Posted on

Running for the Children of Iraq

Bright and early last Saturday morning, runners in the Washington, DC area took off when the starting gun fired.

It was the sixth annual IN THEIR SHOES 5K for Iraq’s most vulnerable children.  This year, for the first time, the US-based 5K was joined by a “sister” 5K in Basra, Iraq, hosted by BP.

Veterans, Iraqi-Americans, diplomats, businesses, children, and families all joined to raise awareness and support for Iraq’s orphans, street kids, and displaced children.  The result?  A record $59,000 was raised to deliver tutoring, legal protection, nutrition, health care, and childhood fun to some of the most vulnerable and at risk kids in Iraq.

Joined by Iraq’s Ambassador to the United States Fareed Yasseen, the three Youth Ambassadors for the 5K – Humoody, Teeba, and Ala’a – served as the faces and voices of children back in Iraq.

Team Teeba won for the largest 5K team with 33 registered, and the Iraqi-American Young Professionals (IAYP) came in second with 23.  Tim Reilly and Veronica Scott took home trophies for first place in the men and women’s division.

Looking for your race time?  Check here.  Pictures of the event?  Check out recent posts and an album on our ICF Facebook page.

The race was followed by an after party with music by Salaam Band, dancing,  and Iraqi food.  Our friends at Old Town’s Casa Rosada Artisan Gelato provided free gelato for everyone, and there was face painting and balloon animals for the kids.  At a table hosted by Kids Giving Hope to Kids, special drawings were made for Hope Bus kids in Baghdad

To each of you who ran or walked, donated or volunteered, the Iraqi Children Foundation (ICF) expresses its deepest appreciation.  Thanks for being a part of the team to deliver love and hope to Iraq’s children!

(Source: ICF)

(Photo credits: George Banker and BP)

Posted on

Moscow’s Iraq Strategy: Make Lots of Friends

By Ruslan Mamedov for Al Monitor. Any opinions expressed here are those of the author and do not necessarily reflect the views of Iraq Business News. 

Moscow’s interest in the Middle East and the growing Russian presence in the region go beyond Russian involvement in the Syrian civil war. For several years Russia has been building partnerships with various regional powers, and Iraq — with parliamentary elections only days away — has been a priority.

The Soviet Union helped Iraq industrialize its economy and was the country’s largest weapons provider until the union collapsed in 1991. Iraq’s invasion of Kuwait and the subsequent Western sanctions against it interfered with the Russia-Iraq weapons relationship. Then, after the US-led coalition’s overthrow of Iraqi President Saddam Hussein in 2003, Iraq got most of its weapons from the United States.

Under President Vladimir Putin, Russia has been trying to gradually rebuild its ties with Iraq on numerous levels. Moscow sees Iraq’s May 12 parliamentary elections as an opportunity to breathe new life into relations to create a comprehensive partnership.

In 2014, as Islamic State militants neared Baghdad and the Iraqi government couldn’t immediately receive the arms it needed from the United States, Moscow jumped on the opportunity to provide “without delay” the weapons and equipment needed, including aircraft. Maxim Maximov, Russia’s ambassador in Iraq, later commented that the deliveries represented a long-term commitment.

“We have always said that we are ready to give this country various types of assistance in strengthening its army,” Maximov said in a February interview with Interfax. “The Russian military industry has already provided the Iraqi government with a massive installment of weapons that proved their efficiency in battles against [IS], including MI-35M and MI-28N helicopters, Su-25 jet aircraft, Kornet-E anti-tank guided missiles and other military products.”

Some vital 2017 contracts for T-90 tanks are now being filled. There have been reports that Iraq is going to buy Russian S-400 surface-to-air missile defense systems, but Iraq’s ambassador to Moscow, Haidar Hadi, has denied that possibility.

Russian energy companies operating in Iraq are another critical tool for Moscow. These companies had been in Iraq long before the United States invaded in 2003 and had bid on oil and gas projects. Currently, there are two companies developing such projects in Iraq: Gazprom Neft Middle East and Lukoil.

Business for Russia’s Rosneft corporation is still uncertain. The company had contracts in the Kirkuk oilfields with the Kurdistan Regional Government, but when Baghdad overtook Kirkuk last year, the Iraqi Oil Ministry renounced those deals. Negotiations are still possible according to Russian business media reports, but the company has not confirmed the news.

