OVL renegotiates contract with Iraqi government

ONGC Videsh Ltd (OVL), which has renegotiated a contract for oil acreage in Iraq, awarded to it by the erstwhile Saddam Hussein regime, may invest over $1.5 billion for exploring oil in the block.

The contract, awarded to the overseas arm of state-owned Oil and Natural Gas Corporation (ONGC) way back in 2000, has been renegotiated on the lines of a deal with China National Petroleum Corporation (CNPC).

As per the new terms of the deal signed by OVC, it will be a service contractor and ensured 18 per cent return on its $1.5 billion investment in developing block-8, which is located along the border with Saudi Arabia in southern Iraq.

Under the 2000 contract, OVL was to sign a production sharing contract (PSC) with the Iraqi government. It would have got ownership of the oil produced from the field. However, following the overthrow of the Saddam Hussein regime and the US invasion of Iraq, the new government sought to renegotiate the contract with OVL.

International oil majors have in recent years agreed to develop oil fields for a fee, forcing the Iraqi government to also opt for such a deal with OVL, instead of a PSC. CNPC, for instance, recently signed a similar deal for developing the Al Ahdad oilfield in central Iraq.

The new contract is expected to bhe signed over the next six months. The block is estimated to have 54 million barrels of recoverable oil and 645 million barrels of in-place reserves. OVL is committed to invest $86 million in two phases of exploration and another $1.45 billion for development of reserves at a later stage.