New oil minister touts fresh Iraqi licensing round

Petroleum Economist, Feburary 2011



Abdul Kareem al-Luaibi, Iraq's new oil minister, has settled in quickly to the hot seat, announcing within a couple of weeks of his appointment plans to launch a new oil and gas licensing round for this year – the country's fourth hydrocarbons auction since the fall of Saddam Hussein's regime.

Luaibi says the new round, expected to feature a number of gas-prone fields, will offer up to 12 blocks in governorates where no acreage was offered in earlier auctions. These include areas such as Najaf and Kerbala, in the south, along with gas-rich Western Anbar province, home to the Akkas field, which may also be included.

Although Abdul-Mahdi al-Ameedi, head of the ministry's licensing and contracting office, had earlier in January said the new bid round would be only for gas blocks, it is likely now that the round will also include oil concessions. This could include areas such as Nineveh, in the north.

The ambition is to boost proved reserves as Iraq gears up for a massive increase in oil-production capacity up to 2017, which could see it reach 6m barrels a day (b/d), compared with the 2.7m b/d now being pumped (PE 12/10 p6).

Iraq last awarded contracts to develop non-associated gasfields in a third tender in October 2010, with the Akkas field awarded to South Korea's Kogas and Kazakhstan's KazMunaiGaz EP, aiming for production of 400m cubic feet a day (cf/d); Siba, awarded to Kuwait Energy and Turkish TPAO, aiming for 100m cf/d; and Mansouriyah with TPAO as operator with Kuwait Energy, aiming for 320m cf/d (PE 11/10 p37).

The third licensing round was small in scale and didn't attract the majors, which had signed up for the first two licensing rounds' service contracts. Luaibi's intention now is to revive the momentum of 2009, when Iraq managed to pull in international oil companies and Asian state-owned firms under the two auctions held that year.

Those service contracts are now starting to bear fruit, with producers starting to hit their target production rates. Output at the Rumaila field, the first large contract award, to a joint venture of BP, China National Petroleum Corporation and South Oil, is reported to have hit 1.28m b/d, representing a 20% increase, and is on course to reach 1.5m b/d by year-end.

The majors have been ploughing resources into Iraq, with the aim of quickly hitting their targets to boost output by 10% above the baseline rate, which is the trigger for them to reclaim their costs and pick up lucrative remuneration fees.

The oil ministry's worry is that the various service contracts could quickly deplete Iraq's crude reserves. This means hitherto untapped areas must be explored to ensure that once the country hits its peak production targets by 2017 – even if these are well below the stated 12m b/d level – it will have substantial new prospects to come on stream to compensate for depletion at the bigger fields.

Boosting domestic gas supply is equally pivotal for a country that has trouble maintaining more than four hours a day of regular electricity.

For Luaibi, the long-standing deputy to the previous oil minister – now deputy prime minister for energy, Hussein al-Shahristani – the prospect of a 2011 exploration round is critical to establish his credibility over the country's main economic sector. Shahristani, a close ally of prime minister Nouri al-Maliki, remains a key player in the new Iraqi government, but had become embroiled in factional mudslinging with the Kurdistan Regional Government over recent years.

The new minister represents a fresh start for Iraq's oil and gas sector. If he can engineer a successful licensing round this year, focusing on lesser-known provinces, he will do much to bolster his credentials. Luaibi has made a strong start, with production reaching a post-war high of 2.7m b/d. The addition of a licensing round could prove another tonic for a hitherto underachieving hydrocarbons behemoth.