Iraq is important for Russia not only as an economic and trade partner, but also as a factor in influencing regional policy. Russia clearly understands that its possibilities in the country are limited, as Iran and the United States are the main foreign players with direct influence on Iraq. Saudi Arabia, which took a number of steps to reinforce its influence in the country in the past year, still lags behind.

China, Iraq’s key economic partner, keeps a rather low profile regarding Iraq’s domestic politics. What’s important for Russia is that Iran partially and cautiously supports Baghdad’s collaboration with Moscow and the United States doesn’t openly oppose it.

That said, it’s not quite accurate to think Tehran is the one inviting Moscow to Iraq, hoping to create a counterbalance to Washington. In recent years, Baghdad politicians have increased their ability to implement independent foreign policy, and relations with Russia have been important to Iraqi officials. Russia, in turn, doesn’t seek to intervene in Iraq’s internal matters and basically operates by building pragmatic relationships with any government looking for such an arrangement. This approach helps Russians forge important political and business contacts.

For its part, Baghdad supports strengthening Moscow’s positions in an exchange that creates a new point of influence in the country potentially able to balance both Iran and the United States. Iraq thus gets a broader space for maneuvering among all the interested parties.

Certain areas of cooperation that Russia and Iraq have been exploiting have tangible potential. Military sales and energy cooperation are the most obvious ones, but Moscow is also becoming what it sees as a “natural ally” of Iraq in the fight against terrorism.

Since Russia, Syria, Iran and Iraq formed an information-sharing group in 2015, Russia has sought to deepen this area of cooperation through joint operations against radical groups. Russian lawmaker Ziyad Sabsabi has coordinated activities within that group to rescue Russian children whose parents joined IS from Iraq and Syria.

The fight against IS will gradually shift from the front line to broader counterterrorist initiatives, and Russia will be there to experience new forms of engagement with Iraq.

Institutional interaction between Moscow and Baghdad is already rather comprehensive. In addition to the counterterrorism information center and the rescue group, there’s a Russian-Iraqi action group for cooperating in the power industry and a Russian-Iraqi commission on trade, economic and scientific cooperation — a key coordinating intergovernmental body.

Russia takes advantage of all of these formats to interact with Iraqi and Kurdish governments as well as with the highest-level political leaders and contacts among “unofficial players” in the region.

Based on Maximov’s recent meetings, one can see Moscow’s attempts to maintain contacts with virtually all important actors — from major politicians in Iraqi Kurdistan such as Massoud Barzani, Iraqi Secretary-General of the Council of Ministers Mahdi al-Alaq, Vice President Nouri al-Maliki and National Wisdom Movement leader Ammar al-Hakim, among many others.

Therefore, while Russia’s strategy in Iraq aims to develop of all kinds of relationships with Baghdad and stresses support of the country’s territorial integrity, it is also multifaceted, seeking to engage with virtually all players from the country’s leadership to the leaders of the Popular Mobilization Units.

This path is meant to provide the policy flexibility necessary to maintain and increase cooperation regardless of who holds power after the upcoming elections.

Posted on

BP signs Contract to Develop Kirkuk Oil

By John Lee.

The Ministry of Oil has announced that BP has signed a contract to develop the Kirkuk oil fields.

According to Reuters, the deal with the North Oil Company (NOC) will see BP will boost output capacity from the six fields in the Kirkuk region to more than 1 million barrels of oil per day (bpd), three times current capacity.

In the past, BP has provided technical assistance to help develop the Kirkuk fields.

(Sources: Ministry of Oil, Reuters)

Posted on

Fifth Licensing Round: Some Preliminary Considerations

By Alessandro Bacci.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Iraq’s Fifth Licensing Round: Some Preliminary Considerations After the Auction

On the morning and afternoon of April 26, 2018, I participated in a petroleum scholar workshop organized in London by the Association of International Petroleum Negotiators (A.I.P.N.). There I gave the presentation “Current Trends Concerning Petroleum Service Contracts in the Middle East.”

I explained the difficulties that Iraq was experiencing with its technical service contracts (T.S.C.s) and that, exactly while we were discussing in London, Iraq was holding in Baghdad its fifth licensing round after the introduction of some amendments to its service contracts in the previous weeks. After the end of the workshop, I stopped in café where I started collecting information concerning the results of the licensing round.

