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TheForthcomingExplorationBlocksBidRoundInIraq:IssuesForConsideration

ByAhmedMousaJiyad

MrJiyadisanindependentdevelopmentconsultant,scholarandAssociatewiththeCentreforGlobalEn ergyStudies(CGES),London.HewasformerlyasenioreconomistwiththeIraqNationalOilCompanyand IraqsMinistryofOil,ChiefExpertfortheCouncilofMinisters,DirectorattheMinistryofTrade,andIn ternational Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway andhasowndevelopmentconsultancyandresearchfirm.(Email:moujiya@online.no).
IntroductionAndBackground TheMinistryofOildeferredtheholdingoftheexplorationblocksbidround,afourthbidroundinarow, fromNovember2011toJanuary2012.Theeventwouldoffer12explorationblocksforcompetitionamong qualifiedinternationaloilcompanies(IOCs).Sevenblocksaregasproneandtheresthaveoilpotential. Theareasofthenewofferedblocksarelargeincomparisonwiththepreviouslydemarkedblocks,andsix areborderareas.Whythisenlargementandwhataretheimplicationsforthecorrespondingpowersofprov incesandcentralauthorities,andforthepriorityofborderfieldswithinIraqsnationalpetroleumpolicy,are examplesofmanyquestionsraisedthroughoutthepaper. Theministryoughttodecidethenatureandscopeofcontractsthatwouldgoverntheresultingexploration projects,butwhataretheoptionsavailable? Politically,theparliamentexhibitsdeterminationtohaveaneffectiveroleinthismatter,andaskedthemin istry to put on hold the bid round, but the ministry refused the request. Hence a new round of tension amongthemainpoliticalpowers,camouflagedbytheseexecutivelegislativedifferences,mightaddfurther straintoanalreadyshakyalliance. Thispaperaimsatfocusingonandhighlightingthemainissuespertainingtothebidround,analysingthem, suggestingoptionsforconsideration,andhopefullymakingapositivecontributiontothenationaldebateon thisparticularissue. NationalExplorationProgramAndItsInvestmentAllocation TheMinistryofOilannouncedinFebruary2011anewfouryearplancoveringtheperiod201114.Thefirst objectiveoftheplanistoattainsignificantincreaseintheoilandgasreservesoverIraqsofficiallycon firmedprovenreservesof143bnbarrelsofoiland127trillioncuftofgas(circa35tcfoffreegasand92tcfof associated gas.) Sources at the ministry quantify these objectives to adding around 29 tcf of gas and 10bn barrelsofoiltooffsettheexpecteddepletionoffieldsthatwouldbedevelopedbyinternationaloilfirms,of feredinthelastthreebiddingrounds.1 InvestmentallocationsfortheexplorationprogramundertheplanamountstoID751.52bn 2earmarkedas follows:ID140bnfor2011,ID168bnfor2012,ID201.6bnfor2013andID241.92bnfor2014. 3Thoughthean nualinvestmentallocationfortheexplorationprogramisonanupwardtrend,theproportiontototalplan investmentallocationremainsconstantat3.73%onboththeaggregateandannuallevels.Thiswouldlead metosuggestthattheinvestmentallocationfortheexplorationprogramwasformulatedmoreonasheer fiscalmeasurebasis,beingafixedpercentageoftheplanstotalinvestmentallocation,thanonspecifiedcost itemizedexplorationactivities. TheplansaysthatthisinvestmentallocationdoesnotcoverpaymentsduetoIOCsforthethreebidrounds, and thus I take it do not cover also the annual financial requirements of the contracts that would be con cludedpursuanttotheforthcomingexplorationbidroundsiftheyareawardedwithinthedurationofthe plan. MiddleEastPetroleumandEconomicPublications(Cyprus)Ltd ReproducingMEESIsStrictlyProhibited

