Iraqi crude export mechanisms

• Export of Iraqi Crude Oil
• Contracting mechanisms, quantities, pricing
and constraints
By
The Marketing Board of Crude Oil and Gas

Mechanisms of
Crude Oil Sales
Contracting

The oil marketing company approaches the companies
with contracts in force before a suitable period to
demonstrate the need for the quantities that they desire to
buy from the oil of Basra and Kirkuk for the coming
contractual period so that it gets studied in the light of the
standards adopted in this field (to be mentioned later) and to
be classified clearly and in detail, pointing towards the
updated principal information with regards to the continuous
matching of its current state with the standards mentioned
above, as well as to assess the implementation of existing
contracts and the inclusion of all the notes that are related to
them.

1. The issue of crude oil import and export does not fall under the
jurisdiction of the Ministry of Planning and Developing
Cooperation, and so the instructions of implementation of
government contracts (1) for the year 2009 and before did not
include the activity of Iraqi crude oil export since it was not
considered one of the projects listed in the investment plan.

2. The fact that Iraqi crude oil, just like the rest of the crude oil
produced and exported in the region, is not sold on the basis of
a fixed price or a discount or a specific premium but within the
pricing mechanism common to all buyers and each of the world
markets, the auction procedures are practically useless and do
not bring any benefits in finding new markets or selling on better
terms or higher prices, in addition of course to the exposure of
this activity to unexpected risks.

3. The oil marketing company, whenever necessary, and
based on trade policy, approaches a number of equable
international companies (and with whom it has no
contracts) to purchase the available quantities of Iraqi
crude oil with the goal of expanding markets for the sale of
this oil and promoting its use in the world's major
refineries, establishing Iraq as a demanded and
guaranteed source.

4. Based on the foregoing, our company has resorted to
producing and exporting countries in the region to adopt
the style of direct invitation of the elite international oil
companies that have already been dealt with in the
marketing of Iraqi crude oil to their refineries

Requests of (New) Non-Contracting Firms:

Requests from many companies are received by the oil
marketing company and throughout the year for allocating
quantities of crude oil from Basra and Kirkuk. Their eligibility
are evaluated in the light of the implemented standards and
criteria as follows:

Evaluation of ineligible Firms:
1. Studying the activity of each company or institution and
the extent of its conformity with the conditions and criteria
(which will be mentioned later) to see how qualified those
companies are to contract for the purchase of Iraqi crude
oil through a number of officially approved websites and
solid means specialized in this area, such as Oil & Gas
Journal, Bloomberg, and Reuters.

2. Ineligible firms are provided an answer indicating the
reasons that prevented the allocation of quantities of Iraqi
crude oil to them, while nominating the new companies that
prove their eligibility for the contractual allocation stage in
the light of quantities that are available for export and the
principles of allocation listed below.

Principles adopted in the allocation:
Is the adoption of a number of important principles that are
taken into consideration when allocating contractual
quantities to qualified companies (formerly contracting and
new), as follows:
1. Marketing of all the quantities available for export of Iraqi
crude oils in global markets and price formulas according
to marketing foundations that achieve the goal of
maximizing resources as possible.

2. Give priority in the allocation of quantities to the
companies with large refinement capacities, since they are
able to withstand sudden price fluctuations and maintain
their demand for Iraqi crude oils in the long term.

3. Expansion of the Iraqi oils in three major global markets:
American, European and Asian.

A/ Contracting Mechanism:
1. The oil marketing company sends a direct call to the
international oil companies, classed as having the main
criteria for contracting and having contracts in force to
fulfill its needs of Iraqi crude oil for the coming period.

2. Requests sent directly from the companies willing to
buy Iraqi crude oil are considered. The marketing
company does not consider any application sent
through brokers or agents, and the allocation to
qualified companies is done according to the criteria
adopted.

3. After approval of the allocation by the Minister of Oil, the
requesting firms are notified of the quantities of crude oil
allocated to them. After approval of these companies on
all of the contractual conditions adopted by the oil
marketing company, the contracts are signed between
the parties.

B/ Execution Method:

1. The execution of the contract begins when the Board of
Crude Oil Shipment and the Commercial Financial Board
are informed with the details of the contract to enable
them for the execution and following which starts with
the purchasing company issuing a demand within a
reasonable period to the oil marketing company to
specify a fixed date for receipt of a shipment of crude oil
under the contract.

2. The marketing company determines the time of loading
the shipment. The purchasing company then nominates
a carrier to load on time by formal notice sent to the oil
marketing company, indicating as well the method of
distribution of the required documents and their number
in line with the conditions of the documentary
credit, which will be opened by the purchasing company
to cover the cost of the shipment. The choice remains to
the oil marketing company to send its approval of the
carrier nominated by the purchasing company in light of
the technical specifications required for the carrier
which corresponds to the specifications of the port of
loading.

3. Before the period of not less than seven days from the
date of acceptance of the carrier, the purchasing company
opens an irrevocable documentary credit in a bank
recognized by the Central Bank of Iraq, and in an amount
that is not in any way less than the estimated amount of
the shipment. The marketing company instructs the oil
port to load the agreed carrier accordingly, with emphasis
on the prohibition of altering the destination of the
shipment once the documentary credit is opened.

4. After the loading of the carrier with the requested
quantity is complete, the port shall issue the sailing
documents that include carrying amount, the degree of
density (API Gravity), the date of the bill of lading, in
addition to the final destination of the crude oil and
other documents related to the shipment.

