SLT ReportAugust 27, 2024

Analysis & Commentary【Iraq】: Trends and Future of Upstream Development
Based on the Fifth (+) and Sixth Licensing Rounds
Akihito Fuse, Senior Research Advisor, INPEX Solutions Ltd.,

Contents
1.

Results of the Fifth (+) and Sixth Licensing Rounds (May 11–13, 2024) .......... 1

2.

Overview of Iraq’s Oil Industry ................................................................................ 3

3.

Upstream Development in Mainland Iraq Post-Iraq War .................................... 6

4.

Current Status of Upstream Development in Iraq (Mainland) ......................... 10

5.

The Future of Iraq .................................................................................................... 15

6.

A new beginning, BP's "Another Mega Deal" ...................................................... 17

Iraq has held multiple international licensing rounds for oil and natural gas blocks over
the years. Most recently, in May of this year, the fifth (+) and sixth licensing rounds wereconducted. The fifth (+) round was held in addition to the initial fifth licensing round from2018. The outcomes of these rounds yielded some unexpected results, which will be
examined in this report, along with an analysis of the context behind the licensing rounds.

1. Results of the Fifth (+) and Sixth Licensing Rounds (May 11–13, 2024)
The results of the fifth (+) and sixth licensing rounds, conducted in May of this year, arepresented in Figure 1. The shaded areas on the map represent the blocks offered during
these rounds, and Table 1 details the blocks awarded. In total, 13 blocks were offered.
As shown in Table 1, the first 10 blocks were part of the fifth (+) round, while theremaining 3 were part of the sixth round. With the exception of the large East Baghdad

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SLT ReportAugust 27, 2024
oil field, the majority of blocks
offeredaresmallerinscale,

focusing

on

both

oil

field

development and exploration.
In

terms

of

the

companies

acquiring these blocks, Kurdishbased KAR Group secured threeblocks,

while

the

rest

were

obtained by various Chinese firms.
Notably, major Chinese companies
such as Sinopec and CNOOC only
obtained one block each. Instead,lesser-known entities like ZhenHua,
ZPEC, Anton Oil, UEG, and GeoJade dominated the acquisitions.
The implications of these results
will be discussed in the following
section.

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2. Overview of Iraq’s Oil Industry
Iraq plays a significant role inglobal upstream oil development,with substantial reserves andproduction capacity. As outlinedin Table 2, Iraq ranks among the
top five or six countries globally interms of oil reserves, production,and export potential. In 2023,
Iraq's oil production stood at
4.355 million barrels per day(b/d). However, due to voluntary
production cuts agreed upon with
OPEC+,

Iraq'sproductioniscurrently capped at 4 million b/d,
though actual output is slightly
above this limit, reaching 4.17 to
4.18 million b/d, exceeding thecap by approximately 180,000 b/d.

Historically,

Iraq’soil

production has fluctuatedsignificantly,

especiallyduring periods of conflict.
As shown in Figure 3,
production

droppednotably during the IranIraq War (1980), the Gulf
Crisis and Gulf War (19901991), and the Iraq War(2003). After the Gulf War,3 / 19

SLT ReportAugust 27, 2024

production plummeted to below 500,000 b/d, with exports coming to a near halt.
Following the Iraq War, production gradually recovered, peaking at 4.78 million b/d in
2019. Although output temporarily declined during the COVID-19 pandemic and as aresult of OPEC+ production cuts, it has since stabilized at over 4 million b/d.
Looking ahead, Iraq has set
ambitious targets for future oil
production, as depicted in
Figure 4. Official plans aim forproduction levels between 6
and 8 million b/d by 2027–
2028.

However,experts

remain skeptical, predictingthat production is more likely
to plateau around 6.3 million
b/d. It is worth noting that the initial target set during the first licensing round in 2009
was 12 million b/d, comparable to Saudi Arabia. However, achieving this target now
seems unlikely, particularly given uncertainties regarding future global demand.
Figure 5 tracks changes
inIraq’soil

exportdestinations over time.
The graph illustrates thepercentage, rather thanthe volume, of exports,
with

key

markets

highlighted: China in red,South Korea in a hatched
red, Japan in an anotherhatched red, India ingreen, the U.S. in blue,and Europe countries inseries of purple. Prior to the Iraq War in 2003, Iraq exported very little oil to China andIndia, with most exports going to the U.S. and Europe. However, as shown in Figure 6,
China now accounts for 30% of Iraq's oil exports, India just under 30%, and Europe over
20%, while exports to the U.S. have declined to roughly 6%. Notably, Japan’s imports from
Iraq dropped to zero in 2023.