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Theexplorationprogram,accordingtotheministerofoil,wouldbeimplementedinthreephases:thefirst phaseistoholdthebiddingroundforthe12explorationblocks;thesecondtolaunchmassiveexploration operationsthroughoutthecountryusingnationaleffortsandcapacities;andthethirdistodrill12explora tionwells(inotherareas)acrossIraq.4Theplanandavailableinformationarenotclearwhetherthesethree phaseswouldbeexecutedconcurrentlyorconsecutively.Morepreciselyisitpossibletodelinkphaseone fromtheothertwophasesorchangetheorderofphases? Timeline:FromPreQualificationToLicensing ThebidroundwasoriginallyscheduledforNovember2011,butthetimewastoosoontogothroughallthe necessarystepsforholdingtheevent.AccordinglyanewdatewasannouncedJanuary2012. InanutshelltheministryadoptedinAprilthefollowingtimeline,amendedoncesofar: 19Maywasthedeadlineforinterestedcompaniestosubmitdocumentsforprequalification,andthe prequalifiedcompanieswouldbeknownon30June.However,onedaybeforetheinitialdeadlineex piredtheMinistryofOilextendedthedeadlineto6June.Obviously,thisextensionisboundtoaffect theremainingmilestonesofthetimeline. On24Augusttheministrywillreleasetheinitialtenderprotocol,draftcontractanddatapackages.Be foreAugustendstheroadshow(firstworkshop)toselldatapackagestocompanieswillkickoff. On 13 November a contract/technical workshop will be held with companies that bought the data packages. TheministryaimstopublishthefinaltenderprotocolandcontractsinmidDecember,andthebidding eventwillbeon2526January2012. To finalize the prequalification process, the Petroleum Contracts and Licensing Directorate (PCLD) of the ministrylaunchedon14AprilthethirdprequalificationprocessfortheIOCswithaviewto: 1. QualifyingIOCsthatwerenotqualifiedforthepreviousthreelicensingrounds. 2. ReevaluatingthepreviouslyqualifiedIOCsthathavenotsignedservicecontractswiththeministrys companiesin the previous rounds. The reevaluation focuses on the Legaland Financial Criteria of theprequalificationprocess. IOCsinCategory1arerequestedtofillalltherequestedinformationasperpreparedsheets,whereasthose inCategory2aretofillthelegalandfinancialinformationsheetsonly,supportedbyspecificofficialdocu mentsforthepastthreeyears.AnonrecoverablequalificationfeeofID18mnwastobepaidincashby each IOCin the two categories well before the deadline. The documents receiving deadline was19 May. 5 Though the call for prequalification went out on 14 April, no firms have submitted documents to pre qualifyfortheauctionof12newoilandgasblocksasof28April,accordingtoAbdalMahdialAmidi, DirectorGeneralofPCLD.6 WastheMinistryofOildecisiontoextendthedeadlineto6JuneduetorequestsfrominterestedIOCs,asthe ministrysays,orduetoadiscouragingresponsefromoilcompaniesorduetotherecentdifficultieswiththe parliamentregardingthetimingofthebidround,aswillbediscussedlateron? ThereisnoquestioninmymindthatIOCs(bigorsmall)willshowkeeninterest,andprobablycompetefe rociously,fortheseblocksorsomeofthem.SomeIOCswillbedrivenbyenhancingtheirexistingposition, whileothersattemptstoseekfootholdintheIraqiupstreampetroleum.Iwouldexpectmorenewcompanies to show interest in these exploration blocks. I also expect the blacklisting practice of companies already workingwiththeKurdistanRegionalGovernment(KRG)toremainactive,sincethefederalgovernmentstill considersoilcontractswithKRGillegal. ButtherealquestionisdoesIraqneedandcoulditeffectivelymanageyetanotherbigpushundertakingin theupstreampetroleumsector? RemarksOnTheOfferedExplorationBlocks Initially,theMinistryofOilannouncedthat12explorationblocks,includingoneoffshore(previouslydesig natedasBlock18),wouldbeofferedforthecompetitivebiddinground.Thiswasmentionedintheminis MiddleEastPetroleumandEconomicPublications(Cyprus)Ltd ReproducingMEESIsStrictlyProhibited www.mees.com

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trysplandescribedaboveandconfirmedbytheoilminister,thoughthenumbers,sizesandlocationsofthe 12blockswerenotspecifieduntillateApril2011.7 Accordingtoapreviouslypreparedmap,theministryidentified54explorationblockslocatedondifferent partsofthecountryandtheywereclassifiedaccordingtofivecategoriesaccordingtotheirhydrocarbonpo tentials,assummarizedinTable1.

