same time, it introduces a 25% royalty on gross production.
In practice, out of the overall revenue, first, the contractors will pay a 25% royalty on gross production, second, they will recover the incurred costs according to a specific formula, third, they will split the remaining part, i.e., the net revenue share, with the government according to the percentage established at the time of the bid round, and fourth, they will pay the 35% corporate income tax (C.I.T.) on their percentage of net revenue share. Moreover, the amended contract does not consider any longer oil byproducts (for instance liquified petroleum gas) as companies’ revenue.
The key to understanding the new contractual framework is Article 19 of both the exploration, development, and production contract (E.D.P.C.) and of the development and production contract (D.P.C.). Art. 19 explains that in any quarter, Iraq’s involved regional oil company (R.O.C.) shall be entitled to a royalty of twenty-five percent (25%) of the deemed revenue, which is the value of net production in barrels of oil equivalent. With reference to the petroleum costs, Art. 19.5 explains that
[i]n respect of Petroleum Costs, in any Lifting Quarter due and payable Petroleum Costs shall be paid to Contractor to the extent of the Percentage of Net Deemed Revenue. The Percentage of Net Deemed Revenue shall be determined by reference to SOMO’s [the contract here means the State Oil Marketing Organization or its successors] average OSP [official selling price] during the Spending Quarter and in accordance with the following formula:
Percentage of Net Deemed Revenue= (Average OSP / 50) * (70%) * Net Deemed Revenue
The said formula shall be applied throughout the Term, provided that where the average OSP is equal to or less than twenty-one point five US Dollars (US$ 21.50) per Barrel, the Percentage of Net Deemed Revenue shall be thirty percent (30%) of Net Deemed Revenue and where the average OSP is equal to or greater than fifty US Dollars (US$ 50.0) per Barrel, the Percentage of Net Deemed Revenue shall be seventy percent (70%) of Net Deemed Revenue.
The percentage of net deemed revenue means the available portion of net deemed revenue allocated for the payment of the petroleum costs. The net deemed revenue means deemed revenue less royalty.
Then, the contractor shall be entitled to a remuneration equal to the product of the remuneration percentage bid and the remaining net deemed revenue. The remuneration percentage bid means the percentage of the remaining net deemed revenue bid by the contractor. And the remaining net deemed revenue means the net deemed revenue that remains after the payment of the petroleum costs to the extent of the percentage of net deemed revenue.
And then, the contractor shall pay the corporate income tax at a percentage of thirty-five percent (35%) on the actually received remuneration generated from the implementation of the contract to the General Taxation Commission in accordance with the Law No.19 for year 2010.
These are the remuneration percentage bids according to the six awarded blocks:
A first consideration is that the percentage of the remuneration varies consistently according to the considered block. However, this should not be surprising because these blocks might well, for instance, have different geological characteristics. In fact, already with the technical service contracts used in the first four licensing rounds, the per-barrel fee was different according to each auctioned field. Now, with the new contract model, the Oil Ministry is trying to provide a fee that is based on commodity prices and costs.
At least on paper, the Oil Ministry should be able to give in this way more flexibility to its contracts. In fact, the three main factors that determine the amount of resource wealth linked to a petroleum field (oil and gas) are the produced volume; the price of the petroleum; and the involved exploration, development, and production costs. From an economic point of view, the best option for both the contractor and the government would be when the following three factors coexist: a high production level; low exploration, development, and production costs; and high oil prices in the international markets.
Thanks to the new contractual structure, the government would like to force the contractors to act in a more efficient manner, while at the same time, because the remuneration fee is based on the remuneration percentage bid, the contractor would now be affected positively by the increase and negatively by the decrease in oil prices. At the same time, the new contracts have a time limit concerning the requirement for the contractors to stop flaring. Iraq would like to stop completely flaring by 2021.
Iraq has currently a daily oil production of about 4.43 million barrels from Baghdad-controlled oil fields (March 2018). The country’s exports averaged 3.45 million barrels a day last month from the southern ports. According to a 5-year development plan, the government wants to reach a production of 6.5 million barrels per day by 2022.