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August 27, 2024

marketdynamics, India imported 21%
of its oil from Iraq in 2023, asshown in Figure 7, while China
imported 11%, as illustrated in
Figure8.

India's

growing

imports of Russian crude, whichreached 35% of its total imports
in 2023, have impacted its
demand for Iraqi oil. This shift is largely due to the Ukraine War, as Western sanctions
against Russia have led to discounted Russian crude being sold to non-European
markets.

Despitethis,

India’sdemand for Iraqi crude remains
strong, though its share hasslightly declined. A similar trend
can be observed in China, where
Iraqi oil currently represents 11%
of total imports.

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Figure 9 outlines changes in Japan’s sources of crude oil imports. Before the Gulf Crisis,
Iraq supplied around 6% of Japan's oil imports. While imports temporarily decreased
during the Gulf Crisis and Gulf
War, they later stabilized ataround 3% during the Oil-forFood Programme. However, by2023, Japan’s imports from Iraq
had fallen to zero. It is unclear
why this drop occurred, though it
ispossiblethat

tradingcompanies ceased handling Iraqi
crude. No imports were recorded
from January to May 2024.

3. Upstream Development in Mainland Iraq Post-Iraq War
In the aftermath of the
Iraq War, Iraq undertook
significant efforts to revive
its

oil

industry

attractingbyforeigninvestment to rehabilitateand develop oil fields,
aimingtoboost

production. As part ofthese efforts, Iraq held six
licensingrounds,beginning with the firstround in June 2009. The
competition in the first to
fourth rounds was basedon a Remuneration Fee,
while the fifth and sixthroundsshiftedtoaRemuneration Percentage
model. Additionally, some blocks were awarded through direct negotiations, bypassing
the licensing rounds. Examples include the Abdah oil fields, awarded to CNPC in 2008,

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the East Baghdad oil field to ZhenHua, and the Ratawi oil field to TotalEnergies (Table
3).
Table 4 outlines the blocks awarded toforeign investors, with Remuneration Fee
rounds

shown

in

the

upper

half

and

Remuneration Percentage rounds in thelower half. The table highlights the notabledifferences between the two remuneration
models.

Figure 11 presents the distribution of upstream development projects by countries. The
lower section of the bar graph, marked in red, represents Chinese companies, while
shades of blue to purple represent major U.S. and European firms. The Asian NOC
segment includes companies such as Malaysia’s Petronas. In 2009, major European and
U.S. companies acquired a substantial number of projects, accounting for about 30-40%
of the total. Since then, the participation of Asian NOCs has increased, and Chinese
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SLT Reportcompanies

August 27, 2024

nowdominate, holding overhalf of the projects. Most
major

Westerncompanies have exited,leaving

only

Eni

TotalEnergies
Europeanfirms.

and

among
The

entry of companies from
the Middle East has also
increased, reflecting asignificant shift in the composition of upstream players in Iraq.
Figure 12 illustrates the approximate locations of Iraq's oil fields, color-coded by licensing
round or negotiation, and Table 5 provides details on the current status of these fields.
The Abdah oil field, developed by CNPC and ZhenHua, reached peak production of
140,000 b/d in 2015 but has since dropped to 43,000 b/d. The Rumaila oil field, Iraq’s
largest, is operated by Basra Energy Company (a joint venture between BP and CNPC)
and is expected to produce 1.33 million b/d, reaching peak production in 2026. West
Qurna oil field 1, originally operated by
Shell and ExxonMobil, is now run by
CNPC with ITOCHU's participation, andproduction is projected to rise from
530,000 b/d to 640,000 b/d by 2030.
Other major fields include Zubair oilfield(Eni), Missan oil fields(CNOC), andMajnoon oil field, which was taken overby BOC after Shell's withdrawal in 2018.

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Figure 13 highlights the share of oil production fromforeign companies (ocher), Iraqi NOCs (green), andKurdistan (gray). Mainland Iraq produced over 3.26
million b/d in 2014, with foreign companies contributing
significantly.

By

2023,

production

capacity

had

increased to 4.51 million b/d, with 2.94 million b/d
attributed to foreign firms. Figure 14 illustrates the shift
in production by countries, showing substantial
increases in output from China andRussia in 2023. U.S. companies
have largely exited, while BP (UK)remains in a joint venture with
China. Shell (Netherlands) has
withdrawn, but Eni (Italy) andTotalEnergies (France) continue
their involvement.