Table1:OldDemarcatedExplorationBlocks

Hydrocarbon Potential and Number of Blocks High Oil (22) High Gas (9) High Oil and Gas (4) Moderate Oil (10) Moderate Oil and Gas (9)

Blocks Numbers 18, 19, 20-38, 39 3-7, 10-13 1, 2, 8, 9 40-49 14-17, 50-54

AfterconsiderationbytheMinistryofOilandapprovalbytheCouncilofMinisters(COM)anewmapwas releasedcontaining12newexplorationblocks.Table2summarizesthelocation,sizeandlikelytypeofhy drocarbonoftheofferedexplorationblocks.

LocationsOfIraqsNewExplorationBlocks

Source:Author,basedonMinistryofOilmaps.

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Table2:TheNewExplorationBlocks

Block No.

Governorate/Province

1 Nainawa 2 Nainawa and Anbar 3 Anbar 4 Anbar 5 Anbar 6 Anbar and Najaf 7 Anbar, Babil, Najaf, Muthanna, Wasit 8 Diyala and Wasit 9 Basrah 10 Muthanna and Thiqar 11 Najaf and Muthanna 12 Najaf and Muthanna Total Percentage of Areas Grand Total Areas Grand Total (km2)

Area (sq km) Gas Oil 7,300 8,000 7,000 7,000 8,000 9,000 6,000 6,000 900 5,500 8,000 8,000 52,300 28,400 65% 35% 80,700

Source:MinistryofOil(http://www.oil.gov.iq/EXPLORATION%20BLOCKSBR4.pdfaccessed5May2011).

FromthedatainTables1and2andthemapabovethefollowingobservationsaremade: Priorityhasbeengiventogasexplorationasmanifestedbyboththesizesandthenumberofblocks.The seven gasprone blocks are in the range 6,0009,000sq km, withan average of 7,471 sq km per block, whilethefiveoilproneblocksrangefrom900sqkmto8,000sqkm,withanaverageof5,680sqkm. Hence,intermsofacreage,blockswithgaspotentialform65%ofthetotalareacoveredbytheoffered blocks.Thepreferencegiventogasproneblockswasexpectedinthelightofofficiallydeclaredpolicy toaugmentthecountrysgasreservestomeetthefuturegasneedsforpowergenerationandotherin dustrialpurposes,andexportsofthesurplus,ifany. Unlikethepreviousblockcategorization(inTable1),thenewblocksaredividedintotwocategoriesof petroleum potentials only: oil and gas. However, we should take note of the fact that the ministry changedthecategoryofnewBlocks1and2togaspronewhiletheywereclassifiedasmoderateoiland gasforoldBlocks14,15,16and17.SimilarlythenewBlock8isdescribedasgaspronebutreplacesold Blocks 4046, which were classified as moderate oil. Having two categories only would facilitate the provisions of the model service contracts in two versions one relating to oil and the other to gas, if needbe. Thenewblocksaremuchlargerthanpreviouslyannouncedblocks,exceptforoldBlock19(nowBlock 9), which remains the same size. The enlarged areas came as a result of combining and/or re demarcationofthepreviouslysmallerblocks.Forexample,newBlocks1and2covertheareasofold Blocks14,15,16and17.ThenewBlocks3,4and5areredemarcationsofoldBlocks7,11,12and13. WhatshouldbenoticedthatthenewexplorationBlocks4and5havebeenmovedawayfromtheIraqi Jordanianborders,whilethenewBlock3maintainsitsextensiontotheIraqiSyrianborder.Arethere anygeopoliticalconsiderationsbehindthis,andhasthistodowiththeRishagasfieldanditspossible extensionintotheIraqiterritory? Enlarging the sizes of the new exploration blocks, as such, contradicts international trends and prac tices.8Theministryseemstohavenottakennoteoftwoimportantfactorsinthisrespect:prospectivity of the area and thoroughness of exploration. Briefly, international experience shows that generally countrieswithlowprospectivityofferlargetracttomitigatebusinessriskandtoattractoilcompanies interests.However,itisawellknownfactthataverageprospectivityinIraqisveryhigh,andprobably thehighestintheworld.MrTariqShafiqassertsanoverallaverageof70%explorationsuccessinIraq, though the country is the least explored major hydrocarbon resource basin in the Middle East. 9 The secondmatterwhichtheministrymighthaveignoredistheintensityandthoroughnessofexploration activities.Again,internationalexperienceindicatesthatthelargertheareaoffered,thegreatertherisk that thorough exploration activities, based on the number, location and depth of exploration and de lineationwellsandtheuseofadvancedtechnologiesandmethods,willnottakeplace.Inthelightofthe MiddleEastPetroleumandEconomicPublications(Cyprus)Ltd ReproducingMEESIsStrictlyProhibited

