Terms disagreements have resulted in the stalling of a deal with Iraq and France’s TotalEnergies, worth $27 billion. Iraq had hoped that the deal would reverse the trend of exit of the country by major oil companies of the world, said a report published by Reuters. The report also suggested that the deal would be completely scuttled by the new government of the country.
Since signing a flurry of post-invasion treaties over a decade ago, Iraq has struggled to attract large new investments in its energy sector. As international oil corporations who signed those early accords left owing to low returns from revenue sharing agreements, the Iraqi government has repeatedly slashed oil output targets.
Last year, TotalEnergies pledged to invest over a 25-year period in four oil, gas, and renewable energy projects in the southern Basra region. The agreement was signed in September 2021 by Iraq’s oil ministry, following a visit by French President Emmanuel Macron.
Three Iraqi oil ministry and industry sources involved or acquainted with the discussions told Reuters that the ministry did not have agreement on the transaction’s financial specifics with all of the government ministries that required to approve it, and the deal has been entangled in disagreements ever since.
Following a legislative election, the accord now needs approval from a new Iraqi government, which will not be in place until at least the end of March, and will include new oil and finance ministries.
According to Reuters, Iraq’s oil ministry expects the TotalEnergies transaction to close by then.
“The agreements remain subject to requirements to be met and removed by both sides,” TotalEnergies said, adding that it was close to concluding the deal.
Iraqi MPs are concerned about the terms, that the government or the oil company has made public or any report on them have been made previously, and which, according to sources close to the transaction, are unprecedented for Iraq.
According to a copy of the letter seen by Reuters, a group of Shi’ite legislators wrote to the oil ministry in January demanding details of the contract and questioning why it was struck without competition or transparency.
The oil ministry could be forced to review or terminate the arrangement by Parliament.
According to the sources, TotalEnergies is depending on a $10 billion initial investment to support the larger project through oil sales from the Ratawi oilfield, which is one of four projects in the broader agreement.
About 85,000 barrels of oil per day is currently being pumped from the Ratawi field, and instead of the revenue being credited to TotalEnergies, it is being collected by the government.
According to Iraqi oil sources involved in the discussions, TotalEnergies will receive 40% of the earnings from Ratawi’s oil sales.
This is significantly higher than the typical 10-15% return on investment from previous projects funded by Iraq’s technical service contracts, which repaid foreign businesses for capital and production costs and paid a predetermined pay charge in crude.
The faster and less risky the repayment for investors, the bigger the revenue-sharing proportion.
Officials from Iraq’s oil ministry claim that the government must compete with other energy-producing countries in order to attract large investors such as TotalEnergies.
“We need to offer more incentives,” a senior oil ministry official said, reported Reuters.
TotalEnergies is likewise concerned about the agreement. According to the two sources, the French company has refused to work with Iraq’s National Oil Company (INOC) on the project, which is also delaying the deal’s completion.
INOC is Iraq’s rebuilt national oil company, modeled after Saudi Aramco, but its legal status has yet to be fully cleared by Iraq’s new government and parliament, posing a threat to TotalEnergies.
Iraq’s oil production capacity has increased in recent years from 3 million to roughly 5 million barrels per day (bpd), but future development is questionable due to the withdrawal of oil majors such as Exxon Mobil and Shell from a number of projects due to poor returns.
(Adapted from Reuters.com)