Alessandro Bacci is an independent energy consultant in relation to business strategy and corporate diplomacy (policy, government, and public affairs). Much of his activity is linked to the MENA region, an area where he lived for four years. Alessandro is now based in London, United Kingdom (www.alessandrobacci.com), and he is a member of the Association of International Petroleum Negotiators (A.I.P.N.). A multilingual professional, Alessandro holds a Bachelor of Laws and Master of Laws from the University of Florence (Italy), a Master of Public Affairs from Sciences Po (France), and a Master in Public Policy from the Lee Kuan Yew School of Public Policy (Singapore).
By John Lee.
Having sold its stake in the West Qurna 1 project to Japan’s Itochu, Shell is now said to be “fully committed” to the giant Basra Gas Company (BGC), which captures gas from Iraq’s southern oilfields.
Frits Klap, managing director of BGC, told Reuters that processing capacity has more than tripled to 938 million standard cubic feet (scf) per day since operations started in 2013, and further expansion is planned:
“We are going to go for something called BNGL, or Basra NGL (natural gas liquids) expansion, which really is going to take us from 1 bcf to 1.4 bcf through two trains, each of 200 million scf per day.”
Shell has a 44-percent stake in the $17-billion, 25-year project, with Iraq having 51 percent, and Japan’s Mitsubishi 5 percent.
(Source: Reuters)
By Alessandro Bacci.
Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.
Alessandro Bacci is an independent energy consultant in relation to business strategy and corporate diplomacy (policy, government, and public affairs). Much of his activity is linked to the MENA region, an area where he lived for four years. Alessandro is now based in London, United Kingdom (www.alessandrobacci.com). A multilingual professional, Alessandro holds a Bachelor of Laws and Master of Laws from the University of Florence (Italy), a Master in Public Affairs from Sciences Po (France), and a Master in Public Policy from the Lee Kuan Yew School of Public Policy (Singapore).
The following is a presentation on oilfield service contracts that I gave to the Association of International Petroleum Negotiators (A.I.P.N.) in London on April 26, 2018 (click page numbers below):
At a major Iraqi business event in London on Tuesday, there was a strong sense that Iraq’s perceived risk profile is improving, and that this is an excellent time to do business in the country.
Nearly 300 delegates attended the Iraq Britain Business Council (IBBC)‘s Spring Conference at the Mansion House, which focused on “building a diversified and modern economy“, with many of those flying in from Iraq specially for the occasion.
This record attendance was just one of the positive indicators in evidence at the event, with speakers pointing to improved security, better relations between the Kurdistan Regional Government (KRG) and the central government in Baghdad, and a growing trend towards up-skilling and capacity building in the local population; here at Iraq Business News, we’ve seen a positive indicator of our own, with a 15 percent increase in our website traffic over the past year.
Closing the conference’s first day, IBBC Managing Director Christophe Michels also drew attention to the growing number of companies joining his organisation, and a much more relaxed atmosphere in Iraq’s major cities.
The second day of the conference also saw a full house at the Royal Overseas League to discuss business opportunities for Iraqi and British small- and medium-sized enterprises (SMEs).
(Picture: Baroness Fairhead CBE, UK Minister of State for Trade and Export Promotion, addressing the conference.)
Iraq: Building a diversified and modern economy
Tuesday 24 April at Mansion House, London
IBBC’s Spring Conference returns on 24 April 2018, bringing to the heart of London the preeminent political and business figures involved in business and the economy of Iraq.
The theme for this years’ conference is Iraq: Building a diversified and modern economy. The conference aims to address the key challenges in building a diversified and modern economy, which will enable Iraq to build on the recent economic and social stability to progress into one of the Middle East’s major economies once again. Sessions will focus on Finance, Technology, Oil & Gas and Education.
The Government of Iraq has confirmed it is sending a high-level delegation of government representatives to the IBBC Spring Conference, which will be led by H.E. Dr Abdul Kariem Al Faisal, Chairman of the Iraq Prime Minister’s Advisory Commission (PMAC). The delegation will also include senior representatives from the Iraq Ministries of Oil and Industry.
