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Iraq Asks for $2.5 Billion More for Big Oil Deals | ASHARQ AL-AWSAT English Archive 2005 -2017
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DUBAI (Reuters) – Iraq wants international oil companies to pay almost $2.5 billion more than they previously expected to work on some of its biggest oilfields, according to an official Iraqi document.

The billions of dollars of signature bonuses add to the risk of taking on work in Iraq for big oil firms already concerned that deals offer the prospect of little reward.

“You’re damned if you do and damned if you don’t,” one executive at a major international oil company told Reuters.

Oil firms have been jostling for years for access to some of the world’s biggest oilfields in Iraq. They fear failing to participate in the first bidding round since the U.S.-led invasion of Iraq in 2003 could hurt their chances of more lucrative deals with Baghdad later.

The deals on offer are set-fee service deals that offer none of the incentives that big oil companies favor, such as a share of the profits or of oil output.

Baghdad wants oil firms to pay a total of $2.6 billion in signature bonuses for the contracts on offer in the bidding round to work on six oilfields and two gas fields, according to a copy of the tender document obtained by Reuters on Monday.

The new figure was nearly 16 times the initial demand for signature bonuses of around $164 million, according to Reuters calculations.

“That was the biggest shock in the document,” said one executive at an oil company planning to bid. “It really came out of the blue and was a big slap in the face.”

The document calls for a signature bonus of $500 million alone for work on the giant Rumaila oilfield, up from the draft contract document calling for a $55 million payment.

Rumaila is the workhorse of Iraq’s oil output, pumping over 1 million barrels per day (bpd) of the country’s total output of around 2.2 million bpd.

Companies that win contracts in the June bidding round would have to pay the signature bonuses in September, a month after contracts were due to come into effect. Iraq will repay the bonuses with interest over five years, with payments beginning two years after the contracts start.


Oil-revenue dependent Baghdad may have raised signature bonuses to help compensate for falling export income hit hard by both the slide in oil prices and declining output from its southern oilfields. Iraq has cut its 2009 budget three times to compensate.

“I think they’re trying to plug the budget gap with these signature bonuses,” one oil executive told Reuters.

Another executive said the higher signature bonuses could squeeze out the smaller of the 32 oil companies signed up to compete in the bidding round.

In a cash-constrained environment after the credit crisis and oil price slump, only the biggest oil companies could afford to make such large payments, he said.

There has always been concern among smaller participants that big oil companies from countries that backed the invasion of Iraq would get a head start in the process.

“One does wonder if they’re trying to reduce the field to just the big oil majors,” one executive said. “We’re back into the pay-back scenario again for the invasion.”

The tender document calls for a total increase in oil production of 1.66 million bpd from the date when oilfields will be handed over to new operating companies, up slightly from the 1.5 million bpd Iraq had previously targeted.

The bidding round was scheduled to take place in Iraq on June 29-30.