Projects
The Third Coming
Almaty. February 25, KazTAG. – For the second time Irag has postponed signing of the contract with the Kazahstan-Korean consortium of JSC KazMunayGas Exploration & Production (KMG EP) and Korea Gas Corporation (KOGAS) on the Akkas gas field because of disagreements with local authorities, informs AFP referring to the Minister of Petroleum Industry of Iraq Abdelkarim al-Luaibi.
«We have decided to postpone [the contract signing] until the Council of province of Anbar will be satisfied with the contract conditions,» said the minister at the press conference in Baghdad. He informed that the authorities of the western province of Anbar where the gas field Akkas is located, wish that South Korean KOGAS and Kazakhstan KMG EP, which won a tender, to take obligations to build houses and improve the living conditions of the population in the province inhabited basically by the Sunnites. «We are interested that this to be held with the consent and approval of the Province Council in order to guarantee their cooperation,» said Abdelkarim al-Luaibi.
This is a second such delay though the draft agreement on the development of two other fields, which were sold simultaneously with Akkas at the tender for the foreign companies in October of the last year, Iraq initialed in a month after the tender. The contract signing on the Akkas field then was postponed. Later, it was repeatedly informed that the date of signing will be appointed soon. In the beginning of February it was informed that signing will take place on February 24.
After signing the contract, the government of Iraq should approve the agreement before it officially will come into force. After holding a tender in the past year, the Sunnite leaders in the Anbar province have warned that foreign firms will not work if the residents of the Iraq province will not get benefit from the gas field’s development.
In late 2010, the Kazakhstan national company KazMunayGas has made a new expansion to the foreign markets. The Kazakh-Korean consortium in the structure of KMG (which is represented by the company’s subsidiary JSC KazMunayGas Exploration & Production) and South Korean Korea Gas (KOGAS) has won a tender for the development of one of the gas fields in Iraq - Akkas.
The field with the reserves of gas estimated at 158.5 billion cubic meters is located in the western part of Iraq in the province of Anbar, and it is planned to produce here about 5.2 billion cubic meters of gas annually. The proposal of the Kazahstan-Korean tandem has appeared more preferable compared with the application of the French-Turkish consortium consisting of Total and Turkish Petroleum International. According to the tender conditions, a 25 % interest will belong to the state company of Iraq, and the rest 75 % will be divided equally between the consortium partners. The government of Iraq should conclude a 20-year service contract the main conditions of which, according to EIG, will be the following:
- The term of validity: 20 years with a possible prolongation for 5 years.
- Absence of a subscription bonus.
- Guaranteed compensation of all expenses under the project and the guaranteed receiving of profit in the amount of $5.5 for each extracted barrel of oil equivalent irrespective of the prices for hydrocarbons.
- Compensation of all expenses for the field’s development is made from the conditional gain calculated under the formula proceeding from the average market prices of the oil export from Iraq. It is envisaged by the contract to tie the prices from the sale of gas from Akkas (irrespective of the direction, whether it is a home market or export) to the average price of sale of Iraq oil for export.
- Minimum obligations on expenses comprise $25 million.
- Subsoil user’s responsibility is limited to the delivery of products to the gas metering station in the field’s territory. Further transportation and marketing of produced hydrocarbons are responsibility of the Iraq state company.
- Take or Pay mechanism. Even if for any reason (lack of infrastructure, lack of sales market, etc.) the Iraq state company is not capable of accepting produced hydrocarbons, the contractor will receive its reward and compensation of expenses proceeding from the predicted volumes of production according to the confirmed working program.
It is expected that the produced gas will be partly exported and partly used for for internal needs of Iraq. The consortium participants have not declared about the exact amount of investments into the project. Though the experts say that considerable means are needed, given a lack of developed gas infrastructure in Iraq. The Minister of Energy of Turkey Oaner Yuldys stated that the Turkish state company which received in the structure of two consortia the right to develop 2 sites in Iraq, is going to invest about $3.2 billion in their development. As an example to compare: the net profit of KMG EP, calculated under ISFA, was reduced by 13 % in 2009 compared with 2008 and comprised $1.42 billion. It means that borrowed money will be required to the project.