BAGHDAD (Reuters) - Iraq started its fourth energy bidding round to allow international companies to compete for exploration deals on 12 new oil and gas areas, as the OPEC-member country seeks to expand its crude reserves and become a major gas exporter.
The auction was the latest step in Iraq’s program to rapidly build up its energy sector after years of war and sanctions, but tough service contract terms could crimp investor interest in the latest bidding round.
In early Wednesday bidding, no companies put up offers for Block 6 between Anbar and Najaf provinces or Block 2, an 8,000 square km gas area along the Syrian border.
A consortium led by Kuwait Energy and partners Turkey’s TPAO and Dubai-based Dragon Oil secured a deal to explore Block 9, a mainly oil area in southern Basra province. They offered a remuneration fee of $6.24 per barrel of oil equivalent.
Bidding is decided according to the remuneration fees offered, with the lowest bids winning blocks. Industry sources had said companies would have to offer $10 to $20 a barrel for the service fee to compensate for risks involved.
Iraq has the world’s fourth-largest oil reserves and the world’s tenth-largest gas reserves, and the country still offers potentially rich unexplored territories after its industry was left under-developed for years.
But companies must weigh service contract terms and the risks from Iraq’s ongoing political instability against the potential gas and crude developments on offer, mostly in remote parts of western and central Iraq.
Oil explorers that win blocks will immediately be able to extract gas discovered at their sites, but the Iraqi government has retained the option to pay compensation to companies to keep crude in the ground to help boost its reserves.
Investors may shy away from blocks in remoter areas due to concerns over security in a country where Sunni Islamists tied to al Qaeda are still active despite a drop in the violence and bombings at the height of Iraq’s war.
Another important hurdle is the failure of Iraq’s parliament to pass a long-delayed national oil and gas law that could provide the stronger framework for protecting oil investments.
Baghdad’s central government and the autonomous Kurdistan Regional Government in the north are also locked in a dispute for control over oil in areas which both authorities claim. Baghdad rejects deals signed by the Kurdish region as illegal.
writing by Patrick Markey; editing by Helen Massy-Beresford