Iraq awards blocks in fifth licensing round

Middle East

Iraq has awarded six oil and gas blocks in its latest licensing round.

The results of the auction, announced by the Ministry of Oil on Thursday 26 April, is the fifth held since Iraq opened up its oil and gas sector to foreign investments in 2009. The new blocks are located in offshore Gulf waters and in border areas with Iran and Kuwait.

Among the successful bidders are UAE’s Crescent Petroleum, PRC’s Geo-Jade Petroleum Corporation and Hong Kong’s United Energy Group. In a move that reflects industry concerns with the new Iraqi petroleum contract model, several international oil companies, which expressed interest initially in the auction, decided not to bid.

While the Ministry of Oil said that fourteen companies originally expressed interest in the bidding round, five blocks failed to attract bids. Shihabi and Zurbatia, located adjacent to Iran’s Badra field, failed to attract interest, with uncertainty surrounding the potential re-imposition of Iran sanctions by the US deterring would-be investors. Fao and Jabal Sanam on the Kuwait border also failed to attract bids.

Baghdad is offering the new blocks on its new petroleum contract model, which has attracted some concern from international oil companies for reducing the fees paid by the Iraqi government. The new model introduces a royalty element, establishes a link between prevailing oil prices and companies’ remuneration and, significantly, excludes oil by-products from companies’ revenues. Under the existing contract model the fee payable by the government is linked to production increases, which includes oil by-products such as dry gas. The changes to the contract model reportedly follow Baghdad’s difficulties in paying such fees following the oil price crash in 2014.

The new contract model offered by the Iraqi federal government contrasts with that put in place by the semi-autonomous Kurdistan Regional Government; oil and gas fields in northern Iraq produce under a production sharing model, which international oil companies generally regard as more profitable.

Despite the mixed success of the latest licensing round, Thursday’s announcement underscores Iraq’s continued push for foreign investment into its upstream oil and gas sector. Iraq is the second-largest crude oil producer in OPEC after Saudi Arabia and holds the world’s fifth-largest proven crude oil reserves, yet upstream investment has been stifled following years of sanctions and conflict, leaving many fields underdeveloped and new discoveries unexploited.

Iraq’s latest licensing round coincides with a broader uptick in upstream activity in the region, with the UAE’s Abu Dhabi and Ras al Khaimah both announcing the launch of their first licensing rounds earlier this month.