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Notes on the bidding process for the fifth and sixth supplementary petroleum licensing rounds
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Economy News - Baghdad
Former Director General of the Petroleum Contracts and Licensing Department, Abdul Mahdi Al-Amidi
Firstly. Eligible companies.
Many international oil companies have been qualified to participate in the competition for contracts in the fifth supplementary and sixth licensing round, including some that were previously qualified and some that have been newly qualified. Among the newly qualified companies are CAR (Iraqi-Kurdish-Bahraini) and Chinese company ZPEC. Both companies are not suitable to be qualified for exploration, development and production activity in the oil sector, as the first (KAR) specializes in the field of building, construction and electrical energy (and some refinery work) and the second works in the field of drilling wells and their accessories, such as some oil services that do not rise to the level of field development. Oil and gas (the company works as a subcontractor to carry out oil well drilling operations in the fields of licensing rounds with secondary contracts with contractors and operators of these fields). It is strange that the Ministry and its relevant arm (the Department of Petroleum Contracts and Licensing) qualified these two companies to participate in the licensing rounds!!!
secondly. Merging gas patches with oil patches and fields
When the Ministry of Oil launched the fourth licensing round for exploratory blocks, there was a merger between blocks with oil potential and those with gas potential, and when oil companies submitted their competitive bids, the focus was on blocks with oil potential over others, for reasons known to everyone, the most important of which is the ease of developing oil fields. The speed of recovery of petroleum costs, the fact that oil patch sites are better than gas patch sites, and so on. Comments were raised by some specialists about this, and the Ministry of Oil took them into consideration.
In the fifth complementary and sixth round, the Ministry repeats the same problem, and the oil and gas fields and patches are combined into a single competition process. The same scenario is also repeated by international oil companies, even if these companies are not at the same level as those in the fourth round, and a new focus is placed on projects with potential. Oil and non-gas oil fields.
Thus, the 16 exploratory patches with invasive potential were not referred. Once again, the Ministry of Oil and the country are losing the opportunity to explore and develop gas patches!? It is not clear why the oil patches and fields are transferred to foreign companies and there is no need for more crude oil production in light of the current and future conditions represented by the OPEC determinants and the transition to renewable and alternative energy?
It is also worth noting that the oil fields whose contracts have been awarded, such as Al-Dimah and Al-Dhafriya, are among the small fields that the national extractive companies can develop and produce directly, or that this is difficult for our companies after more than (15) years of working with major international oil companies. ???
Third. Companies winning contracts.
After completing the competition process, awarding contracts, and publishing the results, it became clear that most of the companies that participated in the process and submitted competitive bids were Chinese and Iraqi companies (the first day witnessed limited participation from Shell, Lukoil, and ADNOC). On the other two days, the arena was open to Chinese companies without competition from other companies.
As for the results of the referrals, the majority of them were limited to Chinese companies, with the exception of three contracts that were referred to CAR Company, and thus it can be considered that the process was distinctly Chinese (10 in favor of Chinese companies and 3 in favor of CAR Company).
Fourthly. Profit percentages.
Despite the importance of oil companies being qualified technically, financially and administratively (the ability to manage and operate) to be able to carry out exploration, development and production operations, what companies desire is a large profit from the projects they implement, which contradicts the desire of the ministry or the employer. reduce this profit. Therefore, it is necessary to reach a state of financial balance that satisfies both parties. This is in general, but what happened in the referral of some contracts to oil companies in the competition process is not consistent with this general rule in achieving the satisfaction of both parties and finding a financial balance for both.
It may come to mind that a financial imbalance occurred in favor of the Ministry of Oil (which is what we observed in the contracts of the first and second rounds, where profit wages for companies were in favor of the Ministry), but the opposite happened and the percentages of corporate profits were more and higher than they should be. This is first. The other issue is that there is a contradiction and lack of clarity in explaining how the percentages are high for some fields and low for others, as I will explain below.
1. In the original fifth licensing round, whose contracts were competed for in the year 2018, the percentages for some projects were as follows:
* The approved profit percentage for the Sanam Mountain area (14%), which was reduced from the original as in the economic model calculations, which is (21.85%) It was considered high and was therefore reduced to (14%). As for the percentage of profit according to which the contract was currently awarded, it amounted to (30.9%), and the difference is about (17%), which is very large, and the percentage increase is equal to (120%)???