Iraq’s fifth licensing round was related to the offering of 11 blocks. In specific, 10 onshore blocks located along the Iraqi borders with Kuwait and Iran, and 1 offshore block in the Persian Gulf waters. In the end, six blocks were awarded, while five of the exploration blocks did not receive any bids. So, what is a correct evaluation of this fifth licensing round? Probably, a balanced answer would be that Iraq’s fifth licensing round ‘on the day of the auction’ obtained a mixed result.

In fact, if, on the one side, it’s true that six blocks were awarded, on the other side, it’s also true that no major international oil company (I.O.C.) won any bids. Of the big names in the petroleum industry, Italy’s E.N.I. alone decided to participate and made two unsuccessful bids. U.A.E.-based Crescent Petroleum obtained three blocks, China’s Geo-Jade two blocks, and China’s United Energy Group one block.

One initial explanation for the mixed result might be that the Iraqi government had previously changed the date of the auction. Initially, the Ministry of Oil wanted to have the auction in June 2018, but, then, it moved the date of receiving the offers of the international qualified companies for the licensing round forward to April 15. At the same time, the Oil Ministry’s Petroleum Contracts and Licensing Directorate sent the document concerning the final form of the tender, the conditions of the tender, and the formula of the exploration, development, and production contract (E.D.P.C.) and of the development production contract (D.P.C.) only on April 13.

However, when the Oil Ministry realized that the I.O.C.s—fourteen companies had purchased the documents required to participate in the bid round—would have had only two days to study the new contracts and submitting an offer, it postponed the deadline for submitting an offer to April 25. Then, the Oil Ministry held the licensing round on April 26.  In any case, the time for studying the dossier relating to the 11 blocks was limited according to either deadline. On top of this, Iraq will hold its national elections on May 12, and, before committing to investing on a long-term basis in additional projects in Iraq, investors might want to know the results of the coming elections.

For sure, political reasons played a role for changing the date of the bid round. Until a few months ago, the official schedule required that the final contract and tender protocol be issued by the end of May 2018 and that the submission of bids and the awards occur in June 2018 (see also BACCI, A., Iraq’s Fifth Licensing Round, in Iraq Business News, Dec. 20, 2017). Honestly, because Iraq has not been investing in the development of the border fields for the last 50 years, it’s is difficult to see what would have been the economic loss for Iraq’s government if Iraq had organized the auction two months later, i.e., in June, as it had previously planned. Two months would not have been a stark difference for the government, but it would have been a consistent difference for the I.O.C.s, which might have studied more completely the offered blocks and the new contract.

So, politics played a role. In Iraq, 320 members out of the 329 members of the Parliament are elected through the open list form of party-list proportional representation—the remaining 9 seats are reserved for the minorities. Iraq’s 18 governorates act as the constituencies. The ten onshore offered blocks are in the following Iraqi governorates: Basra, Diyala, Wasit, and Missan. In total, in May, these four governorates will be responsible for the election of 60 seats, or more than 18% of the seats (Basra, 25; Diyala, 14; Missan, 10; and Wasit, 11). However, at the same time, these governorates are home to the majority of Iraq’s most important oil fields (in particular Basra Governorate). And, because in Iraq the economy is dominated by the petroleum sector, which provides about 90% of government revenues and 80% of foreign exchange earnings, it’s easy to understand the pivotal economic role played by these governorates.

Moving forward the development of the additional blocks located in the above-mentioned governorates to before the elections may indeed provide a political support to Oil Minister Jabar Ali al-Luaibi who is a member of the Victory Alliance, which is led by Prime Minister Haider al-Abadi. In practice, holding the fifth licensing round would be a sort of additional tool to increase the chances of victory for a specific political group in the affected areas, because this move shows that the present government is concerned with the economic development of the above-mentioned governorates. And considering Iraq’s present fragile political environment, this political move has a certain logic. Now, according to the schedule, the deals must be signed on May 10. If they are not approved by the present government, it will be the task of the new government to approve them.

