In the week that Total announced that it had signed a ground-breaking deal with NIOC to develop the South Pars fields in Iran, the Ministry of Oil (“MoO”) in neighbouring Iraq announced an open tender for nine oil and gas projects within federal Iraq. A number of the blocks on offer contain trans-border fields which are shared with Iraq’s neighbours, Kuwait and Iran. While in recent history there has been limited appetite between the neighbours to seek to jointly develop blocks as unitised fields, Iran and Iraq are reported in Q1 of 2017 to have signed a Memorandum of Understanding (“MoU”) for the development of certain joint fields and facilities, including the Sindbad and Naft Khana blocks. No further details on the content of the MoU and exactly how the countries will collaborate (in particular given that Iran has already commenced production from its side of the border) have been disclosed.
The blocks that have been offered by the MoO are described as “exploration and rehabilitation” blocks, with some having been run by Iraqi state owned companies in recent years. The blocks on offer include (i) the Khudher Al-Mai, Jebel Sanam and Umm-Qasr blocks on the Iraqi-Kuwaiti border, (ii) the Sindbad, Huwaiza, Shihabi, Zurbatia and Naft Khana on or straddling the border with Iran, and (iii) blocks located within Iraqi’s territorial waters in the Gulf of Arabia.
This week’s announcement follows the November declaration by the MoO that a proposed bidding round for 12 small-medium sized oil fields would be postponed until the middle of 2017. However, not all previously offered fields are being offered (only Sindbad and Umm-Qasr remain), with the focus seemingly turning to Iraqi’s border fields. The parties shortlisted for the 2016 bidding round were typically small and mid-sized independents and foreign state owned entities. The MoO has welcomed those short-listed companies to bid for acreage, but has also confirmed that previously un-qualified foreign companies are also encouraged to present applications for qualification. Whether the parties will continue their interest in different fields with the added complexity of cross-border issues, will remain to be seen.
When 2016’s aborted tender was first announced in October 2016, the MoO publicly stated that it was willing to move away from the unpopular service contract regime and that it was willing to listen to offers from international oil companies (“IOCs”) with respect to the contractual terms. While technical service contracts proved initially unpopular with the IOCs (primarily due to the initially awarded contracts containing very low fees for the IOCs), the continued depression in oil prices has made the MoO reconsider those forms of granting instruments. This is due in part to the MoO remaining bound to repay broadly the same fee regardless of the oil price at the same time as it is suffering from a substantial reduction in crude oil revenues, as well as increased funding for the fight against Daesh. No details have been disclosed by MoO of the type of granting instrument that will be utilised within the current tender process, but we understand that the MoO has requested IOCs to submit “commercial proposals on the technical forms of contract” by 20 August 2017.
Observers will be keen to see if the MoO will deviate materially in form or in substance from the existing forms of technical service contracts and exploration, development and production service contracts.