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aboveitappearsthatenlargingblockssizesseemsuncalledfor.Neverthelesstheministryisrequiredto takeinto considerations thesefactors when preparing the bidding technical documentsand final con tract. Halfofthe12blocksextendtothesovereignborders:Blocks1,2and3extendtotheIraqiSyrianbor ders;Block6totheIraqiSaudiborders;andblock9(andpossiblyBlock8)extendtotheIraqiIranian border. In the likelihood of petroleum discoveries, this would increase the number of border fields sharedwithneighbors,andthisshouldprompttheIraqiauthoritiestohaveclearpolicyandpriorityre gardingtheseborderfieldstoprotectIraqiinterests. Areaenlargementofthenewblockshasledtoextendingsomeblocksintomorethanonegovernorate/ province.Sevenofthe12blocksnowhavesharedprovinces:threeblockswithgaspotential(Blocks2,6 and8)andfouroilblocks(7,10,11and12).Alljointblocksextendovertwoprovinces,exceptBlock7, whichextendoverfiveprovinces.Unlessthedemarcationofauthorityoverhydrocarbonresourcesbe tween central and provincial powers is clearly defined and adhered to, such joint blocks could face somelocaldifficulties. Itappearsthattheboundariesofthenewexplorationblockshaveavoidedwhatcouldhavebeenlegally problematictovaryingdegreesforafewoldblocks.Solidevidenceisavailabletosupportthisassertion forsomeblocks.Duringtheformerregimeandwhilethecountrywasunderstrictandcomprehensive UN sanctions, Exploration and Development Contracts were concluded regarding old exploration Block8withIndiasOilandNaturalGasCorporation(ONGC) 10andoldBlock3withIndonesiasPer tamina.11UnsubstantiatedclaimsweremaderegardingoldBlocks4,6and9.IrelandsPetrelResources claimed, in March 2008, it had concluded a productionsharing agreement with the former regime, whichgavethefirmanetproductioninterestinBlock6of2535%. 12However,Ididnotfindany evidencetosupportthisclaim.AnotherclaimwasmadethatRussiasTatneftandStroytransgazhad prewararrangementsforBlocks4and9intheWesternDesert 13Availableinformationindicatesthat anexplorationcontractforoldBlock4wasnegotiatedwithStroytransgazbutthatthecontractwasnot signed.Hence,nothingisavailabletosupportthelegalityoftheclaimbyStroytransgazonthisblock. AsforoldBlock9,Ididnotfindevidencetosupportanyclaimonit.ThisisprobablywhytheMinistry ofOildividedtheareaofthatoldblockamongthethreenewBlocks6,11and12. Domesticpoliticsisorcouldbeanexplanatoryfactorbehindtheselectionofthenewblocks,especially fortherelativelyunexploredprovincesofKarbala,Najaf,MuthanaandAnbar. The offshoreblock was taken off the list of offeredblocks, though it was mentioned in the ministrys plan. No formal reason was given for excluding this block. However, my discussion with an official fromtheministrysuggeststhattheoilministerhaddecidedtodropthatblockbecauseofanewprob lemwithKuwait.ThedecisioncouldbelinkedtotheincreasinglycontentiousissueofMubarakPort, whichKuwaitisconstructingintheproximityoftheblockandwhichcouldnegativelyaffecttheIraqi waterwayfromtheGulftothesouthernportofFaoandundermineitsdevelopmentpotentialandstra tegicimportance.14 NewBlock9(oldBlock19)isthesmallestinsize(900sqkm)andextendstotheIraqiIranianborder. ButsinceitisadjacenttoIransgiantAzadeganoilfielditsoilpotentialisratherhigh,makingit,asure hit,asanoilindustryexpertreportedlysaid.15

