Iraq's massive Total oil deal heralds new revenue-sharing formula
Reuters
Published Jul 19, 2023 13:13
By Aref Mohammed, Silvia Aloisi and Timour Azhari
BASRA, Iraq (Reuters) - Iraq secured its $27 billion oil deal with France's TotalEnergies (LON:TTEF) last week by offering quicker, less risky payback through greater revenue-sharing, a model it could replicate in the future to lure investors.
Foreign investment in Iraq's energy sector has fizzled out since a flurry of post U.S.-invasion deals over a decade ago, with Exxon Mobil (NYSE:XOM), Shell (LON:RDSa) and BP (LON:BP) all having scaled back their operations in recent years, contributing to a stagnation in the country's oil production.
Oil majors complained that the terms of Iraq's traditional oil service contracts, which paid a flat rate for every barrel of oil produced after reimbursing costs, meant they could not benefit from rising oil prices and lost out when production costs rose. They turned to other countries offering better terms.
The new deal is designed to allow Total to take a portion of revenues from the Ratawi oil field in Iraq's oil-rich Basra region and use them to help finance three other projects, two senior Iraqi oil officials said.
The contract "differs from previous technical service agreements in as much as the generated risks and profit are shared between the state and the investors," Total told Reuters.
Besides raising production at Ratawi, the deal consists of a 1 GW solar power plant, a 600 million cubic feet a day gas processing facility, and a sea water supply project key to boosting Iraq's southern oil production.
This new type of deal was initially signed in 2021, but faced delays amid disputes between Iraqi politicians over the terms and finally closed in April, when Iraq agreed to take a smaller stake than the 40% it initially demanded.
In the end, Total took a 45% share while the state-owned Basra Oil Company took 30% and QatarEnergy 25%. Saudi Arabia's ACWA Power would participate in the solar farm, the statement last week said.
Revenues will be split according to those stakes, one of Iraq's senior oil officials said.
The so-called Gas Growth Integrated Project (GGIP) aims also to improve Iraq's electricity supply by recovering flared gas at three oilfields and using the gas to supply power plants, also helping to reduce Iraq's import bill.
Total said it would invest in all four projects simultaneously, with the solar plant expected to begin operation at the end of 2025 and the gas recovery aspect in 2027.
"Fundamentally the revenues of the Ratawi field allow us to finance the other projects," the Total statement said.
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An Iraqi oil official and Total said the structure of the contract was based on Iraq's 2018 oil and gas licensing round which for the first time gave prospective contractors a share of revenues rather than a fixed fee per barrel.
In the hybrid revenue-sharing model, for each barrel of oil produced, 25% would go towards the Iraqi state as a royalty, while the remaining 75% would go towards reimbursing shareholders for capital and production costs and be distributed as revenues, the official said.
Iraq's oil officials said the model could be replicated in the future but that would be considered on a project-by-project basis.
Written By: Reuters
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