Iraq is making its biggest change in decades to the way it deals with international oil companies in a bid to attract more investment into its hydrocarbon sector, sources said on Thursday, as Baghdad shifts to profit-sharing from developing its vast reserves.
Baghdad on Wednesday initialed development contracts for 13 exploration blocks and oil and gas fields based on a bidding round held in May, awarding companies contracts that provide for profit-sharing and include more attractive terms than technical service contracts.
An oil ministry official who attended the signing on Wednesday told Reuters that profit-sharing contracts provide a share of revenues after deducting royalties and cost-recovery expenses.
The official, who spoke on condition of anonymity because he was not authorized to speak to the media, said Iraq had adopted profit-sharing contracts instead of service contracts for the May bidding round to encourage and attract more investment in Iraq’s energy sector.
Traditional technical service contracts involve a fixed payment for each barrel of oil produced after costs are taken into account, and are likely to be less lucrative for foreign investors than profit-sharing terms.
Iraq last year struck a $27 billion oil deal with France’s TotalEnergies that offered faster and less risky paybacks through greater revenue sharing, a model that Iraq said at the time could be replicated to attract more foreign companies.
Oil majors have complained that the terms of traditional oil service contracts in Iraq mean they cannot benefit from higher oil prices and are left to lose out when production costs rise.
Iraq, OPEC’s second-largest producer after Saudi Arabia, currently has the capacity to produce nearly 5 million barrels a day.
Foreign investment in the energy sector has dried up since a wave of deals struck after the US invasion more than a decade ago, contributing to a slump in the country’s oil output.
Total’s deal last year was hailed as a major step toward attracting Western majors to Baghdad.
Chinese companies dominated the May bidding round, which offered 29 oil and gas projects, winning 10 of the contracts for oil and gas fields on offer.
The deals could increase production by 750,000 barrels of crude and 850 million standard cubic feet of gas, Iraq’s oil ministry said on Wednesday.
Iraqi oil officials said Iraq was particularly keen on boosting natural gas production from this bidding round, the country’s sixth, which it seeks to use to power power plants that rely heavily on imported gas from Iran.
Increasing gas production could allow more flexibility to supply gas to power plants, Oil Minister Hayan Abdul Ghani said in a statement.
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