* The approved profit percentage for the Zarbatiya patch is (4.77%), while the contract has currently been awarded with a profit percentage of (7.65%), with a difference of (2.88%), and the percentage increase is equal to (60%)???
* The approved profit percentage for the Al-Faw plot is (12.8%), while the contract has currently been awarded with a profit percentage of (25.16%), with a difference of (12.36%), which is very large, and the percentage increase is equal to (96%)???
It is worth noting that the profit percentages were announced in the competition process in the year 2018 and all those working on the subject are aware of this. I also personally provided one of the employees of the Department of Petroleum Contracts and Licensing with a copy of a review given to the then Minister of Oil, Mr. Jabbar Laibi, containing information about the profit percentages. For all contracts and his approval of the percentages (it is noted that other percentages have been reduced in this review). The attachment clarifies the information in the reading to avoid doubting the validity of what I am talking about.
2. The profit percentages according to which exploratory block contracts were awarded were as follows:
* Block No. -7 = (25.88%).
* Al-Khulaisiya patch = (32%).
* Hump Mountain patch = (30.9%).
* FAO patch = (25.16%).
This means that the higher profit percentages acceptable to the Ministry, which were in closed conditions, were higher than these percentages. How did this happen and what happened to make the economic calculations for each contract change, especially those that were within the original licensing round (as in 1 above), and be much higher than them in this current round???
3. The profit percentage according to which the Dhafriya field contract was awarded was (29.16%), which is very high and even higher than the profit percentages for the Al-Faw exploration block and the exploration block No. 7. This is very strange and unbelievable, given that the Dhafriya field is a discovered oil field that is not developed (non-productive) and does not contain an element of risk, as is the case in exploratory patches, and does not require repeating the seismic surveys that were carried out previously? The comparison between the Dhafriya field and the Dimah field in terms of percentage profit rates may be close to acceptable and reasonable, but the difference between the profit percentages for both is very far (29.16% for Al Dhafriyah compared to 6.2% for Dimah)!!!???
This analysis of the course of the competition process for the fifth supplementary and sixth licensing rounds, which led to the observations I mentioned above, is an abstract professional work and does not entail anything negative towards the people who contributed to this process, but it is not devoid of reminding and reconsidering what happened and it involves a high degree of care. In the best interest of Iraq.
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Views 86
Added 05/15/2024 - 10:01 AM
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Economy News - Baghdad
Former Director General of the Petroleum Contracts and Licensing Department, Abdul Mahdi Al-Amidi
Firstly. Eligible companies.
Many international oil companies have been qualified to participate in the competition for contracts in the fifth supplementary and sixth licensing round, including some that were previously qualified and some that have been newly qualified. Among the newly qualified companies are CAR (Iraqi-Kurdish-Bahraini) and Chinese company ZPEC. Both companies are not suitable to be qualified for exploration, development and production activity in the oil sector, as the first (KAR) specializes in the field of building, construction and electrical energy (and some refinery work) and the second works in the field of drilling wells and their accessories, such as some oil services that do not rise to the level of field development. Oil and gas (the company works as a subcontractor to carry out oil well drilling operations in the fields of licensing rounds with secondary contracts with contractors and operators of these fields). It is strange that the Ministry and its relevant arm (the Department of Petroleum Contracts and Licensing) qualified these two companies to participate in the licensing rounds!!!
secondly. Merging gas patches with oil patches and fields
When the Ministry of Oil launched the fourth licensing round for exploratory blocks, there was a merger between blocks with oil potential and those with gas potential, and when oil companies submitted their competitive bids, the focus was on blocks with oil potential over others, for reasons known to everyone, the most important of which is the ease of developing oil fields. The speed of recovery of petroleum costs, the fact that oil patch sites are better than gas patch sites, and so on. Comments were raised by some specialists about this, and the Ministry of Oil took them into consideration.
In the fifth complementary and sixth round, the Ministry repeats the same problem, and the oil and gas fields and patches are combined into a single competition process. The same scenario is also repeated by international oil companies, even if these companies are not at the same level as those in the fourth round, and a new focus is placed on projects with potential. Oil and non-gas oil fields.
Thus, the 16 exploratory patches with invasive potential were not referred. Once again, the Ministry of Oil and the country are losing the opportunity to explore and develop gas patches!? It is not clear why the oil patches and fields are transferred to foreign companies and there is no need for more crude oil production in light of the current and future conditions represented by the OPEC determinants and the transition to renewable and alternative energy?
