Iraq Successfully Auctions Off Three Gas Fields

Representative of Kuwait Energy bids during Iraq’s gas auction
Source: Iraq Oil Report

Iraq’s Oil Ministry held its auction for three natural gas fields in Baghdad on October 20, 2010. The proceedings were presided over by Oil Minister Hussein Shahristani. The event didn’t garner as many foreign energy companies as Iraq was hoping for, and less than half of the participants placed bids, but at the end of the day all three fields were successfully auctioned off.

The natural gas fields involved in the auction were Akkas, Mansuriyah, and Siba. Akkas is in Anbar province, Mansuriyah in Diyala, and Siba in Basra. Together the three have an estimated reserve of 11.2 trillion cubic feet of gas, which is around 10% of the country’s total. 45 companies that took part in the two oil auctions last year were pre-qualified to participate in this event, but only 13 ended up paying the participation fees. Those were France’s Total, Italy’s Eni, Edison, Norway’s Statoil, Kazakhstan’s KazMunai Gas, Turkey’s TPAO, Japan’s Oil, Gas and Metals National Corporation, Itochu Corp., Mitsubishi, Kuwait Energy, India’s Oil and Natural Gas Corp., South Korea’s KOGAS, TNK-BP, and BP PLC’s Russian joint venture. Of those, only five made bids. The winners will be awarded 20-year service agreements where they will form a joint venture with an Oil Ministry controlled business, paid a flat fee until they reach their production mark, and then paid for extra output after that level is met.

A consortium of TPAO, Kuwait Energy and KOGAS won the Mansuriyah field. Mansuriyah has a reserve of 4.5 trillion cubic feet of gas, and the companies at first offered to produce 320 million cubic feet of gas per day, and asked for $10 per barrel equivalent in extra gas output. The Oil Ministry countered by offering $7 per barrel equivalent, which the consortium ended up accepting.

Kuwait Energy and TPAO also successfully bid on the Siba field in Basra. They promised to produce 100 million cubic feet of gas per day, and be paid $7.50 per barrel equivalent in extra production. They beat out Kazakhstan’s KazMunai Gas that offered to raise output to 60 million cubic feet per day and wanted $16 per extra barrel equivalent of gas production.

Finally, KOGAS and KazMunai beat out Total and TPAO for the Akkas field. KOGAS-KazMunai offered $5.50 per barrel equivalent with a production level of 400 million cubic feet. That was superior to Total-TPAO’s bid of $19 per barrel equivalent and 375 million cubic feet per day.

It appeared that the Oil Ministry’s last minute adjustments to their terms worked out in the end. In the last several weeks the Ministry made a series of concessions to try to get more interest in the auction. That included dropping requirements that companies find a partner for 50% of their exports, reducing signature bonuses, and cutting a fee that businesses would have to pay to train Iraqis in the industry.

Baghdad now has its real work cut out for itself. Iraq lacks any real natural gas network in the country, pipelines to export, or deals with foreign customers to sell to. The government’s first concern is to deliver the gas produced to power plants and other domestic industries. It has promised to build pipelines to accomplish that, but they’re not due to be finished until 2014. It will then need to negotiate with neighboring countries for export lines and long-term delivery contracts. Only when that’s accomplished can this auction really be labeled a success, and Iraq can be said to finally be developing this resource.

SOURCES

Aswat al-Iraq, “Turkish-led consortium wins third Iraq gas field,” 10/20/10

Salaheddin, Sinan, “Iraq gas auction fizzles despite hopes,” Associated Press, 10/20/10