Considering these political reasons, it’s difficult to say whether we can consider the fifth licensing round finished and not just a politically useful stopgap. In any case, what is surprising is that important amendments to the structure of the offered service contract have been carried out with limited input from the industry and the stakeholders. In fact, the basic truth of the petroleum industry is that if a contractor is able to generate a return exceeding its planned internal rate of return (I.R.R.) threshold, it will go ahead with its investment. If the planned return is less than the I.R.R. threshold, the contractor will not invest.

This problem stood out very clear in 2009 during Iraq’s first licensing round. The day of the auction the result was negative because the companies did not see any profitability in what was offered. In practice, only after a few months of additional negotiations, was the government able to transform a failed licensing round into a success. What happened at that time was that the average cash outlay was renegotiated so that the I.O.C.s could have an improved profitability. And in just a few months, Iraq could sign contracts for the Rumaila field, the Zubair field, the West Qurna 1 field, and the Maysan field.

Moreover, after the end of the fifth licensing round, the Ministry of Oil correctly affirmed that the lack of bids for five exploration blocks— Zurbatiya and Shihabi on the border with Iran, Jebal Sanam and Fao on the border with Kuwait, and the offshore block—was also linked to additional difficulties, which could have increased the costs for the contractors. In fact, some blocks cover former battlefields (Zurbatiya and Shihabi), some have an infrastructural gap, and the offshore block lacks complete data.

Crescent Petroleum, a subsidiary of the multinational conglomerate Crescent Enterprises, is the first and the largest private upstream oil and gas company in the Middle East. It has operations in the U.A.E. and in the Kurdistan Regional Government (K.R.G., a.k.a. Iraqi Kurdistan). In the U.A.E., the company operates the Sharjah onshore concession and the Sir Abu Nu’ayr concession, while in the K.R.G. it operates the Khor Mor and the Chemchemal gas fields. In addition, Crescent Petroleum is the founder and the largest shareholder in Dana Gas, which is the first and largest publicly listed private-sector natural gas company in the Middle East.

Geo-Jade Petroleum is an oil exploration and production company with operations in Kazakhstan and Russia. This company started its oil and gas investments only in 2010—before the company was involved exclusively in real estate. Today, it is independently operating six exploration blocks and three development blocks. United Energy Group (U.E.G.) is an oil and gas exploration company having projects in Pakistan and Indonesia. In 2017, U.E.G. had an annual production of more than 4 million tons. After the acquisition of BP Pakistan in 2011, the company has expanded its operations in the country, and, today, U.E.G. and United Energy Pakistan Limited (U.E.P., U.E.G.’s Pakistani subsidiary) are the largest foreign E&P company and investor in Pakistan.

With reference to the contracts, the Ministry of Oil has introduced some amendments that have changed the structure of Iraq’s service contracts. During the previous four licensing rounds, Iraq had used service contracts in which there was a per-barrel fee remuneration linked to an R-Factor. The amended contract is different in that it sets a link between oil prices and the remuneration given to the I.O.C.s. At the same time, it introduces a 25% royalty on gross production.

In practice, out of the overall revenue, first, the contractors will pay a 25% royalty on gross production, second, they will recover the incurred costs according to a specific formula, third, they will split the remaining part, i.e., the net revenue share, with the government according to the percentage established at the time of the bid round, and fourth, they will pay the 35% corporate income tax (C.I.T.) on their percentage of net revenue share. Moreover, the amended contract does not consider any longer oil byproducts (for instance liquified petroleum gas) as companies’ revenue.

The key to understanding the new contractual framework is Article 19 of both the exploration, development, and production contract (E.D.P.C.) and of the development and production contract (D.P.C.). Art. 19 explains that in any quarter, Iraq’s involved regional oil company (R.O.C.) shall be entitled to a royalty of twenty-five percent (25%) of the deemed revenue, which is the value of net production in barrels of oil equivalent. With reference to the petroleum costs, Art. 19.5 explains that

[i]n respect of Petroleum Costs, in any Lifting Quarter due and payable Petroleum Costs shall be paid to Contractor to the extent of the Percentage of Net Deemed Revenue. The Percentage of Net Deemed Revenue shall be determined by reference to SOMO’s [the contract here means the State Oil Marketing Organization or its successors] average OSP [official selling price] during the Spending Quarter and in accordance with the following formula:

Percentage of Net Deemed Revenue= (Average OSP / 50) * (70%) * Net Deemed Revenue

The said formula shall be applied throughout the Term, provided that where the average OSP is equal to or less than twenty-one point five US Dollars (US$ 21.50) per Barrel, the Percentage of Net Deemed Revenue shall be thirty percent (30%) of Net Deemed Revenue and where the average OSP is equal to or greater than fifty US Dollars (US$ 50.0) per Barrel, the Percentage of Net Deemed Revenue shall be seventy percent (70%) of Net Deemed Revenue.