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4. Current Status of Upstream Development in Iraq (Mainland)
There are six key aspects to consider regarding the current state of upstream
development in Iraq:⚫

The withdrawal of major companies⚫

Changes in the fiscal terms of the Technical Services Contract (TSC)⚫

Entry of NOCs and private firms from Asia and the Middle East⚫

Launch of TotalEnergies' “Mega Deal”⚫

Expansion of Chinese companies⚫

Increased investment from Gulf Arab countries

Firstly,

thewithdrawal

ofmajor companies
has been notable(Figure 15). In
2022, BP formeda joint venturewith CNPC andBasra

EnergyCompany,
spinning off its
operations in the
Rumaila oil field. ExxonMobil, which once held stakes in West Qurna oil field 1, sold its
remaining interests by 2023, while its partner Shell withdrew in 2016, selling its shares
to ITOCHU. Similar trends are observed in other fields, with Occidental withdrawing from
Zubair oil field in 2016, and Shell and Petronas leaving Majnoon oil field in 2018. Western
firms cited low remuneration fees, security concerns, and inefficiencies on the Iraqi side
as reasons for their exit. Additionally, major oil companies were shifting strategies in
response to the energy transition toward decarbonization.
In response, Iraq modified its fiscal terms after the fifth licensing round, transitioning
from a fixed Remuneration Fee model to a Remuneration Percentage-based model,
resulting in the adoption of a Hybrid Services Contract (Table 6). While Iraq retained 25%of profits as royalty, foreign companies now receive remuneration as a share of profits,akin to a Production Sharing Contract (PSC). The shift aimed to improve the economic
viability of contracts, though it remains less favorable than those in Abu Dhabi or
Kurdistan. According to Qamar Energy’s estimates, the initial rate of return (IRR) for

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Iraq’s fifth-round contracts is 15.1%, while the older second-round contracts offered amuch lower IRR of -3.5%.
The entry of NOCs and private
firms

from

Asia

and

the

Middle East has also beensignificant
Notable(Figureplayers16).
include

ITOCHU from Japan. In 2021,
TotalEnergies

secured

"Mega

with

Deal"

a
Iraq,

marking a major milestone(Table 7). The deal, delayed
by internal political strife in
Iraq, was finalized in 2023 andincludesmultiple

projects.

These include the Gas GrowthIntegrated

Project(GGIP),

which will collect and process associated gas from several fields, the Common Seawater
Supply Project (CSSP), and the installation of a 1 GW solar power plant. The GGIP project
alone

is

expected

toprocess

600

millioncubic

feet of gas perday (cf/d), with
TotalEnergies
holding a 45%
stake,
QatarEnergy
25%, and BOC30%.

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The presence of Chinese companies has expanded significantly (Figure 18). CNPC
entered the Rumaila oil field early on and later increased its share in West Qurna oil field
1 after replacing ExxonMobil. In the fifth and sixth licensing rounds, Chinese firms such
as ZhenHua, ZPEC, and Geo-Jade acquired multiple blocks. Figure 19 and Figure 20 show
the blocks awarded to Chinese companies in these rounds. Previously lesser-known
companies like ZPEC and ZhenHua have evolved from service contractors to explorationand production (E&P) companies, acquiring fields in Iraq (Table 8).

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Chinese contractors are also playing a pivotal role in Iraq's upstream sector (Table 9).
Examples include CPECC’s contracts for Central Processing Facilities in West Qurna 1
and Rumaila oil fields. The "Belt and Road Initiative (BRI)" has likely facilitated the
expansion of Chinese involvement in Iraq, with energy investments exceeding $30.52
billion, second only to Saudi Arabia (Figure 22). This investment is vital for Iraq,
supporting infrastructure development and oil exports.

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F

inally, Gulf Arabcountries

have

also ramped up
their investment
inIraq’s

upstreamdevelopment(Figure23).

UAE-based
Dragon Oil andCrescent
Petroleum
acquired blocks
in the fourth and fifth licensing rounds, respectively, while QatarEnergy joined
TotalEnergies in the Mega Deal. Although ADNOC and QatarEnergy did not acquire
blocks in the fifth+ licensing round, their participation reflects the growing ties between
Iraq and its Gulf neighbors.

5. The Future of Iraq
There are three key aspects to consider regarding the future of upstream development
in Iraq.

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First, the dominant players in Iraq’s upstream sector have shifted. Major Westerncompanies have largely been replaced by Chinese firms, particularly CNPC, along withother non-major Chinese E&P companies. The increasing presence of Chinese firms in
Iraq’s upstream market requires careful consideration. From Iraq's perspective, Chinese
investment extends beyond oil, encompassing infrastructure projects that addresscritical needs. However, competition between Chinese companies and other foreign firms
has introduced complications. For instance, during the development of the port at Faw,
Chinese firms, backed by political factions affiliated with Iran-supported militias,
competed with South Korean Daewoo, which was supported by groups aligned with the
Sadr faction. Such entanglements in Iraq’s internal political struggles present challenges.
Despite the growing Chinese influence, Iraq is unlikely to favor a China-dominated future.
The changes in contract terms in recent licensing rounds reflect Iraq’s interest in
attracting Western firms back, but it remains uncertain whether Iraq will continue down
this path or make further efforts to retain Western major companies.