The IBBC Spring Conference, held at the prestigious Mansion House, the home and office of the Lord Mayor of London, is traditionally IBBC’s flagship event, which attracts suppliers, investors, producers and buyers from Iraq, the UK and the wider international business community.
Prominent speakers include Baroness Nicholson of Winterbourne, President of IBBC and the Prime Minister’s Trade Envoy to Iraq, Azerbaijan, Turkmenistan and Kazakhstan, Alderman Sir Alan Yarrow, Lord Mayor, Locum Tenens, Ambassador Jonathon Wilks, Her Majesty’s Ambassador to the Republic of Iraq and Baroness Fairhead CBE, Minister of State for Trade and Export Promotion, Department for International Trade.
IBBC expects a high attendance at the conference and the new round tables are designed for close business interaction and the facilitation of in-depth discussion, where delegates can focus on particular sectors of interest and engage with speakers and industry experts on the issues that really matter.
With representatives from all major interested parties involved in Iraq expected to attend, as well as pre- and post- networking events, the IBBC Spring Conference 2018 will provide many opportunities for networking at the highest level, as well as providing exceptionally informative and experienced panels.
Sessions on the agenda include:
Finance: ‘Criteria and process for obtaining major project finance’ Chair: Mr Gavin Wishart, IBBC
IBBC has gathered several preeminent voices in the finance industry to discuss the challenges and opportunities Iraqi and international firms face in sourcing capital for major projects. Representatives from some of the largest international finance organisations, JP Morgan and Allan & Overy LLP, as well as representatives from UK Export Finance and GE will discuss in detail the criteria and process of obtaining finance for major projects in Iraq.
Technology: ‘Developing Iraq’s digital economy’ Chair: Mr Ashley Goodall, IBBC
The IBBC Tech Panel brings together the two leaders of the UK and Iraq e-government initiatives in addition to experts in FinTech and entrepreneurial hub development. The panel will address in detail how innovative new technology and the use of information and communication technologies (ICTs) can improve the activities in the public and private sectors to help Iraq’s economy and growth.
Oil & Gas: ‘Need for locally available products and services – how the sector can help diversification of Iraq’s economy’ Chair: Mr Vikas Handa, IBBC
This expert panel consists of representatives from the largest IOC’s in Iraq, Governmental representatives from the Iraq Ministries of Oil and Industry and an Oil & Gas expert from the Department of International Trade. The session will cover all key aspects of Iraq’s Oil & Gas sector for 2018, delivered by the preeminent experts in the field and will include a panel discussion and Q & A chaired by Vikas Handa, the head of IBBC’s Oil & Gas Sector Table and its GCC representative.
Education and Training: ‘Developing human capital in Iraq’
The panel brings together leading representatives from academia and business to address the challenges of developing Iraq’s human capital to support its transition into a diversified, vibrant economy. Members of the panel have direct experience of challenges and advantages of delivering advanced education and training in-country.
Chair & Presentation: Professor Paul Boyle, President & Vice Chancellor, Leicester University
With a dedicated and well informed agenda, IBBC are bringing the experts and practitioners best placed to answer these questions, so the international business community can work towards framing the future and contributing to a modern and outward looking Iraq. Each session will emphasise the growing business opportunities for international companies.
For more information and tickets, please visit: http://www.webuildiraq.org/ibbc-conference/spring-conference-2018/ or email london@webuildiraq.org.
The Iraq Britain Business Council (IBBC) has announced that Al-Nukhba-OFS FZCO has become the latest member to join the Council.
Al-Nukhba OFS is one of Iraq’s preeminent organisations, involved in numerous sectors of the economy with many years of experience and has developed strong relationships with a host of international companies.
Al Nukhba OFS started its business in 2005 as an investor in the Basra area in the specialized fields and expanded business areas in water and wastewater treatment plants and pre-drilling oil field services, logistics & custom clearance and oil field services.