The percentage of net deemed revenue means the available portion of net deemed revenue allocated for the payment of the petroleum costs. The net deemed revenue means deemed revenue less royalty.

Then, the contractor shall be entitled to a remuneration equal to the product of the remuneration percentage bid and the remaining net deemed revenue. The remuneration percentage bid means the percentage of the remaining net deemed revenue bid by the contractor. And the remaining net deemed revenue means the net deemed revenue that remains after the payment of the petroleum costs to the extent of the percentage of net deemed revenue.

And then, the contractor shall pay the corporate income tax at a percentage of thirty-five percent (35%) on the actually received remuneration generated from the implementation of the contract to the General Taxation Commission in accordance with the Law No.19 for year 2010.

These are the remuneration percentage bids according to the six awarded blocks:

  • Khashim Ahmer-Injana (gas, Diyala Governorate): 19.99%, Crescent Petroleum
  • Naft Khana (oil and gas, Diyala Governorate): 14.67%, Geo-Jade
  • Khider al-Mai (oil, Basra Governorate): 13.75%, Crescent Petroleum
  • Gilabat-Qumar (gas, Diyala Governorate): 9.21%, Crescent Petroleum
  • Huwaiza (oil, Missan Governorate): 7.15%, Geo-Jade
  • Sindabad (oil, Basra Governorate): 4.55%, United Energy Group

A first consideration is that the percentage of the remuneration varies consistently according to the considered block. However, this should not be surprising because these blocks might well, for instance, have different geological characteristics. In fact, already with the technical service contracts used in the first four licensing rounds, the per-barrel fee was different according to each auctioned field. Now, with the new contract model, the Oil Ministry is trying to provide a fee that is based on commodity prices and costs.

At least on paper, the Oil Ministry should be able to give in this way more flexibility to its contracts. In fact, the three main factors that determine the amount of resource wealth linked to a petroleum field (oil and gas) are the produced volume; the price of the petroleum; and the involved exploration, development, and production costs. From an economic point of view, the best option for both the contractor and the government would be when the following three factors coexist: a high production level; low exploration, development, and production costs; and high oil prices in the international markets.

Thanks to the new contractual structure, the government would like to force the contractors to act in a more efficient manner, while at the same time, because the remuneration fee is based on the remuneration percentage bid, the contractor would now be affected positively by the increase and negatively by the decrease in oil prices. At the same time, the new contracts have a time limit concerning the requirement for the contractors to stop flaring. Iraq would like to stop completely flaring by 2021.

Iraq has currently a daily oil production of about 4.43 million barrels from Baghdad-controlled oil fields (March 2018). The country’s exports averaged 3.45 million barrels a day last month from the southern ports. According to a 5-year development plan, the government wants to reach a production of 6.5 million barrels per day by 2022.

Alessandro Bacci is an independent energy consultant in relation to business strategy and corporate diplomacy (policy, government, and public affairs). Much of his activity is linked to the MENA region, an area where he lived for four years. Alessandro is now based in London, United Kingdom (www.alessandrobacci.com), and he is a member of the Association of International Petroleum Negotiators (A.I.P.N.). A multilingual professional, Alessandro holds a Bachelor of Laws and Master of Laws from the University of Florence (Italy), a Master of Public Affairs from Sciences Po (France), and a Master in Public Policy from the Lee Kuan Yew School of Public Policy (Singapore).  

Posted on

US pays IOTC $40m for Iraq War Fuel

International Oil Trading Co. (IOTC) announced today that the company has reached a full settlement with the Defense Logistics Agency – Energy (DLA), resolving all issues associated with IOTC’s delivery of fuel to the Coalition troops during the Iraq War.

The $40 million payment to IOTC represents amounts due for fuel delivered and received by DLA. IOTC delivered over 332 million gallons of fuel between July 2007 and August 2009. IOTC delivered the fuel on-time and on-specification, the DLA accepted the fuel, and the fuel was used by the Coalition troops during the Iraq conflict.

