Iraq has lured big oil firms into new service contracts on some of its giant oilfields by cutting taxes and sweetening terms to make the deals more profitable, industry sources said on Wednesday.
International oil companies are close to striking deals that would almost triple Iraq's output and catapult it up the table of global producers. The firms walked away from those deals at an auction just over three months ago.
Lower taxes were the main factor that convinced firms they could turn a profit where they previously saw too much risk on punishing terms, executives at international oil firms said.
"The contract has been massaged so the oil firms can work at the fees Iraq wants to pay," said one executive, who spoke on condition of anonymity. "The most important change was in taxes."
Oil firms had previously expected to pay 35 percent tax on both cash they received to repay their costs as well as on their remuneration fee per barrel. The sweetened contract requires companies to pay tax only on their per barrel remuneration fee.
"Previously it was tax on everything, on all revenue," said another executive. "Now the tax will be limited to profit. It makes a big difference."
The gains in the final deals from the model deals were made in negotiations by the consortium of BP and China's CNPC as they hammered out the small print for the contract they won for the Rumaila oilfield at the auction in June, executives said.
"All contracts are now mirroring that contract," said one executive.