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Iraq likely to delay gas fields auction

Two of three gas fields rejected by companies last year.

July 30, 2010 8:18 by

Iraq is considering postponing an auction for companies who want to develop its gas fields to give them more time, its oil ministry said on Thursday.

The ministry will hold a workshop in Istanbul on Aug. 1-2 to discuss details of the gas bidding round and contract terms with interested bidders.

Baghdad had said it will invite all 45 international companies, who were prequalified in the two oil auctions last year, to bid to develop three gas fields and the auction was to have taken place on Sep. 1.

“It’s unlikely it will be at that time (Sep 1), to allow more time for… the companies,” oil ministry spokesman Asim Jihad told Reuters.

“I think there will be an extension for the period… It could be by the end of October or start of November, until now the date has not been agreed upon.”

The fields on offer are Akkas in the western desert, Siba in the southern hub of Basra and Mansuriyah in eastern Iraq.

Kyle McEneaney, head of Ergo’s Middle East practice, an Iraq-focused research firm, said despite interest in Iraq’s gas reserves, there was some uncertainty regarding the auction.

“Discussions in Istanbul should help Iraq to calibrate the contract terms and set a new auction date; if these things happen, there will be more concrete interest. If not, expect more delays,” he said.

“The delay in forming a government has given investors in many sectors pause. Progress on this front will be positive generally for interest in gas projects; of course, it will be even more positive if the terms established in Istanbul are not roundly rejected in Baghdad.”

Iraq has no new government since a March election produced no outright winner.

Two of the gas fields to be tendered — the 2.1 trillion cubic feet Akkas field, and Mansuriyah with estimated reserves of 3.3 trillion cubic feet of gas — were unsuccessfully put on the auction block last year.

The third field — Siba — had initially been included in Iraq’s second oilfield auction in December but was taken out of the list of reservoirs on offer because the ministry decided it was small enough for Iraq to develop on its own.

Iraq has said companies such as Royal Dutch Shell, Total and South Korea’s KOGAS were favoured because of their experience.

In May, Italy’s Edison said it was planning to take part in the gas auction. Edison and partners including Malaysia’s Petronas, China National Petroleum Corp, Korea Gas and Turkish Petroleum Corp were the sole bidders for Akkas last year.

Thamir Ghadhban, the top energy adviser of incumbent Prime Minister Nuri al-Maliki, said the contracts for the gas fields would be service agreements similar to those given in the oil auctions but the terms have yet to be finalised.

“One of the modules, is that they (companies) invest and they produce and operate and they get paid for their cost and remuneration,” he said.

“The idea is that we have to be fair, we have to provide a fair contract so there is enough turnout because gas does not have same turnout as oil,” he said.

Iraq signed a series of deals after two auctions last year, which could boost crude production capacity to Saudi Arabia’s levels of 12 million barrels per day from 2.5 million bpd now.

Iraq, starved of power after years of war, sanctions and economic decline, hopes opening its gas sector to foreign investment and sealing a gas capture deal with Shell will boost its power capacity — seven years after the U.S.-led invasion the national grid only supplies a few hours of power each day.

“The demand for electricity is intensifying in every sense of the word,” McEneaney said. “This puts a lot of pressure Iraq to be more flexible in the terms it grants for gas deals if this will mean getting more gas online, sooner, to its power plants.”

(Reporting by Rania El Gamal; Editing by William Hardy and Anthony Barker)

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