Interview: Sabah Shabeeb al-Sa’idi
Submitted by Ben Lando on Wednesday, 19 August 2009


By BEN LANDO
Iraq Oil Report

BAGHDAD – Iraq is gearing up for a second auction of oil fields in November, and it’s tying up loose ends on projects aimed at increasing production and exports from the world’s third largest oil reserves.

Producing just less than 2.5 million barrels per day (bpd) currently, Iraq is more than a million bpd behind Iran and more than 5 million bpd behind Saudi Arabia. Yet last year Iraq earned nearly $62 billion from oil, due in part to record prices. This means the relatively underexplored reserves can handle producing what this war-torn and reconstruction-hungry country needs.

What’s held back faster development are lingering disputes between Iraq’s Kurdish and central governments over the authority to sign oil deals, and between those in the country that want to rebuild a once prominent state-run oil sector and those seeking some level of privatization.

A Rumaila field well studied before being capped, March 2003. (source: arcent.army.mil)

Officials from BP and the Chinese National Petroleum Corp. (CNPC) are in Basra right now following meetings in Baghdad. And it’s looking like the rumors of a Japanese consortium winning a development deal for Nassirya may prove true. Meanwhile the Oil Ministry is leaning toward putting up for bid the five oil fields left over from the June 30 auction.

On Aug. 25 the Oil Ministry is meeting with oil companies in Istanbul in a “roadshow” to explain the upcoming auction of 11 projects of individual or collections of oil fields. Between then and the November auction (no date has been set yet) the ministry will answer the companies’ questions and develop the final version of the model contract which the companies will use to place bids.

“We hope to be successful,” said Sabah Shabeeb al-Sa’idi, the head of the commercial and legal affairs department in the Oil Ministry’s Petroleum Contracts and Licensing Directorate. With only one oil field awarded out of eight oil and gas fields offered in June, the ministry was blamed for being too stingy. It and its supporters said it showed Iraq wasn’t going to give away the family jewels, and the process was held in a transparent, competitive manner.

“The model contract is now in discussion and we will discuss it at the roadshow and after the roadshow we will receive the questions from companies,” Sa’idi said, “maybe (make) some change to be more flexible.”

The oil fields in the first round were Iraq’s largest fields, all currently producing oil. The second round’s fields are all discovered but undeveloped.

The ministry is leaning to make some key changes from the first round. In the first round companies had to increase production to a certain plateau beyond today’s output. For the second round, Sa’idi said “after three years the company must produce a commercial quantity,” though the amounts vary from field to field. “There are large fields, small fields. There are super giant fields Majnoon, Halfaya, West Qurna Phase second phase.” The others are Kifl, West Kifl and Merjan, East Baghdad, Qayarah, Najma, Badra, Gillabat, Qamar and Khashm Ahmar.

Under the contract the winning company or consortia would have a 75 percent stake in the project, with the state oil company owning 25 percent. The two would split 50/50 the role in the Joint Operating Company, the body managing the project.

Sa’idi said the ministry is considering making the billions of dollars in signature bonuses a hard payment instead of a soft loan like the first round. “Maybe we’ll put the signature bonus as a bidding parameter,” he said. “Maybe, we have not decided now. We can say that there are differences in contracts and differences in the bidding process.”

The auction will take place at the cinema hall of the Oil Ministry headquarters, not the Baghdad-swank al-Rasheed Hotel like the first round, showing a level of confidence the ministry has going into the event.
Likewise, it has still not decided on the biggest sticking point in the first round: the per barrel fee it is willing to pay contractors as they increase production. Only the BP/CNPC consortium was willing to accept the ministry’s offering. And it’s a decision the companies may have to wait for until the last minute.

“It depends on the fields. Maybe less, maybe more. No decision yet,” Sa’idi said. “Maybe one night before the bidding, like the first round, His Excellency the minister has the power to decide what is the number of the remuneration the night before the bidding.”

FIRST ROUND FIELDS

Today begins day four of a visit by delegations of both BP and CNPC to Basra, meeting with officials from Iraq’s South Oil Co. (SOC) to iron out the contract for the super giant Rumaila field. An SOC source said a major remaining issue is how many Iraqis will be part of the Field Operating Division – the joint management of the contract – and who will be its chairperson.

The source said newly appointed SOC Director General Dhia Jaafar is in favor of the contract. Last month Fayadh Nema was removed from the post after publicly opposing the contract itself and the first bidding round in general. He said Iraq’s state companies should be given the resources to develop all currently producing fields.

CNPC officials are also meeting with officials from the Basra Provincial Council to discuss non-energy investment, which the source said is not part of the Rumaila contract.

BP and CNPC had been looking at altering or swapping their stake in the Rumaila project. BP has 50 percent and CNPC 25 percent. “This issue is subject to our consent if they change their share,” Sa’idi said, adding that the bid submitted had BP as the lead operator and it should remain that way.

The five oil fields that weren’t awarded in the first round will likely be put up for bid again, Sa’idi said, adding no decision has been made yet. He said the only companies able for this second chance action will be those that purchased the original information about the fields, called a data package. The others “missed their chance in the first round.” The fields are West Qurna 1, Zubair, Kirkuk, Maysan and Bai Hassan.

The two gas fields, Akkas and Mansuriyah, received one bid total. Now the North Oil Co. will develop the fields itself, though foreign firms will have a role.

JAPAN EDGING OUT ITALY

Sa’idi said that the Nippon Oil Corp., Inpex and the JGC Corp., all from Japan, are more aligned with the Oil Ministry’s desire for developing the Nassiriya oil field than Italy’s Eni. Spain’s Repsol had been bidding for the project but has since dropped out.

The 4.4 billion barrel field would produce up to 600,000 bpd when it is developed. Sa’idi said a contract may be announced within two months.

Sa’idi also said the ministry is still negotiating with the Indonesian firm Pertamina and India’s ONGC to convert two Saddam Hussein-era production sharing contracts for two exploration blocks into Exploration and Production Contracts. A third Saddam-era deal, with Petrovietnam, is stalled as the company has stopped negotiations, Sa’idi said. Iraq had already renegotiated a fourth Saddam deal, with CNPC for the Ahdab oil field, into a contract more in line with the new Iraq’s contract model.Top Oil Ministry official negotiates contracts, talks to Iraq Oil Report about the BP deal for Rumaila, gives details of the second bidding round process and contract, and hints at the Nassiriya winner.