TypesAndScopeOfTheExplorationContracts Twoissuesareofparticularimportanceinthisrespect:thefirstisthenature/typeofthecontractandthesec ondisthescopeofthecontracts.Thefirstissueaddressesthechoicebetweenservicecontractsandproduc tionsharingcontracts,whilethesecondissueisaboutwhetherthecontractsshouldbeforexplorationonly orforexplorationanddevelopment. Regardingthefirstissue,theMinistryofOilhadmadeitemphaticallyclearthatthecontractsforthefourth bidroundwouldbeservicecontracts,thusputtinganendtorumors,speculationorevenpressureforpro ductionsharingcontracts.IOCsseemtoaccepttheservicecontracttype,thoughpreferringproductionshar ingcontracts,butwhatmattersforthemarethefiscaltermsoftheservicecontracts.Moreover,theministry MiddleEastPetroleumandEconomicPublications(Cyprus)Ltd ReproducingMEESIsStrictlyProhibited www.mees.com

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hasexpressedreadinesstoreactivatepreviouslyconcludedexplorationcontractsonlyiftheyareconverted toservicecontracts.ThetwoexplorationanddevelopmentcontractsconcludedwithONGCandPertamina regardingoldBlocks8and3respectively,referredtoearlier,wereproductionsharingcontracts.Thesetwo contractsarenowfrozenandcannotbereactivateduntiltheyareconvertedintoservicecontracts,asenior Iraqioilofficialreportedlysaid.Whenwehaveanewservicecontractinourhands,thenwewillrenegoti ate,headds.16 Thesecondissueiswhethertheservicecontractshouldbeforexplorationonlyorexplorationanddevelop ment.Threepropositionscanbeexploredatthisjuncture: Thefirstcallsforadoptingexplorationservicecontractsforall12offeredblocks. Thesecondcallsforusingexplorationanddevelopmentservicecontractsforall12offeredblocks. Thethirdcallsforusingexplorationservicecontractsforthefiveoilblocksandtheexplorationand developmentservicecontractforthesevengasblocks. The first, calling for exploration service contracts for all blocks,is based on the fact that Iraq already has enoughcontracts,whichifexecutedascontractuallyenvisagedwouldprovidehighproductioncapacityfor oil and gas (both associated and free). The argument could go further to suggest that even at half the tar geted oil and gas production, Iraq would not need further upstream field development projects. Efforts, therefore, should be spared to insure effective and ontime implementation of the already concluded con tracts,especiallygiventheapparenthumanresource,infrastructureandsecuritylimitationsandconstraints. Thesecondpropositionarguesinfavorofprovidingsufficientincentivesforbiddingcompaniesbycombin ingbothexplorationanddevelopment.ThiscouldattractmoreIOCs,thusincreasingcompetitivenessinthe biddingprocess,whichcoulddelivergoodresultsforIraq.Also,theargumentgoes,explorationanddevel opmentusuallytakesmanyyearstobringnewoilandgasonstream,andthiscouldbecoordinatedwiththe currentlyconcludedcontractstoreplenishreservesandenhanceproductioninatimelyway. Thethirdpropositionstandshalfwaybetweenthefirsttwoandthusadoptstheirarguments.Additionalar gumentstosupportexplorationanddevelopmentservicecontractsforthesevengasblockscouldbemade onthepremiseofprovidinggassuppliesindependentofoilproduction,thusprovidingstrategicflexibility anddiversity. Takenallargumentsintoconsideration,Iwouldsuggestthattheprioritylieswiththefirstpropositionand thuswouldencouragetheMinistryofOiltofollowthisrouteandstartpreparingthemodelexplorationser vicecontractforallblocks,ifandwhenthebidroundeventuallytakesplace. ATimelyInterventionByParliament Theparliamentexpressedanearlyandfirmpositionontheforthcomingbidround.Onedaybeforeparlia ments monthlong recess, the Oil, Gas and Natural Resources Committee (OGNRC) of the house hosted MinisterofOilAbdalKarimalLaibion12May.Amongtheissuesdiscussedwastheexplorationbidround scheduledforJanuary2012. According to chairman of OGNRC, Adnan alJanabi, the committee asked the minister to delay the bid roundandnottosignanymorecontracts,pendingapprovalofanewhydrocarbonslaw.Theministerre fusedtherequest,sincetheministryhadalreadylaunchedtheprocessforthefourthbiddingroundandsaw nowaytostepback.ThispositionbytheministerpromptedMrJanabitoassertthatOGNRCwouldaskthe parliamenttopassalaworvoteonamotionpreventingtheministryfromsigninganynewcontracts.He warned:Companiesshouldknowthatanyfuturedealswillbeconsideredillegal. 17AccordingtoKasim MuhammadKasim,aKurdishparliamentarianandcommitteememberwhowaspresentatthemeeting,Mr JanabihadthebackingofaboutthreequartersoftheOGNRCallbutthemembersofPrimeMinisterNuri alMalikispoliticalcoalition.18 MiddleEastPetroleumandEconomicPublications(Cyprus)Ltd ReproducingMEESIsStrictlyProhibited

