Iraq to Start News Oil, Gas Blocks Auction Process

Iraq will auction 12 new oil and gas exploration blocks this week in a fourth energy bidding round. However, Reuters reported that tough contract terms mean Baghdad may struggle to drum up major interest.

Foreign energy firms have expressed doubts about Iraq’s of service contracts, under which they would be paid a fee for their services.

These firms say that such deals seen as less advantageous than production-sharing contracts, through which explorers can claim a share in profits from output, Reuters said.

The auction has already been delayed as the oil ministry tried to address issues raised by potential bidders. The auction, now scheduled for Wednesday and Thursday.

In February, Baghdad made concessions to lure participants to the round, notably by dropping a clause that required companies to be partners with a state oil operator.

"Everything is in place to make this a success and as part of that we have eased the contract terms," Abdul-Mahdy al-Ameedi, director of the oil ministry contracts and licensing directorate, told Reuters.

Companies that win bids will be able to extract gas discovered in the blocks immediately, but the Iraqi government has retained the option to pay companies compensation to keep oil in the ground and boost its own reserves.

The exploration blocks on offer are mostly in remote parts of western and central Iraq, making them riskier investments since the sites would be harder to protect against possible insurgent attacks.

"Neither the terms nor the acreage on offer are attractive, so I wouldn't be surprised if there were little interest from the international oil companies," said one senior Western oil executive, who asked not to be identified, Reuters reported.