Iraq shares Kirkuk oil profits with BP.. Will it succeed in attracting international companies?
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Economy News - Follow-up
After about a century, the British company BP returned to Kirkuk again, with the aim of developing its oil fields, not with the aim of exploring them as happened during the twenties of the last century, while experts pointed to the contract formula with the British company, which came according to profit sharing, not as service contracts, justifying the matter by trying to attract giant companies, after the ministry failed in the last licensing rounds that went to Chinese companies.
Oil and energy expert Govind Sherwani says, “BP had previously contracted with the Ministry of Oil to develop the Kirkuk fields, but in a different way. The old contracts were based on service contracts, while the new method adopted by the ministry in the fifth and sixth licensing rounds that were signed in the middle of this month was based on profit-sharing.”
Reuters quoted oil ministry officials as saying that Iraq and BP, which returned after an absence of about five years, signed a preliminary agreement earlier this month to develop four oil and gas fields in the Kirkuk region in northern Iraq, an area that BP estimates has the potential to extract about nine billion barrels of oil.
The two officials confirmed to Reuters that the contracts with BP to develop the Kirkuk, Bai Hassan, Jambur and Khabbaz fields will be based on a profit-sharing model. While they confirmed that the Ministry of Oil and BP are expected to sign an agreement under which Iraq will hand over the data package for the four Kirkuk fields and their facilities, they pointed out that the final agreement is expected to be completed by the end of this year.
“This method means that companies start investing and producing to recover their expenses first, then take a percentage of the profits, which are guaranteed profits,” Sherwani added, noting that “this method is more attractive to companies, because if oil prices rise, the income of these companies will increase, because the financial return in dollars will be higher.”
He added, “The Ministry of Oil explained that the 13 contracts signed in August were all profit-sharing contracts, not service contracts that included a lump sum for each additional production in the oil contract.”
It is noteworthy that “BP” is a British company, considered the third largest private oil company in the world after “Exxon Mobil” and “Shell”, and it had contributed to oil exploration in Kirkuk in 1927.
But Sherwani criticizes the “media blackout on this agreement,” stressing that it is “out of place, because this field is supposed to be offered in a tender and in a new licensing round that allows competition between all companies. Perhaps another, less well-known company will win the contract and accept lower profits, and thus the benefit will be greater.”
The reason for the ministry’s reservations about the announcement is likely to be “its desire to attract giant Western oil companies in any way, especially since the last round, which was announced last May, and whose contracts were signed a week ago, was mostly Chinese companies and one local one, in a picture that shows that Western companies are beginning to be reluctant to come to Iraq,” noting that “this contract with BP may constitute a victory and an achievement for the ministry, because it is a giant foreign company with great experience, and it was behind the discovery of oil in Kirkuk for the first time in 1927.”
On August 1, the office of Prime Minister Mohammed Shia al-Sudani announced that Iraq had signed a memorandum of understanding with the British group BP to rehabilitate and develop the four fields of the North Oil Company in Kirkuk.
Talks between Iraq and the company to develop the province’s fields date back years. The company held talks with former Oil Minister Jabbar al-Luaibi in 2017 to increase Kirkuk oil field production to more than 700,000 barrels per day, in an attempt to activate an agreement signed in 2013 between the two parties.
For his part, oil expert Hamza Al-Jawahiri confirms that “the Ministry of Oil recently signed 13 contracts in Kirkuk, but there was no contract with BP among them. If it had signed, it would have announced it. There is no harm in announcing the signing with a giant company like BP, but what happened is a preliminary agreement that will later develop into an actual contract, especially since the company is present and has a history of working in Iraq.”
Distinguishing between the service contract model and profit-sharing, Al-Jawahiri asserts that they “are not very different in the end, and the difference between them is that no matter how high or low oil prices are, service contracts require companies to take a certain amount for each barrel produced. Hence, there were objections to service contracts due to the fluctuation in oil prices, so the ministry went with the profit-sharing method.”
Al-Jawahiri explains the profit-sharing method by saying, “The companies obtain a percentage of the profits, after first deducting the costs of production, development, and logistical costs, then they take a certain percentage of the profits every month or 3 months according to the contract,” noting that “profit-sharing does not mean Iraq’s participation in the oil reserves, but only in the oil produced from the field.”
According to Al-Jawahiri, profit sharing does not mean owning half of the production, but rather a percentage of the profits that may reach five or 10 percent. “Profits increase as the logistical and security challenges and the size of the field increase. If the field is large, the percentage of profit sharing is lower,” according to Al-Jawahiri.
In 2013, BP and the Ministry of Oil signed a “letter of intent” to study the development of Kirkuk, but this deal was suspended in 2014 due to security conditions, allowing the Kurdistan Regional Government to take control of the Kirkuk area, and Baghdad regained full control of the field from the Kurdistan Regional Government in 2017 after refusing to recognize the result of the Kurdistan Region’s referendum, at which time BP resumed its studies on the field.
In addition, economic expert Hammam Al-Shamaa believes that “a British company’s acquisition of work contracts in the Kirkuk fields is not strange or new. The British consider Kirkuk’s oil a historical legacy, especially since they were the ones who contributed to its discovery for the first time. Therefore, British companies are the preferred ones to work in this province.”
Al-Shamaa believes that “profit-sharing contracts are often in favor of foreign companies, while service contracts mean that the company works on production and takes a specific percentage of the barrel, and this is what I tend to prefer, and I am not in favor of profit-sharing contracts.”
