TotalEnergies’ EXCLUSIVE $27 billion Iraq deal stalled over contract wrangles

  • TotalEnergies’ $27 billion energy deal stalled since September
  • I was offered very lucrative terms
  • Key details still need to be approved by cabinet and parliament
  • Iraq struggles to attract new Western investors

BASRA/LONDON, Feb 14 (Reuters) – A $27 billion deal between France’s TotalEnergies and Iraq, which Baghdad hoped would reverse the exit of the country’s oil majors, has stalled due to disputes over conditions and risks being abandoned by the country’s new government. .

Iraq has struggled to attract major new investment in its energy industry since signing a series of post-US invasion agreements more than a decade ago. The Iraqi government has repeatedly slashed oil production targets as international oil companies that signed those initial deals are leaving due to poor returns from revenue-sharing agreements.

TotalEnergies agreed last year to invest in four oil, gas and renewable projects in the southern region of Basra over 25 years. The agreement, signed by the Iraqi Oil Ministry in September 2021, follows a visit by French President Emmanuel Macron.

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The ministry, however, did not reach agreement on the financial details of the deal with all the government departments that needed to approve it, three sources from the Iraqi Oil and Industry Ministry who were involved or involved told Reuters. familiar with negotiations, and he’s been mired in disputes ever since. .

After a parliamentary election, the deal must now be approved by a new Iraqi cabinet, including new oil and finance ministers, who will not be in place until at least the end of March.

Iraq’s oil ministry told Reuters it expects the deal with TotalEnergies to be completed from then on.

TotalEnergies said it was making progress towards closing the deal, but added: “The agreements remain subject to conditions to be met and waived by both parties.”

The terms, which have not been made public or previously reported, have raised concerns among Iraqi politicians and, according to sources familiar with the deal, are unprecedented for Iraq.

A group of Shia lawmakers wrote to the Oil Ministry in January demanding details of the deal and asking why it was signed without competition or transparency, according to a copy of the letter seen by Reuters.

Parliament could force the Oil Ministry to review or abandon the deal.

WAITING FOR $10 BILLION

Under the terms of the project, TotalEnergies expects to secure an initial investment of $10 billion to fund the larger project through oil sales from the Ratawi oilfield, one of four projects in the larger deal. wide, according to the sources.

The Ratawi field already pumps 85,000 barrels of oil a day and rather than TotalEnergies receiving its share, the revenue goes into state coffers.

TotalEnergies is expected to get 40% of Ratawi’s oil sales revenue, Iraqi oil sources involved in the negotiations told Reuters.

This dwarfs the more usual 10-15% that investors would have received from earlier projects through Iraq’s technical services contracts, which reimbursed foreign companies for investment and production costs and paid a fixed fee in gross.

The higher the proportion of revenue sharing, the faster and less risky the return on investment for the investor.

Iraqi oil ministry officials say the country needs to compete with other energy-producing countries to attract big investors like TotalEnergies.

“We need to offer more incentives,” said a senior oil ministry official.

TotalEnergies is also concerned about the deal. The French company refused to have the Iraqi National Oil Company (INOC) as a partner in the project, which also delays the conclusion of the agreement, according to the two sources.

INOC is the reconstituted Iraqi national oil company, created to emulate companies such as the huge Saudi Aramco, but its legal status has not yet been fully approved by the new Iraqi government and parliament, posing a risk for TotalEnergies .

Iraq’s oil production capacity has grown from 3 million to around 5 million bpd in recent years, but the departure of oil majors such as Exxon Mobil and Shell from a number of projects due to low yields means future growth is uncertain.

Developments have also slowed due to growing investor interest in environmental, social and governance criteria. At one point, Iraq aimed to become a rival to the world’s top producer, Saudi Arabia, with production of 12 million bpd, more than a tenth of global demand.

In addition to Ratawi, the deal with TotalEnergies includes a 1 GW solar power plant, a 600 million cubic feet per day gas processing facility and a $3 billion seawater supply project, essential to boost the oil production in southern Iraq.

The latter has also been hit by delays, with Iraq’s Oil Ministry deciding in August last year that it wanted builders to pay for the project, overturning an earlier decision to shortlist companies that would do so with funds. public. It is still collecting funding offers, sources say.

(This story corrected company name to TotalEnergies and RIC company)

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Reporting by Rowena Edwards and Dmitry Zhdannikov in London, Baghdad Newsroom and Aref Mohammed in Basra; edited by Elaine Hardcastle

Our standards: The Thomson Reuters Trust Principles.

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