IOTC received numerous accolades from DLA for its exemplary performance during the war and was a top-ten supplier of petroleum to DLA. Indeed, IOTC’s quality control was so good, that DLA authorized “Alternative Release Procedures,” whereby IOTC was authorized to deliver fuel without a DLA quality assurance representative onsite to inspect fuel quality. During contract performance, then DLA Contracting Officer John Walker determined that IOTC provided consistent, responsive and outstanding performance during a critical and complicated operation warranting a rating of “exceptional.” According to Walker, IOTC’s “operations management team [was] fully cooperative to this mission’s needs, consistently yielding excellent performance…[and] providing excellent service.”

The settlement also represents a total refutation of baseless and politically motivated allegations of fraud against IOTC leveled by Former U.S. Representative Henry Waxman (D-CA), among others. Following a comprehensive investigation, the Department of Defense ultimately concluded that “no fraud vulnerabilities were identified” relative to the IOTC fuel contracts.

As acknowledged in the settlement, “IOTC satisfactorily performed [the contracts and] DLA Energy will not consider the fraud allegations raised in these appeals associated with IOTC’s past performance…in making future contract award decisions.” Indeed, an IOTC affiliate has already begun fulfilling current DLA Energy contracts and looks forward to serving the DLA in a more robust manner moving forward.

“IOTC is pleased to have reached an amicable resolution of these issues with DLA,” said Harry Sargeant III, Chief Executive Officer of IOTC. “We can now look forward to again providing exemplary service to DLA. We are also pleased to see the end of politically charged accusations which have distracted from IOTC’s core commitment to our armed forces in mission critical operations.”

Full details of the settlement can be read here.

(Source: Press Release)

Posted on

ExxonMobil, PetroChina “Agree Terms” on South Integrated Project

By John Lee.

According to a report from Platts, Iraq has reached “key preliminary terms” with ExxonMobil and PetroChina on the South Integrated Project.

The project involves the development of the Nahr Bin Umar and Ratawi oil fields in southern Iraq, with gas plants at the two fields, a multi-field water injection project, storage, pipelines and export infrastructure.

Abdul Mahdi al-Ameedi, director general of the Petroleum Contracts and Licensing Directorate (PCLD), told S&P Global Platts that the scope of work, the schedule, and the cost have been agreed to.

More details here.

(Source: Platts)

Posted on

China’s ZPEC Wins Contract at Rumaila Oilfield

By John Lee.

China’s Zhongman Petroleum and Natural Gas Group (ZPEC) and BP Iraq have signed an integrated drilling service contract for 15 wells at Iraq’s Rumaila oilfield

The contract amount is worth approximately $60 million.

It is understood that the project was publicly tendered in November 2017. According to a statement from the company, several well-known oil service companies, including the four major oil service companies, participated in the bidding.

(Source: ZPEC)

Posted on

Oil Exports Fall Slightly in April

By John Lee.

Iraq’s Ministry of Oil has announced preliminary oil exports for April of 100,197,197 barrels, giving an average for the month of 3.340 million barrels per day (bpd), a slight increase from the 3.453 bpd exported in March.

These exports were entirely from the southern terminals, with no exports registered from Kirkuk via Ceyhan.

Revenues for the month were  $6.474 billion at an average price of $64.615 per barrel.

March export figures can be found here.

(Source: Ministry of Oil)

Posted on

The Dangers of Iraq’s New Oil Law

By John Lee.

The formation of the new Iraq National Oil Company (INOC) is “a power grab that could undermine all the progress,” according to Nick Butler.

Writing in the Financial Times, he says the new company will be a single entity with sole responsibility for all aspects of the development of the oil and gas sector across Iraq.

It will:

  • control all hydrocarbon revenues, and itself determine what is passed to the national treasury;
  • own all upstream, midstream, downstream, marketing and tanker interests and the associated pipeline and export infrastructure;
  • be the only authority to sign contracts with international companies investing in oil and gas and other parts of the energy sector;
  • have the power to create a fund to distribute the profits to every citizen;
  • control a new next generations or sovereign wealth fund;
  • invest in strategic projects in areas of the country in which it operates and in industrial and agriculture projects on any land it owns.

The full article can be read here.

(Source: Financial Times)