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Added 08/27/2024 - 9:11 AM
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Economy News - Follow-up
After about a century, the British company BP returned to Kirkuk again, with the aim of developing its oil fields, not with the aim of exploring them as happened during the twenties of the last century, while experts pointed to the contract formula with the British company, which came according to profit sharing, not as service contracts, justifying the matter by trying to attract giant companies, after the ministry failed in the last licensing rounds that went to Chinese companies.
Oil and energy expert Govind Sherwani says, “BP had previously contracted with the Ministry of Oil to develop the Kirkuk fields, but in a different way. The old contracts were based on service contracts, while the new method adopted by the ministry in the fifth and sixth licensing rounds that were signed in the middle of this month was based on profit-sharing.”
Reuters quoted oil ministry officials as saying that Iraq and BP, which returned after an absence of about five years, signed a preliminary agreement earlier this month to develop four oil and gas fields in the Kirkuk region in northern Iraq, an area that BP estimates has the potential to extract about nine billion barrels of oil.
The two officials confirmed to Reuters that the contracts with BP to develop the Kirkuk, Bai Hassan, Jambur and Khabbaz fields will be based on a profit-sharing model. While they confirmed that the Ministry of Oil and BP are expected to sign an agreement under which Iraq will hand over the data package for the four Kirkuk fields and their facilities, they pointed out that the final agreement is expected to be completed by the end of this year.
“This method means that companies start investing and producing to recover their expenses first, then take a percentage of the profits, which are guaranteed profits,” Sherwani added, noting that “this method is more attractive to companies, because if oil prices rise, the income of these companies will increase, because the financial return in dollars will be higher.”
He added, “The Ministry of Oil explained that the 13 contracts signed in August were all profit-sharing contracts, not service contracts that included a lump sum for each additional production in the oil contract.”
It is noteworthy that “BP” is a British company, considered the third largest private oil company in the world after “Exxon Mobil” and “Shell”, and it had contributed to oil exploration in Kirkuk in 1927.
But Sherwani criticizes the “media blackout on this agreement,” stressing that it is “out of place, because this field is supposed to be offered in a tender and in a new licensing round that allows competition between all companies. Perhaps another, less well-known company will win the contract and accept lower profits, and thus the benefit will be greater.”
The reason for the ministry’s reservations about the announcement is likely to be “its desire to attract giant Western oil companies in any way, especially since the last round, which was announced last May, and whose contracts were signed a week ago, was mostly Chinese companies and one local one, in a picture that shows that Western companies are beginning to be reluctant to come to Iraq,” noting that “this contract with BP may constitute a victory and an achievement for the ministry, because it is a giant foreign company with great experience, and it was behind the discovery of oil in Kirkuk for the first time in 1927.”
On August 1, the office of Prime Minister Mohammed Shia al-Sudani announced that Iraq had signed a memorandum of understanding with the British group BP to rehabilitate and develop the four fields of the North Oil Company in Kirkuk.
Talks between Iraq and the company to develop the province’s fields date back years. The company held talks with former Oil Minister Jabbar al-Luaibi in 2017 to increase Kirkuk oil field production to more than 700,000 barrels per day, in an attempt to activate an agreement signed in 2013 between the two parties.
For his part, oil expert Hamza Al-Jawahiri confirms that “the Ministry of Oil recently signed 13 contracts in Kirkuk, but there was no contract with BP among them. If it had signed, it would have announced it. There is no harm in announcing the signing with a giant company like BP, but what happened is a preliminary agreement that will later develop into an actual contract, especially since the company is present and has a history of working in Iraq.”
Distinguishing between the service contract model and profit-sharing, Al-Jawahiri asserts that they “are not very different in the end, and the difference between them is that no matter how high or low oil prices are, service contracts require companies to take a certain amount for each barrel produced. Hence, there were objections to service contracts due to the fluctuation in oil prices, so the ministry went with the profit-sharing method.”
Al-Jawahiri explains the profit-sharing method by saying, “The companies obtain a percentage of the profits, after first deducting the costs of production, development, and logistical costs, then they take a certain percentage of the profits every month or 3 months according to the contract,” noting that “profit-sharing does not mean Iraq’s participation in the oil reserves, but only in the oil produced from the field.”
According to Al-Jawahiri, profit sharing does not mean owning half of the production, but rather a percentage of the profits that may reach five or 10 percent. “Profits increase as the logistical and security challenges and the size of the field increase. If the field is large, the percentage of profit sharing is lower,” according to Al-Jawahiri.
In 2013, BP and the Ministry of Oil signed a “letter of intent” to study the development of Kirkuk, but this deal was suspended in 2014 due to security conditions, allowing the Kurdistan Regional Government to take control of the Kirkuk area, and Baghdad regained full control of the field from the Kurdistan Regional Government in 2017 after refusing to recognize the result of the Kurdistan Region’s referendum, at which time BP resumed its studies on the field.
In addition, economic expert Hammam Al-Shamaa believes that “a British company’s acquisition of work contracts in the Kirkuk fields is not strange or new. The British consider Kirkuk’s oil a historical legacy, especially since they were the ones who contributed to its discovery for the first time. Therefore, British companies are the preferred ones to work in this province.”
Al-Shamaa believes that “profit-sharing contracts are often in favor of foreign companies, while service contracts mean that the company works on production and takes a specific percentage of the barrel, and this is what I tend to prefer, and I am not in favor of profit-sharing contracts.”
Views 69
Added 08/27/2024 - 9:11 AM
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