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Itremainstobeseenwhethertheparliamentwillsucceedinpassingalawormotionpreventingtheministry fromsigninganynewcontracts,andIfullyendorsealawtoprovidesomelegalcertaintythatcouldsafe guardsIraqiinterests.Unfortunately,theparliamentmissedagoodopportunityafewweeksagotoassertits authorityandconstitutionalrole,andthuscontinuestoacceptingcircumventionbytheexecutivebranch. On27Marchtheparliamentvotedtoabrogateaformerlaw,of1997,thatratifiedthedevelopmentandpro duction contract and the memorandum of understanding (MOU) related to the Ahdab oil field, signed in Baghdadon4June1997betweentheMinistryofOilandChinasCNPC.Theparliament,inmyview,should haveinsistedthattheAhdabcontractof2008mustalsoberatifiedbylaw,andthustheparliamentshould haveseenthatcontractbeforeabrogatingtheoldlaw. Thus,notonlydidtheparliamentmissexcellentopportunitytosetapowerfullegalprecedentforhavingall othercontractsenactedbylaw,butalsotheparliamentinfactgaveitsconsenttoremainpassiveandbeon thesidelinesofeffectiveauthorityregardingsuchoilcontracts.Couldandshouldtheparliamentrestoreits roleandauthorityasenshrinedintheconstitutionregardingoilcontracts?Yes,Ithink.Butthisrequirespro fessionalismandadherencetotheconstitution,notanonandoffpoliticizationoftheissues. ConclusionsAndRecommendations InthelightoftheaboveIputforwardthefollowingremarksandrecommendationsinthehopeofcareful considerationsbytheconcernedparties,especiallytheMinistryofOil. PostponementOfTheBidRound Itisadvisabletopostponetheproposedexplorationbidroundtoafuturedate.Thatdateshouldbelinkedto thepostinitialdevelopmentphaseofallcontractsconcludedpursuanttothethreepreviousbidrounds.This couldmeanthatthebidroundcouldbeheldthreeyearsafterthecontractsofthethreegasfieldsconcluded pursuanttothethirdbidroundhadenteredintoforce,andthethreegasfieldsdeliverasustainable25%of gasplateautargetsasstipulatedbytheirservicecontracts.Therationaleforthispostponementrestsonthree premises:theneedsforreservesaugmentation,soundplanningandlegalprerequisites. Therearenocompellinggroundstoundertakeyetanotherbigpushmoveassoadvocatedbythebidround. SixmonthsagotheministryaugmentedIraqsprovenoilreservesfrom115bnto143bnbarrels.Thelifespan oftheseprovenreserves(reserves/productionratio)is145yearsbasedoncurrentproductionrateof2.7mn b/d. The ratio could potentially be much higher Deputy Prime Minister for Energy Affairs Husain al Shahristanirecentlygaveanewfigure,basedonrecentinformation,ofprovenoilreservesashighas200bn barrels,19givinga203yearsreserves/productionratio. Theministryishopingtoadd10bnbarrelsofoilfromtheofferedoilblocks.IfweacceptDrShahristanis 200bnbarrelsofprovenreserves,thequestionthenis:doesa5%reservesaugmentationjustifysucharush foroilexplorationatthisparticularlydifficulttime?Iwouldsafelysuggestnoforananswer. Thesamealsoappliestogasreserves.Thecountryhasnotyetevenmanagedtostopassociatedgasflaring, estimatedtobearound700mncfdofgasatitssouthernoilfieldsonly,anditsnonassociatedgasreserves are intact. Hence, augmenting gas reserves is not a convincing aim when available reserves remain un touchedandassociatedgasisnotfullyutilized. Fromthesoundplanningperspective,itisvitaltoharmonizeexplorationlicensingtotheactualperformance ofthefieldsdevelopmentundercurrentcontracts,whicharenotveryclear.Bythetimetheinitialdevelop mentphaseforallconcludedcontractshasbeendone,enoughandsignificantdataandinformationwould beavailable,andmuchofthebottleneckscouldbesortedout.Thus,theMinistryofOilwouldbeinabetter positiontoholdexplorationbidround. Onthelegalside,explorationcontractsshouldbeformulatedonasolidlegalframeworktoinsurelegalpre dictabilityandcertainty.Thiscouldbedoneoncethethreevitallawsarepromulgated,namelytheFederal OilandGasLaw(FOGL),theIraqNationalOilCompany(INOC)lawandtheMinistryofOillaw.Though MiddleEastPetroleumandEconomicPublications(Cyprus)Ltd ReproducingMEESIsStrictlyProhibited www.mees.com