The initiation of the TotalEnergies Mega Deal was delayed by political instability, but the
finalization of the contract in 2023 indicates that Iraq is gradually overcoming some of its
internal political challenges. The contract awards for the fifth licensing round, as well as
the execution of the fifth+ and sixth licensing rounds, underscore this progress. Thesedevelopments suggest that Iraq may continue to attract significant international
investment in upstream projects, including more complex ventures like gas-related
projects. The Ratawi Gas Hub, a key component of the Mega Deal, exemplifies thepotential for revitalizing Iraq’s gas industry. Beyond associated gas processing, Iraq is
expected to advance gas-fired power generation and chemical applications using
domestically produced gas.

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Another important factor is the increasing investment from Gulf Arab countries. Iraq, once
isolated from the Arab society following the Gulf War, has seen a notable improvement
in its relations with Gulf Cooperation Council (GCC) countries. The growing investment
from GCC countries signals a strengthening of ties. Additionally, Iraq, Jordan, and Egypt
have held summits aimed at enhancing regional cooperation. While Jordan and Egypt lackthe financial resources to invest in Iraq at the level of GCC countries, they are building
stronger political relationships. Iraq’s current exports of oil to Jordan by truck could be
supplemented by a future oil pipeline, further enhancing these connections. Such efforts
to improve relations with neighboring Arab countries will not only boost Iraq’s standing
in the Arab society but also attract further investment.

6. A new beginning, BP's "Another Mega Deal"
On August 1, BP announced the signing of a Memorandum of Understanding (MoU) with
the Iraqi government for an integrated redevelopment program in the Kirkuk region,encompassing oil and gas investments, power generation, solar energy, and broader
exploration activities. BP CEO
Auchincloss stated in a press
release: “This MoU is based on
BP’sstrategic

andlong-term

relationship with Iraq. I believe
today’s signing is an important
step toward the possibility offurther development in this very
important area. This aligns with
BP’s

six

supports

clear
our

priorities

andcommitment

tocreating a simpler, more focused,
and more valuable company.” BPand the Iraqi government aim to
finalizethecontract

for

this

redevelopment program by early2025.

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The MoU covers oil and gas investments in the central-southern Kirkuk field, operated
by the federal government’s North Oil Company (NOC), as well as the adjacent Bai
Hassan, Khabbaz, and Jambur oil fields (Figure 24). The redevelopment plan includes
rehabilitating existing facilities, constructing new gas expansion projects, and drilling
additional production wells to halt and increase the current output of 245,000 b/d at the
Kirkuk field. At one point, the field was controlled by the Islamic State, but after its
recapture, the Iraq Ministry of Oil set a production target of 700,000 b/d.
The specific format of the service contract was not disclosed, but media reports suggest
it will follow the profit-sharing model adopted in the fifth licensing round, which replaces
the fixed remuneration fee with a percentage-based remuneration system.
BP has a long-standing connection to the Kirkuk field, discovered in 1927 by the Turkish
Petroleum Company (TPC), the predecessor of Iraq Petroleum Company (IPC). BP’spredecessor, the Anglo-Persian Oil Company, was a major shareholder in TPC, holding a
50% stake (later reduced to 23.75%).
In recent years, BP adopted a strategy focused on the energy transition, including
reducing oil production to meet decarbonization goals. However, the outbreak of the
Ukraine War has prompted a reconsideration of energy security and the importance ofhydrocarbon resources. BP’s new CEO is revising the company’s strategy, and BP’srenewed interest in the Kirkuk oil field reflects this shift. While Chinese companies
dominate Iraq’s upstream sector and Western majors have shown less interest, BP’s
Kirkuk redevelopment program represents a notable exception. It mirrors the approachtaken by TotalEnergies with its southern Iraq Mega Deal, which began last year, andcould serve as a model for European companies to expand their operations in Iraq.
Although Shell did not secure a deal in this year’s licensing round, its participation signals
the potential “return” of European majors to Iraq as the country’s political situation
stabilizes and contract conditions improve.
(end)
Keyword:#Iraq, #Upstream, #Oil production, #Licensing Round, #Majors, #IOC, #NOC, #China,#India, #U.S., #Europe, #Middle East, #Gilf Arab countries, #TotalEnergies, #Mega Deal,#BP, #ExxonMobil, #Shell, #CNPC, #BRI

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Disclaimer ： The views and opinions expressed here by Authors are their own, not those of INPEX
Solutions, LTD.

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