OVL to invest $1.45 bn in Iraq oil block

ONGC Videsh Ltd, overseas arm of state-owned Oil and Natural Gas Corporation, is likely to invest $1.45 billion in an oil block in Iraq that was awarded to it by the erstwhile Saddam Hussein regime.

"The service exploration and production contract for Block-8 have been concluded and the agreement is likely to be signed in the next couple of months," an official said.

Block-8, located in the western desert in southern Iraq bordering Saudi Arabia, was awarded to OVL in November 2000 by the then Saddam Hussein government. However, the government formed after the US invasion of the oil-rich country, sought re-negotiation of the contract which has now been concluded.

The block already has a discovery and is estimated to hold 645 million barrels of inplace reserves, of which 54 million are recoverable, he said adding OVL has committed investing $86 million in two phases of exploration and $1.45 billion in development of the reserves thereafter.

The contract would be a service contract wherein OVL will  be paid about 18 per cent rate of return on its investment.

The official said OVL was also considering bidding for the six producing oilfields Iraq has put on offer in its first licensing auction.

"It is talking to two international oil firms for a joint bidding."

OVL wants 51 per cent and will give out 24 per cent to the partner. The remaining 25 per cent would be with Iraqi national oil company.

The official said Iraqi law allows foreign firms to hold a maximum of 75 per cent stake in the oilfields put on offer.

The six producing oil fields on offer are: Kirkuk and Bai Hassan in the north, North and South Rumaila, West Qurna-I,

Zubair and the three Meissan fields in the south. Besides, two gas fields -- Akas in the western Anbar desert and the Mansooriya field in northeast of Baghdad, are also on offer.

"OVL is focused on Zubair, West Qurna and Rumaila," he said, adding the company was looking at taking two other international firms for bidding for the technical services contract.

Rumaila, the largest field on offer commanding the biggest signing amount of $500 million, currently produces 1.02 million barrels per day of oil and plateau targeted is 1.75 million bpd. West Qurna envisages more than doubling of output to 600,000 bpd from current 279,000 bpd while Zubair forecasts production rising to 400,000 bpd from current 227,000 bpd.

Signature bonus for the two are $400 million and $300 million, respectively.

Iraq had initially set signature bonuses for each oilfield on offer at $10 million plus $50 per barrel for existing output above 100,000 bpd. But with oil prices crashing, Iraq is seeking larger signature bonuses.

Bidding and contract awards are scheduled for June 29 and 30.

Rumaila oil field is a super giant field located in the south of Iraq and has a reserve base of 16.2 billion barrel (remaining reserve). The Zubair oil field located in the southern Iraq has a reserve base of 3.87 billion barrel (remaining reserves) while West Qurna in southern Iraq has a reserve base of 16.65 billion barrel (remaining reserve).

The official said OVL, which was among the 35 international companies pre-qualified by Iraq to participate in the bidding rounds, was also looking at 11 fields located in the southern, central and northern areas of Iraq which are in the process of being offered in the second bidding.

Exploration and development contract for Exploration Block-8, Western Desert, was signed by OVL with the Oil Exploration Company of Iraq, on 28 November, 2000, at New Delhi. The block has a reserve expectation of about 645 million barrels.

As per the 2,000 contract, OVL was to reprocess and interpret existing 2-D seismic data. It was also to acquire, process and interpret 1,000 km of 2D and carry out 300 sq km of 3D seismic survey besides drilling two wells.