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these three laws are, unfortunately, politically driven, and their contents and time of enactment would be subjecttowhatIcalltheMuhasasaDiseaseofIraqipolitics,itishopedthatthelawswouldbepromul gatedwithinthecomingthreeyears. Havingsaidtheabove,theministrysargumentsjustifyingthebidroundstandonthinice,anditshouldre consideritstimingassuggestedabove. ExplorationServiceContracts IwouldencouragetheMinistryofOiltostartpreparingthemodelexplorationservicecontractforallblocks. Thisimpliesthattheministryshouldfocusitseffortsandenergyonthistypeofcontractsonlyandshould notconsiderothertypesofcontracts.Inthemeantimetheministryoughttobemoreproactiveandtakethe initiativetoconvertassoonaspossibletheoldcontractswithONGCandPertamina,referredtoearlier,to explorationservicecontracts,ifbothONGCandPertaminaareinterestedintherelatedoldblocks. When the ministry is done with the conversion of the said contracts, as it did with the Ahdab contract in 2008,thenewservicecontractwouldsettheaprecedenceforthemodelserviceexplorationcontractthatwill beusedforexplorationbidround,whenitisheldinfuturedate,andregardlessofthepetroleumpotentialof theofferedblocks. FocusOnGasProneBlocks ConsideringthesignificantcommitmentsalreadycontractedregardingoilproductioncapacitytheMinistry ofOilshould,ifitdecidestogoaheadwiththebidroundatanyfuturetime,considerfocusingtheexplora tionbidongasproneblocksonly,withtheprobableexceptionofBlock9.TheinclusionofBlock9isjustified forbeinglocatedinaborderareawithhighoilpotentialandincloseproximitytotheIraniangiantAzade ganoilfield,20whichIranisdevelopingatafastpace. ParliamentMustHaveASay Finally, the parliament has and should exercise its lawful effective role regarding upstream development contracts. However, the house has been passive and accepts, by will or omission, many maneuvering at temptsbytheexecutivebranchtocircumventandlimititsroleinthesecontracts.Butthereappearstobea new spirit of determination to restore parliamentary constitutional rights inthis area. Hence, if the parlia mentsucceedstopassanewlaworadoptamotionpreventingtheMinistryofOilfromholdingthesched uledbidround,thiswouldsurelybeastepintherightdirection.Tactically,though,theministrycouldtake theinitiativetopostponethebidroundsoonasapreemptivemeasureagainstpossibleactionbythepar liament,asitisbetterfortheministrytopostponethebidroundbychoiceratherthanbycompulsion. Tosumup,Iwouldsuggestthat:theMinistryofOilconsiderspostponingthebidroundfornotlessthan threeyears;focusesonblockswithgaspotentialonlyplusBlock9,thusreducingthenumberofblocksfrom 12toeight;andworksearnestlytoconverttheONGCandPertaminacontractstoexplorationservicecon tractandadoptstheconvertedcontractastheguidingversionfordraftingthemodelservicecontractforthe offeredexplorationblocks,ifandwhenthebidroundwouldbeheld. Butagain,knowingtheMuhasasaDiseaseofIraqipolitics,realityseldomcoincideswithexpectations,let alonewithrecommendations!
Notes: 1.http://www.upstreamonline.com/live/article253707.ece(accessed26April). 2.Equalsabout$643mnatanexchangerateof$1=ID1,168. 3.See,SummaryoftheFourYearPlan201114forOilandGasSector,February2011,MinistryofOil. 4.http://www.upstreamonline.com/live/article253707.ece(accessed26April).Notethattheplanrefersto10,not12,ex plorationwells. 5.Forprequalificationannouncementprocessseehttp://www.oil.gov.iq/5555.php(accessed30April).Forextensionof deadlineseehttp://www.oil.gov.iq/Extension%203.pdf. 6.http://www.energyintel.com/print_me.asp?document_id=716729&pID=31(accessed4May).

