Iraq on Thursday announced it will hold a fifth energy auction after a landmark sale of energy exploration blocks closed with just three out of a potential 12 awarded.
The two-day sale, the first to invite international oil companies to explore Iraqi territory for energy deposits since the 2003 US-led invasion, concluded with eight blocks receiving no bids whatsoever, including two that were offered to foreign firms twice.
The bid round, the fourth public auction of Iraqi energy contracts since mid-2009, came amid progress in ramping up oil exports, which account for the vast majority of government income, and as Baghdad eyes higher gas production to increase woefully inadequate power supplies.
But whereas previous auctions offered contracts to foreign energy firms to raise output at existing oil and gas fields, Iraq this time showcased areas earmarked for exploration.
After the conclusion of the fourth round, Iraq’s oil minister said that a fifth energy auction was in the works.
“We are preparing for a fifth round because we have more than 60 blocks that are ready to be presented,” Abdelkarim al-Luaybi told reporters.
Another top oil ministry official meanwhile insisted that the auction had met expectations.
“This is a success because 25 percent is a good result,” said Abdel Mehdi al-Amidi, head of the oil ministry’s petroleum contracting and licensing department, referring to the three out of 12 success rate.
“With the three contracts today, there are 18 contracts ongoing across the country — this is a huge task for the country.”
Analysts, however, disagreed with his assessment.
“It’s very disappointing (for Iraq) because … the priority was to award the gas blocks, because they need the gas urgently for power generation, for industries and so on,” said Ruba Husari, editor of www.iraqoilforum.com.
“The lesson to draw from this is that the model that was offered is not suitable for exploration for gas.”
Thursday opened with a winning bid from Pakistan Petroleum for a 6,000 square kilometre (2,316 square mile) exploration block which is thought to contain gas covering Diyala and Wasit provinces in central Iraq, with the company agreeing to $5.38 per barrel of oil-equivalent eventually extracted.
And shortly afterwards, a partnership between Russian energy giant Lukoil and Japan’s Inpex won a contract for a 5,500 square kilometre (2,123 square mile) plot in Muthanna and Dhi Qar provinces in the south, believed to hold oil, with an offer of $5.99 per barrel of oil.
But six other blocks — including two that were initially offered a day earlier but received no bids — garnered no interest from foreign energy firms.
Of the three oil and three gas blocks offered on Wednesday, meanwhile, just two received bids, and only one — Block 9, an area near Iraq’s border with Iran that is thought to contain oil — was accepted by Baghdad.
A consortium led by Kuwait Energy that also includes Turkey’s TPAO and Dubai-based Dragon Oil won the 900 square kilometre (347 square mile) block in the southern province of Basra, for a service fee of $6.24 per barrel of oil.
Another exploration block in south Iraq thought to contain oil received a single bid, but it exceeded the amount the oil ministry was willing to pay and so was not awarded.
As in previous auctions, Iraq required firms that agree to explore blocks to work under fixed-price service contracts, rather than the production-sharing agreements that are common elsewhere and more popular with major energy firms.
Baghdad also for the first time demanded that firms that won contracts agree not to sign deals with the autonomous Kurdish region in northern Iraq, or any other sub-national authority, without the central government’s approval.
Kurdistan has signed dozens of contracts with foreign energy firms, but Baghdad regards them as illegal because they were not approved by the federal oil ministry.
Iraq is looking to ramp up its exports from its current level of around 2.5 million barrels per day.
The country has proven reserves of 143.1 billion barrels of oil and 3.2 trillion cubic metres (111.9 trillion cubic feet) of gas, both of which are among the highest such deposits in the world.