It is also worth noting that the oil fields whose contracts have been awarded, such as Al-Dimah and Al-Dhafriya, are among the small fields that the national extractive companies can develop and produce directly, or that this is difficult for our companies after more than (15) years of working with major international oil companies. ???
Third. Companies winning contracts.
After completing the competition process, awarding contracts, and publishing the results, it became clear that most of the companies that participated in the process and submitted competitive bids were Chinese and Iraqi companies (the first day witnessed limited participation from Shell, Lukoil, and ADNOC). On the other two days, the arena was open to Chinese companies without competition from other companies.
As for the results of the referrals, the majority of them were limited to Chinese companies, with the exception of three contracts that were referred to CAR Company, and thus it can be considered that the process was distinctly Chinese (10 in favor of Chinese companies and 3 in favor of CAR Company).
Fourthly. Profit percentages.
Despite the importance of oil companies being qualified technically, financially and administratively (the ability to manage and operate) to be able to carry out exploration, development and production operations, what companies desire is a large profit from the projects they implement, which contradicts the desire of the ministry or the employer. reduce this profit. Therefore, it is necessary to reach a state of financial balance that satisfies both parties. This is in general, but what happened in the referral of some contracts to oil companies in the competition process is not consistent with this general rule in achieving the satisfaction of both parties and finding a financial balance for both.
It may come to mind that a financial imbalance occurred in favor of the Ministry of Oil (which is what we observed in the contracts of the first and second rounds, where profit wages for companies were in favor of the Ministry), but the opposite happened and the percentages of corporate profits were more and higher than they should be. This is first. The other issue is that there is a contradiction and lack of clarity in explaining how the percentages are high for some fields and low for others, as I will explain below.
1. In the original fifth licensing round, whose contracts were competed for in the year 2018, the percentages for some projects were as follows:
* The approved profit percentage for the Sanam Mountain area (14%), which was reduced from the original as in the economic model calculations, which is (21.85%) It was considered high and was therefore reduced to (14%). As for the percentage of profit according to which the contract was currently awarded, it amounted to (30.9%), and the difference is about (17%), which is very large, and the percentage increase is equal to (120%)???
* The approved profit percentage for the Zarbatiya patch is (4.77%), while the contract has currently been awarded with a profit percentage of (7.65%), with a difference of (2.88%), and the percentage increase is equal to (60%)???
* The approved profit percentage for the Al-Faw plot is (12.8%), while the contract has currently been awarded with a profit percentage of (25.16%), with a difference of (12.36%), which is very large, and the percentage increase is equal to (96%)???
It is worth noting that the profit percentages were announced in the competition process in the year 2018 and all those working on the subject are aware of this. I also personally provided one of the employees of the Department of Petroleum Contracts and Licensing with a copy of a review given to the then Minister of Oil, Mr. Jabbar Laibi, containing information about the profit percentages. For all contracts and his approval of the percentages (it is noted that other percentages have been reduced in this review). The attachment clarifies the information in the reading to avoid doubting the validity of what I am talking about.
2. The profit percentages according to which exploratory block contracts were awarded were as follows:
* Block No. -7 = (25.88%).
* Al-Khulaisiya patch = (32%).
* Hump Mountain patch = (30.9%).
* FAO patch = (25.16%).
This means that the higher profit percentages acceptable to the Ministry, which were in closed conditions, were higher than these percentages. How did this happen and what happened to make the economic calculations for each contract change, especially those that were within the original licensing round (as in 1 above), and be much higher than them in this current round???
3. The profit percentage according to which the Dhafriya field contract was awarded was (29.16%), which is very high and even higher than the profit percentages for the Al-Faw exploration block and the exploration block No. 7. This is very strange and unbelievable, given that the Dhafriya field is a discovered oil field that is not developed (non-productive) and does not contain an element of risk, as is the case in exploratory patches, and does not require repeating the seismic surveys that were carried out previously? The comparison between the Dhafriya field and the Dimah field in terms of percentage profit rates may be close to acceptable and reasonable, but the difference between the profit percentages for both is very far (29.16% for Al Dhafriyah compared to 6.2% for Dimah)!!!???
This analysis of the course of the competition process for the fifth supplementary and sixth licensing rounds, which led to the observations I mentioned above, is an abstract professional work and does not entail anything negative towards the people who contributed to this process, but it is not devoid of reminding and reconsidering what happened and it involves a high degree of care. In the best interest of Iraq.
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Views 86
Added 05/15/2024 - 10:01 AM
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