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Established in 2006 as a Community of Reality

Welcome to the Neno's Place!

Neno's Place Established in 2006 as a Community of Reality


Neno

I can be reached by phone or text 8am-7pm cst 972-768-9772 or, once joining the board I can be reached by a (PM) Private Message.

Established in 2006 as a Community of Reality

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    More than 30 Iraqi oil experts reject the results and contracts of the "fifth licensing round"

    Rocky
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    More than 30 Iraqi oil experts reject the results and contracts of the "fifth licensing round" Empty More than 30 Iraqi oil experts reject the results and contracts of the "fifth licensing round"

    Post by Rocky Fri 03 Mar 2023, 5:07 am

    [size=30]More than 30 Iraqi oil experts reject the results and contracts of the "fifth licensing round"
    [ltr]2023.03.03 - 10:01[/ltr]
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    Baghdad - Nas  
    The economist and university professor in Basra, Nabil Al-Marsoumi, re-published, on Friday, the position of more than 30 Iraqi oil experts and their rejection of the results of the recent (fifth) oil licensing round and the analysis of their contracts, attributing this to the fact that these contracts grant generous financial privileges to foreign oil companies against Iraq's interest, which costs Iraq billions of dollars as a concession from its net revenues to companies.  
      
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    Although the statement dates back to 2018, the notes diagnosed in it are the same as those that are currently in the contracts that were recently signed, as Al-Marsoumi says, “The contracts were signed at the time of the government of Adel Abdul-Mahdi and they were preliminary contracts, and they are the same as those signed by Al-Sudani, but they are now binding contracts.  
      
    Below is the text of the statement as published by Al Marsoumi and followed by “NAS” (March 3, 2023): –  
      
    Oil experts reject the fifth licensing round  
      
    Oil experts in Iraq oppose and reject the results and contracts of the recent licensing round   
      
    Honorable Mr. President of the Republic  
      
    Honorable Prime Minister and members of the Council of Ministers  
      
    Ladies and gentlemen, respected Speaker and members of the Iraqi Parliament  
      
    Ladies and gentlemen, respected users of the media and social communication  
      
    We, the Iraqi oil experts whose names are mentioned below, and after reviewing the results of the last (fifth) oil licensing round and analyzing the contracts related to it, and out of concern for the national interest and for history, we declare with clarity and conviction:  
      
    Our total opposition and absolute rejection of each of the results and contracts of this round; We appeal to both the Council of Ministers and Parliament not to ratify any of the contracts for this round and the contract for the East Baghdad field.  
      
    After the professional and objective evaluation of the aforementioned contracts and the published statements of the Ministry of Oil officials, the result of the evaluation was very negative because those contracts grant generous financial privileges to foreign oil companies against the interests of Iraq, which costs Iraq billions of dollars as a concession from its net revenues to the companies.  
      
    These generous concessions granted to foreign companies are summarized as follows:  
      
    A- Adopting low oil prices in a very simplified, primitive, and inconsistent price formula used to calculate the companies’ share of net revenues for contracts ranging from 20 to 34 years;  
      
    b- Adopting high prices for dry gas;  
      
    c- Canceling the mechanism of linking corporate profitability to its returned capital expenditures (known as the R-coefficient);  
      
    D- Adopting a mechanism to link the recovery of capital costs to oil prices that absolutely does not provide any protection or benefit to Iraq;  
      
    e- Not specifying many important variables for each field and leaving them to companies (such as peak production and its duration; commercial production; training fund allocations; infrastructure fund allocations);  
      
    F- Treating the discovered fields as exploratory plots, which leads to ignoring the fact that there are no risks that usually characterize the exploratory plots and not the discovered fields.  
      
    This evaluation and its results are summarized as follows:  
      
    First: There is a huge number of typographical errors in the contract, perhaps as a result of the rush to hold the round before the elections. Some important concepts and terms and knowledge were also mentioned, but not used, such as the "internal rate of return" and "commercial discovery declaration".  
      
    It must be emphasized here that one of the most important basics of contracts, especially if they are in English, is the accuracy of the text, the clarity of expression and the integrity of the wording. All of these are negatively and greatly affected in the event of the existence and repetition of a large number of errors and lack of definition of the mentioned concepts, which leads as a result to the contract being bad in terms of application and dangerous in terms of results and very costly in the case of international arbitration.  
      
    Second: the lack of a government partner  
      
    This contract did not include the government partner, which means a loss in Iraq's share ranging from 5% (due to the reduction of the government partner's share in some previous round contracts) to 25% of the "net returns". This constitutes very huge financial losses for Iraq and additional revenue for companies. Here, it must be emphasized that the loss of the government partner's share is not compensated by the royalty share of 25%, because the two issues are completely separate.  
      
