Rowena Edwards, Rowena Mohammad and Dmitry Zhdannikov

BASRA/LONDON (Reuters) – A $27-billion deal between France’s Total and Iraq, that Baghdad hoped would reverse the exit of oil majors from the country, has stalled amid disputes over terms and risks being scrapped by the country’s new government.

Since signing the flurry post-invasion agreements over a decade ago, Iraq has had difficulty attracting major new investments to its energy sector. As international oil companies leave Iraq due to low returns on revenue sharing agreements, the Iraqi government repeatedly reduced oil production targets.

Total signed a deal last year for investment in four energy, natural gas and renewables projects located in the south Basra region. The investments will be made over a 25-year period. Following a visit by President Emmanuel Macron to Iraq in September 2021, Iraq’s oil minister signed the agreement.

The ministry, however, did not have agreement on the deal’s financial details with all the government departments that needed to approve it, three Iraqi oil ministry and industry sources involved or familiar with the negotiations told Reuters, and it has been mired in disputes ever since.

After a parliamentary vote, approval is required from the new Iraqi government, which includes new finance and oil ministers. The deal won’t take effect until the middle of March.

Iraq’s oil ministry told Reuters it expects the TotalEnergies deal to complete from then.

TotalEnergies claimed it was moving forward towards the closing of the agreement, however they added, “The accords remain subject to both parties meeting and lifting conditions.”

According to people familiar with the matter, these terms are unusual for Iraq.

A group of Shi’ite lawmakers wrote to the oil ministry in January demanding details of the deal and asking why it was signed without competition and transparency, according to a copy of the letter seen by Reuters.

The parliament could make the oil ministry review the agreement or cancel it.

WAITING FOR $10 BLN

Total, as per the terms of the draft, is looking to secure $10 billion in initial investments to help fund its larger project. The oil sales from Ratawi, which is one of four projects under the agreement, are the source.

Already, 85,000 barrels per day are being pumped by Ratawi’s oil field. Instead of Total getting its share, revenue goes into the government coffers.

Total is due to get 40% of the revenues from Ratawi’s oil sales, Iraqi oil sources involved in negotiations told Reuters.

That dwarfs the more usual 10-15% that investors would have received from past projects through Iraq’s technical service contracts, which reimbursed foreign companies for capital and production costs and paid a fixed remuneration fee in crude.

Investors will receive a faster and more risk-free return if the share of revenue is higher.

Iraq’s oil ministry officials argue the country needs to be competitive with other energy producing countries to lure big investors like Total.

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

Total has also expressed concerns over the agreement. The French company has rejected having Iraq’s National Oil Company (INOC) as its partner in the project, which is also delaying closing the deal, according to the two sources.

INOC is Iraq’s reconstituted national oil firm, created to emulate firms such as the huge Saudi Aramco (SE:), but its legal status has yet to be fully cleared by Iraq’s new government and parliament, presenting a risk for Total.

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 Shell (LON :), (NYSE: ) and Shell (LON 🙂 are two examples of companies that have suffered poor returns. This makes future growth uncertain.

Due to increased investor attention on governance, environmental and social criteria, development has slowed down. Iraq had once aspired to be a top producer in the world, rivaling Saudi Arabia which produces 12 million bpd (or more than a tenth) of global demand.

Besides Ratawi, the deal with Total consists of a 1 GW solar power plant, a 600 million cubic feet a day gas processing facility, and a $3 billion sea water supply project key to boosting Iraq’s southern oil production.

This project has been delayed as well, after the Iraqi oil ministry in August decided that they want contractors to finance it. It reversed a decision which had allowed it to select companies to do so using state money. According to sources, it continues collecting financing bids.