Iraq Monday finalized an oil and gas exploration contact with Pakistan Petroleum, the first of three deals Baghdad will conclude with international firms this week as part of its efforts to upgrade its energy sector after years of war and sanctions.
The deal was signed in Baghdad by Iraq Deputy Oil Minister Ahmed al-Shammaa and Pakistan Petroleum’s Chief Executive Asim Murtaza Khan.
Under the deal, Pakistan Petroleum will explore for gas and oil in block 8 which is shared by Diyala and Wasit governorates in eastern Iraq.
Pakistan Petroleum was awarded the deal at the country’s fourth bidding round held in May this year. The firm competed with two Japanese companies, Japex and Itochu Corp. , which wanted a $10.57 a barrel remuneration fee, while Pakistan Petroleum sought only $5.38 a barrel.
According to the Iraqi oil ministry’s preliminary data block 8 contains mainly gas, but Asim Murtaza Khan believes there is also oil. “Our technical evaluation shows that there is oil also,” he told Dow Jones Newswires.
He said that his company would spend some $100 million in exploration operations in the block, but to produce first gas from the block, the company would need to invest additional $400 million.
Iraq will also sign a deal with Russia’s second largest oil producer OAO Lukoil Holdings (LKOH.RS) and its partner Japan’s Inpex Corp. on Wednesday and another with Russia’s Bashneft (BADNE.RS) and its partner U.K.-based Premier Oil PLC (PMO.LN) on Thursday.
These international firms won their deals in May at Iraq’s fourth energy bidding round, which had attracted few firms because of tough contract terms set up by the Iraqi oil ministry.
International oil companies prefer production-sharing contracts that would allow them to register reserves, while Baghdad offered them less attractive technical services deals.
These deals will contribute to the already booming Iraqi petroleum industry that has seen Iraq become the second largest oil exporter in the 12 member Organization of Petroleum Exporting Countries.
According to a recent report issued by the International Energy Agency, the world’s energy watchdog, Iraq is expected to be the world’s biggest source of new oil supply over the next few years.
The conclusion of these deals came following the approval of the Iraqi cabinet last month.
However, a similar draft contract with Kuwait Energy and its partners state-owned Turkish Petroleum Corp., or TPAO, and United Arab Emirates-based Dragon Oil PLC was held back by the cabinet until the oil ministry completes certain procedures related to it.
Baghdad has signed over the last two years several oil deals with international companies that are expected to bring the country’s output close the world’s largest oil exporter Saudi Arabia.