    Third: the lack of annual allocations for the Training and Rehabilitation Fund and the Infrastructure Fund  
      
    Reference was made to each of the two funds in this contract, but without specifying the annual allocations for each of them, unlike what was in effect in the previous rounds.  
      
    Fourth: Not specifying the level of peak production and its Plateau Production & Period  
      
    Unlike all contracts for previous licensing rounds, the contract for this round did not specify the level of peak production and the duration of its continuity.  
      
    Fifth: Commercial Production Rate     
      
    This level determines the beginning of calculating the company's dues from the net returns and according to the controls detailed in the contract. But the strange thing is that this level has been determined uniformly for all covered fields, with a quantity of 10,000 barrels per day for each contract. It is worth noting that five of the "contracts" out of a total of six that were awarded contain nine discovered fields, and some of them have had five wells drilled, with very encouraging results.  
      
    Sixth: dry gas pricing  
      
    The contract specified the dry gas price at 50% of the introductory export oil price (per barrel equivalent).  
      
    We see that the ministry here has committed more than one mistake that will result in great financial consequences for the benefit of foreign companies and catastrophic consequences for Iraq for the following reasons:  
      
    1- This relationship between the price of oil and the price of dry gas has already been used in contracts for the fourth licensing round only; Because that round was for exploratory patches only and was never used for contracts for discovered fields, as is the case in current contracts.  
      
    Some of the signatories to this document have already warned and alerted the Ministry of this and not to call discovered fields “exploratory patches” for a fundamental reason related to the considerations of the risks of non-discovery and the need to cover such risks.  
      
    2- The "wages / reward for service or the profitability of the company" in all contracts of the fourth round (as in other contracts of the three previous rounds) were set at a fixed number of dollars per barrel of oil (equivalent); In this fifth round, the company's profitability will be based on "net returns", as will be discussed later. The difference is very large and in favor of the foreign company, especially when oil prices rise.  
      
    3- All contracts of the fourth round (like other contracts of the three previous rounds) included the so-called coefficient R, according to which the company's profitability decreases with the increase in its returns over its expenses. The application of this coefficient in practice means an increase in Iraq's share after production reaches the contracted peak level in the field concerned. We did not find any reference to coefficient-R in the contracts of this round, which means very large financial losses borne by Iraq and go in favor of foreign companies.  
      
    Seventh: The formula for determining the "net return" and the foreign company's share of it  
      
    This is considered one of the biggest mistakes of the ministry and the one that most serves foreign companies and harms the interests of Iraq. Because of the seriousness of this equation and its lack of the simplest professional, economic and statistical foundations, we will explain the Ministry's mistakes as follows:   
      
    Average Iraqi oil prices  
      
    The ministry adopted a price of $50 per barrel as a "base for the price of oil," by adopting "the Brent average over the past year, which was in the range of $57 to $58 minus $7."  
      
    We see that this number and this method represent unforgivable mistakes:  
      
    1- The duration of these contracts ranges between 20 and 25 years for development and production contracts, and 34 years for exploration, development and production contracts. Is it logical to adopt the average oil price for one year only as a basis for these long-term contracts? Certainly it is not logical and we have never read or heard such a method for oil contracts with revenues of tens if not hundreds of billions!!!!  
      
    2- The official information of the same ministry indicates that the average Iraqi oil export price from July 2008 until April 2018 (i.e. within 118 months) was $74 per barrel; That is, approved by the Ministry at a rate of 48%!!! Why did you neglect these official statistics and not be guided by them??  
      
    3- During the above period, the price of Iraqi oil was less than $50 in only 34 months out of a total of 118 months; 6 months from November 2008 to April 2009, 3 months from January to March 2015 and 25 months from August 2015 to August 2017. This means that only 28.8% of the total months since July 2008 were oil prices below $50. Why did the Ministry not pay attention to this issue and did not benefit from it!!???  
      
    4- One of the priorities of statistics, economic analysis, and indexation practices is that the “base” price or year is chosen very carefully and after conducting several tests. Unusual periods must be avoided. The year 2017 was unusual, as evidenced by the OPEC agreement, which put an end to the collapse of oil prices, which began to improve since the middle of the year. So why were these well-known scientific basics ignored!!??  
      
    5- It seems that the ministry did not consult SOMO, and it is the only body qualified, technically, to give an opinion on oil prices within the formations of the ministry?? So why did the contracts department adopt the price of oil in this very primitive way!!??  
      
