Iraq is undergoing a significant transformation in its approach to working with global oil firms, shifting to profit-sharing models in an effort to attract more investment into its hydrocarbon sector. On Wednesday, Baghdad signed initial agreements for 13 oil and gas exploration blocks and fields, moving away from traditional technical service contracts to more lucrative profit-sharing contracts.
These new contracts allow companies to share in revenue after deducting royalties and cost recovery expenses, which is seen as a more attractive option for foreign investors compared to the previous flat-rate service contracts. An official from Iraq’s oil ministry indicated that this change aims to foster greater investment and improve the terms for international oil companies.
Last year, Iraq secured a landmark $27 billion deal with Total Energies by offering more favorable revenue-sharing terms, which set a precedent for future contracts. Oil majors have previously expressed dissatisfaction with Iraq’s traditional contracts, claiming they limited their ability to benefit from rising oil prices and increased production costs.
As the second-largest producer in OPEC, Iraq currently has the capacity to produce nearly 5 million barrels per day. However, foreign investment in its energy sector has dwindled since the post-U.S. invasion boom, leading to stagnation in oil production.
The recent bidding round attracted significant interest, especially from Chinese companies, which secured 10 out of 29 offered projects. The Iraqi oil ministry anticipates that these agreements could boost output by 750,000 barrels of crude oil and 850 million standard cubic feet of gas, with a particular focus on increasing natural gas production for domestic power generation.
Oil Minister Hayan Abdel-Ghani emphasized that enhanced gas production would provide greater flexibility for supplying power plants, which currently rely heavily on gas imports from Iran.