Al Nukhba OFS provides services such as end-to-end logistics solutions and services along with of value added services to customize your supply chain to meet your precise goals and requirements. Their dedicated teams select and apply the exact resources you need to improve your business’s performance and provide flexibility for a dynamic marketplace.
Al Nukhba OFS has relationships with major companies for energy projects and has a contract with the Ministry of Electricity, Iraq and hold an exclusive HCL distribution contract with the Ministry of Industry & Minerals for AL Furat Factory. Al Nukhba is cooperating with major power companies i.e. Ansaldo Energia to develop the power sectors in Iraq and have strong support from Wood Group P&W through their Iraq Agent for the development of power section as well.
Al-Nukhba OFS are associated with numerous notable companies, such as Baker Hughes, ENKA, Eni, Scania, Daewoo, Petromid, KOGAS, Techno Engineering, TAAZ, Oilserv. Al-Nukhba OFS have successfully completed a number of projects for them, including mobilization/maintenance of RIG, Logistics and other life support services, Surveillance, Fuel & Manpower supply, Distribution & Warehousing, Camp & Site Preparation/Maintenance besides 4PL logistics and other subcontracting jobs and provide immigration services too.
Al-Nukhba OFS currently act as an agent, supplier and distributor for:
(Source: IBBC)
Iraq Britain Business Council joins British Chambers of Commerce in boost to UK – Iraq Trade
IBBC is delighted to announce that we are officially an international affiliate to the British Chambers of Commerce (BCC). The IBBC is now the official organisation to whom British companies and organisations will be referred by the BCC.
This relationship neatly mirrors our status with the Iraqi Federation of Chambers of Commerce and the Kurdish Federation of Chambers of Commerce and Industry who are close partners of IBBC. Indeed the 5 largest Iraqi chambers, namely Baghdad, Erbil, Basrah, Najaf and Karbala are full members of the IBBC.
The BCC sits at the heart of a business network that spans the length and breadth of the UK, with links to markets across the world, with 52 accredited Chambers in the UK as trusted champions of businesses, places, and global trade.
Chambers of Commerce provide a voice to the business communities they represent, amplifying their priorities and concerns. In every region and nation of the UK, Chambers of Commerce and their members work to improve the local business environment in which they operate.
The Chamber of Commerce network exists to support and connect companies, bringing together firms to build new relationships, share best practice and foster new opportunities.
Christophe Michels, MD of IBBC says:
“IBBC is delighted to have been granted this affiliate status by BCC, as this endorses our role as intermediaries and trade enablers with Iraq for all the work we do with British business in the country. It completes the circle of business with Iraqi companies, as we have an equal position in Iraq, and are thus able to bring businesses in both UK and Iraq together through this unique leverage.”
Dr Adam Marshall, Director General at BCC stated:
“We are delighted to welcome IBBC to the BCC and we look forward together to strengthening relations and business opportunities between the UK and Iraq in the weeks and months ahead.”
(Source: IBBC)
By John Lee.
British-based engineering company Rotork is to supply the Karbala Refinery project in Iraq.
According to a press release from the company, Rotork will provide large quantities of IQ3 non-intrusive intelligent electric valve actuators, designed specifically for automated flow control systems in hazardous environments.
Due to open in 2020, the State Company of Oil Projects’ (SCOP) Karbala Refinery will have a refining capacity of 140,000 barrels of crude oil per day (bpd). Production will meet the latest international standards, serving the growing domestic demand for oil in Iraq and reducing the current level of refined product imports.
(Source: Rotork)
By John Lee.
Oil Minister Jabar Ali al-Luaibi [Allibi, Luiebi] has signed on Thursday a memorandum of understanding with BP to rehabilitate the oil fields in Kirkuk governorate.
Michael Townsend, CEO of BP, said that the company is going to prepare the necessary studies to increase production at the Kirkuk oil fields to 750,000 bpd.
The two men inspected the Kirkuk fields on Thursday and ordered a speeding-up of rehabilitation operations.
(Source: Oil Ministry)