    6- Most of the forecasts for oil prices made and carried out by the prestigious international institutions indicate a rise in oil prices from now on, and certainly above the level of 50 dollars per barrel, whether in the short, medium or long term. The average price of Iraqi oil during the last four months of this year was $61.85 - or 23.7% above the base price used in holding the licensing round!!      
      
    It is concluded from the foregoing that adopting the price of $50 as a basis in calculating the foreign company's share of the "net return" definitely works to increase that share directly with the rise in oil prices above the already low base price. The above calculations indicate that the companies achieved an increase of 23.7% in their shares of the "net return" even before signing the contract.  
      
    Linking the recovery of capital costs to oil prices  
      
    The contract indicates that the "net return rate" allocated to cost recovery is 30% when oil prices are equal to or less than $21.5, and otherwise it is 70%.  
      
    Here we make the following observations:  
      
    1- The Ministry did not mention how this price was determined? And by whom? What are the calculations and justifications on which it was based?  
      
    2- Iraq's oil export prices have never witnessed this low price since July 2008 until now. And the lowest price was $22.21 for one month only, which is January 2016.  
      
    What is the wisdom and benefit of setting this low price as a basis for avoiding the impact of paying capital costs!!!  
      
    3- In view of the low possibility of Iraqi oil prices falling to that level and for an impressive period, the mention of this condition in the contract does not constitute any benefit to Iraq and does not provide practically any protection; In return, the contract gave 70% to the company to recover the cost.!!  
      
    4- The most dangerous of all is that the contract did not clearly specify what happens to the net return rate when the capital costs are fully recovered, especially since the contract does not include an R-coefficient as mentioned previously.  
      
    It can be concluded from the foregoing that linking cost recovery to oil prices and the formula approved in the contract serves foreign companies and against the interest of Iraq.  
      
    Eighth: Conflict with the constitution, budget laws, and declared state policy  
      
    One of the important constitutional foundations in managing the oil sector is “achieving the highest benefit for the Iraqi people” (Article 112-Second); The budget laws (since 2015) have also emphasized "preserving Iraq's economic interest...reducing expenditures and finding a mechanism to recover costs in line with oil prices."  
      
    Where is the interest of Iraq and how was the highest benefit for the Iraqi people achieved in the contracts of this round and the East Baghdad contract? Does adopting the oil prices mentioned in the contract - as mentioned above - preserve Iraq's economic interest???  
      
    Three of the six "patches" have been referred to a blacklisted company for violating - and still are - the declared state policy since 2010. We warn with all strength that dealing with a blacklisted company will result in very bad legal consequences at the international level as far as the matter is concerned. Iraq's sovereignty over its oil and gas wealth, especially with regard to the region's contracts and the international arbitration case against Turkey before the International Chamber of Commerce in Paris.  
      
    In light of the foregoing, we appeal to both the Council of Ministers and Parliament not to ratify any of the contracts for this round and the contract for the East Baghdad field.  
      
    signatories  
      
    1- Tariq Shafiq; 2- Issam Abdul Rahim Chalabi; 3- Abdul-Jabbar Al-Wakaa; 4-d. Hashim Al-Khursan; 5-Dr. Tariq Al-Arhim; 6-d. Muhammad Ali Zaini; 7- Fouad Qassem Al-Amir; 8-d. Talal Ashour Kanaan; 9-d. Thamer Hamid Al-Aqili; 10-d. Muwaffaq Adeeb Al-Samadi; 11- Munir Chalabi; 12-d. Osama Farhan Abdul Karim; 13-Dr. Mahboub Chalabi; 14- Abdul-Zahra Gouda Kazem Al-Muhammadawi; 15- Samir Kubba; 16- Abd Youssef Boulos Asmarou; 17- Speaker Khader Abbas Al-Bayati; 18-d. Faleh Hassan Al-Khayyat; 19- Ali Hussein Ajam; 20- Nuri Al-Ani; 21- Dia Ibrahim Al-Hassan; 22- Saadallah Al-Fathi; 23- Falah Kazem Al-Khawaja; 24- Muhammad Mustafa Al-Jubouri; 25- Ali Abdul-Baqi Al-Haidari; 26- Ali Nuri Ali Al-Saleh; 27- Dia Shamkhi crying; 28- Dr. Hassan Ali Al-Naji; 29 - Dr. Nabil Tohla; 30- Dr. Kamel Abbas Mahdi; 31- Ahmed Musa Jiyad (coordinator of this unified position).  
      
    With a great appreciation and respect  
    Ahmed Musa Jiyad  
    (Coordinator of the unified position of Iraqi oil experts)  
    Development and research consultant / Iraq  
    Norway  
    May 9, 2018  
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