Iraq Moves to Profit-Sharing Terms in New Oil and Gas Contracts

OPEC’s second-largest producer, Iraq, seeks to attract more investment in its oil and gas industry by moving to profit-sharing contracts for new bid rounds from the technical service contracts it has awarded so far.

The biggest change in Iraq’s petroleum regulatory landscape in decades is being made to attract higher bids and more investments in its huge oil and gas reserves, government officials have told Reuters.

Under the profit-sharing contracts, the winners of the licensing rounds are being offered a share of the revenue from the license after deducting royalty and cost recovery expenses, an anonymous official at the Iraqi Ministry of Oil told Reuters.

In contrast, traditional technical service contracts offer a flat rate for every barrel of oil produced after reimbursing costs. They generally pay foreign investors less than what they would have received under production-sharing contracts.

Foreign firms operating in Iraq have complained that the technical service contracts, with the flat rate, do not allow them to benefit when international crude oil prices rise. These contracts become even less lucrative for foreign investors when costs increase.

Earlier this week, Iraq signed 13 preliminary exploration deals that would focus on natural gas exploration and development. The agreements, awarded in a bidding round held in May, will be under profit-sharing contracts, an oil ministry official who attended the signing ceremony told Reuters.

Last year, a deal between Iraq and TotalEnergies marked the start of a change in contracts. OPEC’s second-biggest producer and the French supermajor signed a massive $27 billion deal after the country offered revenue-sharing terms and an accommodation to capture more of the gas that is flared.

Ultimately, Iraq had to go back to the drawing board several times to reach into its own pockets and dish out even more favorable terms. Iraq eventually settled on hanging onto just 30% of the project, with TotalEnergies grabbing 45% (and QatarEnergy getting a 25% stake). The deal will allow TotalEnergies to take part of the revenues from the Ratawi oilfield and use them to help finance three more projects.

The revenue-sharing scheme will see 25% of the revenue from each barrel going to Iraq as a royalty, and 75% back to stakeholders.

By Charles Kennedy for Oilprice.com

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