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7OilministerLaibitoldReutersthat12explorationblocks,includingthefirstmarineexplorationblock,wouldbeten deredinthefourthround(http://www.upstreamonline.com/live/article249398.eceaccessed23March). 8.SeeUNCTAD,ComparativeAnalysisofPetroleumExplorationContracts,1995. 9.TShafiq,IraqsOilReservesRevisitedAndImplications,Parts1&2(MEES,3/10and17January). 10.SeeLawNo.41of2001,AlwaqeeAliraqiaNo.3877,5July2001,ratifyingExplorationandDevelopmentContractfor Block8,WesternDesert,signed28November2000betweentheMinistryofOilandIndiasONGC. 11.SeeLawNo.51of2002,AlwaqeeAliraqiaNo.3953,21October2002,ratifyingExplorationandDevelopmentContract forBlock3,WesternDesert,signed23April2002betweentheMinistryofOilandIndonesiasPertamina. 12.http://www.upi.com/Science_News/ResourceWars/2008/03/04/PetreleagerforIraqwestdesertoildeal/UPI 94401204662578/#ixzz1HYzSptrU(accessed23March2009)and http://www.oilvoice.com/n/Petrel_Resources_Provides_Update_on_Iraqi_Operations/beeca2ebb.aspx(accessed18May). 13.http://www.upstreamonline.com/live/article256480.ece(accessed13May). 14. AlSabah newspaper, Baghdad, 14 May 2011; AlBaghdadia TV, 18 May 2011; http://www.iraq businessnews.com/2011/05/18/newkuwaitiportcouldscupperiraqsgrandfaw/(accessed19May). 15.http://www.energyintel.com/print_me.asp?document_id=716663&pID=1(accessed4May). 16.http://www.energyintel.com/DocumentDetail.asp?document_id=702394(accessed19January). 17.Reuters,16May2011. 18.http://www.iraqoilreport.com/politics/oilpolicy/oilministryparliamentbattleoverfourthbidround 5703/#comment22107(accessed17May). 19.DrShahristanimadethisstatementtoIraqiandUNofficialsmeetinginBaghdad,1516May:IraqiyaSTV,16May. 20.Azadeganfieldcontainsanestimated33bnbarrelsofoilinplace,with6bnbarrelsrecoverable.Productionfromthe fieldwas50,000b/dinJuly2010andexpectedtobe260,000b/dinphasetwoby2012,butprogresshasbeenslowdueto US opposition and sanctions. CNPC is actively involved in the development (http://www.meed.com/3008039.article accessed21July2010).

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