Opinion

Cost Control is Key in Iraq’s New Contract Model, Says GlobalData


The winners of Iraq's latest bid round will need to keep costs low to achieve competitive returns compared to previous contracts, according to GlobalData, a leading data and analytics company.

The country's first round since 2012 closed on April 26, with most major E&Ps staying away and only 6 of the 11 available blocks awarded. Companies were given less than two weeks to evaluate terms, a fact that has been cited as a reason for the lacklustre response.

Under the new model, contractors will reportedly pay a 25% royalty on gross production, then recover their costs and split the remainder with the government according to the net revenue bid. The service fees payable to contractors under the previous service contracts, comprising cost recovery and remuneration fees, were capped at 50% of revenue, effectively imposing a 50% royalty.

Will Scargill, Oil & Gas Analyst at GlobalData comments, “If the lower royalty allows contractors to recover their costs more quickly, this should improve rates of return, but the key aspect determining profitability will be the value of the net revenue share.”

PR1761

IMAGE FOR PUBLICATION: Please click here for enlarged chart

The winning net revenue share bid varied significantly by block, ranging from 19.99% to 4.55%. In contrast to the dollar-denominated remuneration fees, its value will ultimately be a function of commodity prices and costs. The desire to encourage cost efficiency was in fact the primary rationale behind the government's change to the contract model, as it reasoned that previously the cost recovery mechanism combined with an R-factor (the ratio of cumulative revenues and costs) adjustment incentivized higher costs.

Assuming a total cost of $6 per barrel of oil equivalent (boe) for both capital expenditure (capex) and operating expenditure (opex), based on the average cost of recent developments in Iraq, the highest three winning bids for net revenue share should have a value at or above the average remuneration fee set in existing contracts. However, in those blocks where companies bid more aggressively the share yields a value similar to the lowest remuneration fees set for Iraq's giant fields.

Scargill adds: “In order to achieve competitive margins, operators will need to drive down costs below the average, a task which may prove challenging at smaller developments, or hope for higher oil prices.”



New service from OilVoice
Trip Shepherd is for companies who need to track their staff in areas of risk.
It's free to use, so we invite you to try it.

Visit source site

https://energy.globaldata.com/media-center/press-r...

GlobalDataIraqCost Controle&pBid Round

More items from oilvoice


Cyber Security Experts Unite to Protect Europe’s Critical Industries

CS4CA Summit Returns to London this October Staying abreast of fast-paced industry developments is crucial for cyber security professionals. And while one can learn a lot from publications and social media, it's hard to beat the value of insights gained first-hand from peers. This is why 150+ IT ...

OilVoice Press - OilVoice


Posted 8 months agoPress > cybereurope

Africa E&P Summit

The organisers of the Africa E&P Summit are bringing together Africa's leading exploration companies and governments, just one of the many reasons why you should be attending frontier's event that they are organising and hosting in London at the IET: Savoy Place, 22-23 May. Over 200 key senior exec ...

OilVoice Press - OilVoice


Posted 1 year agoPress > Africasummitoil summit +2

Equinor Deepens in Offshore Wind in Poland

Equinor has exercised an option to acquire a 50 % interest in the offshore wind development project Bałtyk I in Poland from Polenergia. This transaction is a follow-up of the agreement between the two companies which came into force in May 2018 , by which Equinor acquired a 50 % inter ...

OilVoice Press - OilVoice


Posted 1 year agoPress > EquinorEquinor EnergyPoland +2

Nigeria has highest capex on crude and natural gas projects in sub-Saharan Africa Over Next Seven Years, says GlobalData

Nigeria accounts for more than 34% of the proposed capital expenditure (capex) on planned and announced crude and natural gas projects in the sub-Saharan Africa over the period 2018–2025, according to GlobalData , a leading data and analytics company. The company's report: ‘H2 2018 Production ...

OilVoice Press - OilVoice


Posted 1 year agoOpinion > GlobalDataNigeriaCrude +5

CNOOC Signs Strategic Cooperation Agreements with 9 International Oil Companies

HONG KONG, Dec. 18, 2018 /PRNewswire/ -- CNOOC Limited (the "Company", SEHK: 00883, NYSE: CEO, TSX: CNU) announced today that its parent company, China National Offshore Oil Corporation (CNOOC), has signed Strategic Cooperation Agreements with 9 international oil companies including: Chevron, Conoco ...

OilVoice Press - OilVoice


Posted 1 year agoPress > CNOOCChina National Offshore Oil CorporationChevron +11
All posts from oilvoice