World Bank: Iraq’s economy depends on oil, which accounts for 99% of Iraq’s exports and 42% of its GDP.
The revenue-sharing scheme will see 25% of the revenue from each barrel going to Iraq as a royalty, and 75% back to stakeholders.
From gas capturing to revenue sharing, the terms are a marked improvement and could woo other foreign oil companies to Iraq.
Iraq has been looking to bring foreign oil company money and expertise into the fold, and it looks like it may have finally found a way to make doing business in Iraq attractive enough.
Iraq’s economy depends on oil, which accounts for 99% of Iraq’s exports and 42% of its GDP, according to the most recent World Bank estimates. This heavy reliance on oil revenues has somewhat diminished Iraq’s concern with the carbon intensity of its oil operations, although now, with Western oil companies feeling the pressure to remain in good climate standing, climate concerns have gained some importance, even in major oil-producing countries such as Iraq.
One of the biggest concerns in Iraq is that it captures only about half of the associated gas produced when pumping oil, meaning it flares a substantial amount of gas into the atmosphere.
But the other concern is the contract terms, which some foreign oil companies have deemed unfavorable. Up until now, the terms have revolved around a fixed price for oil per barrel after reimbursing costs. This doesn’t allow oil companies to benefit when oil prices jump. And if costs rise, as they have over the last couple of years, they lose even more.
Iraq’s wars, domestic conflicts, and political upheavals have added to climate concerns and unfavorable contract terms to push Iraq down the list for attractive oil projects.
But Baby, I’m Worth It
Nevertheless, Iraq—including the territory governed by the Kurdistan Regional Government—holds a whopping 145 billion barrels in proved reserves. It is the fifth-largest proved crude oil reserves in the world.
This has been enough to entice at least Chinese companies—including CNOOC—to go hog wild in Iraq’s energy sector, not facing as much climate scrutiny as their Western counterparts. In fact, Chinese contractors have singlehandedly secured 59% of all energy projects from 2018 through the end of 2022. Japan contractors took second place, undeterred by the traditional terms.
But other foreign companies have shown a greater reluctance to take part in tapping Iraq’s plentiful reserves, with Western companies, including U.S.-based Exxon pulling back even on existing projects—until now.
Never mind the crises Iraq has faced, the uncertainties that could mean going forward. Forget the carbon-intensive projects that flare half of the gas that comes out of the ground. All that was needed, apparently, was a change in the financial aspect of the projects.
Earlier this month, TotalEnergies signed a massive $27 billion oil deal with Iraq after the country offered terms that were much more palatable given the rest of the drawbacks. We’re talking about revenue sharing and an accommodation to capture more of the gas that is flared.
For TotalEnergies, the deal was hard fought, with negotiations beginning years ago. 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). Part of the proposal includes a provision to construct installations that will recover associated gas that is currently being flared on three oilfields. The deal will allow TotalEnergies to take part of the revenues from the Ratawi oilfield and use it 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.
From gas capturing to revenue sharing, the terms are a marked improvement and could woo other foreign oil companies to Iraq, which has grand plans to expand its oil output and disentangle itself from its reliance on Iranian gas.
By Julianne Geiger for Oilprice.com
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