5. From the date of the bill of lading referred to
above, and after the period contractually
specified in the price by destination clause, the
marketing company informs the purchasing
company the final price of a barrel from that
shipment to the purchasing company to pay
the value of the shipment within 30 days from
the date of bill of lading.

For the purpose of achieving its goals, the company has
adopted a set of clear and transparent
criteria, principles, and mechanisms as shown below:

First Criterion – Equable International Oil
Companies:

This includes the large, medium, independent, state-owned,
international oil companies that are vertically integrated
(integrated activities in the petroleum industry from
exploration and production to transportation and
distribution) and internationally-rated among the best and
the biggest international companies operating in the
petroleum industry and having refinement powers and
distribution networks in many countries.

Second Criterion – Refinement Companies:
This includes companies specializing in the refinement
industry and the distribution of petroleum products.

Third Criterion – Companies Classified as a
Commercial Branch for their Countries’ Refineries:

This includes national companies that are allowed by their
countries to sign contracts for the purchase of crude oil for
their national refineries, such as in Japan and China.

Requests to buy
Iraqi crude oil for
the years
2009-2011

America Asia Europe

st Half nd Half

Europe

st Half nd Half

Basra’s and
Kirkuk’s
Crude Oil

Total Export Total Amount
bbl $

64,216,784 7,345,670,236.82
AVG. QTY AVG. PRICE
000 bbls/day $/bbl

2,141 114.40

Monthly Crude
Oil Export Rates
From 2007 until March 2011

Kirkuk’s Basra’s Year
Daily Daily Daily Total
Oil Light Oil
Average Average Average Amount
Exports Exports

January
February
March
April
May
June
July
August
September
October
November
December
Total for the Year

Oil Light Oil
Exports Exports 8

January
February
March
April
May
June
July
August
September
October
November
December
Total for the Year

Oil Light Oil
Exports Exports 9

0.510 15.811 1.381 42.810 1.891 58.621 January
0.450 12.604 1.282 35.901 1.732 48.505 February
0.422 13.083 1.393 43.172 1.815 56.255 March
0.408 12.251 1.412 42.374 1.821 54.626 April
0.521 16.159 1.385 42.926 1.906 59.085 May
0.528 15.834 1.397 41.915 1.925 57.748 June
0.545 16.895 1.492 46.251 2.037 63.145 July
0.520 16.132 1.489 46.155 2.009 62.287 August
0.497 14.909 1.461 43.825 1.958 58.734 September
0.386 11.951 1.493 46.277 1.878 58.228 October
0.404 12.122 1.497 44.902 1.901 57.024 November
0.443 13.736 1.534 47.549 1.977 61.285 December
0.470 171.487 1.436 524.057 1.906 695.544 Total for the Year

Oil Light Oil
Exports Exports 10
0.475 14.730 1.451 44.977 1.926 59.707 January
0.455 12.727 1.613 45.164 2.068 57.891 February
0.422 13.073 1.419 43.996 1.841 57.069 March
0.342 10.260 1.425 42.753 1.767 53.013 April
0.440 13.637 1.453 45.046 1.893 58.682 May
0.384 11.524 1.441 43.233 1.825 54.757 June
0.384 11.904 1.433 44.421 1.817 56.325 July
0.339 10.512 1.449 44.906 1.788 55.418 August
0.513 15.387 1.508 45.228 2.021 60.615 September
0.402 12.450 1.492 46.245 1.893 58.695 October
0.378 11.340 1.534 46.017 1.912 57.357 November
0.422 13.086 1.529 47.396 1.951 60.482 December

0.413 150.629 1.478 539.382 1.890 690.011 Total for the Year

Kirkuk's Basra’s Total
Daily Daily Daily Quantity
Average
Oil
Average
Oil
Average (million
Year
Exports Exports barrels)

0.470 171.487 1.436 524.057 1.906 695.544

0.413 150.629 1.478 539.382 1.890 690.011

Average for
55.993 1.699 203.840 0.467 end of April
2011

Evaluation of
Qualitative
Differences in
Crude Oils Exported
to the Three Major
World Markets

1. Global Supply and Demand on Crude Oil and
Petroleum Products

A/ Movement of Crude Oil Prices and Differences
Between Light & Medium Oil
Pattern and trend of global demand for the light and sweet
oil and medium and sour oil are studied and analyzed each
month for the three major markets generally, and trends in
the demand for Iraqi sour crude oil in particular. The supply
and demand are key factors in determining the direction of
the differences in the price of crude Iraqi oil, in light of the
stability of the other factors.

B/ Crude Oil Supply and Demand

The demand on crude oil is studied and analyzed monthly
for the three major markets in general, and demand trends
in light or sour oil in particular. Supply and demand are key
factors in the price-per-barrel change, in the light of the
stability of other factors.

C/ Demand on Petroleum Products
The policy for the export of Iraqi crude oil being for the
companies that own refinement systems, it is necessary to
study and analyze the changes in the demand for petroleum
products with its three categories (light, medium and heavy)
to reflect the changing demand for crude oil produced for
them.

D/ Production of the OPEC Countries and
Their Policies for Balancing the Oil Market

Given the influencing role that crude oil produced and
exported by the countries of the Organization of Petroleum
Exporting Countries (OPEC) plays in the world oil
market, it is important to maintain a follow and analysis of
trends of this organization through rates of production and
export of the member states and their role in maintaining
balance in the oil market to maintain the market value of
crude oil in the world, especially oil from member states.

2. Global Economic Growth

The global economic growth, which has a direct impact on
the direction of the industrial and commercial demand rates
that include the demand for crude oil (and by the
geographical distribution of the energy markets including
crude oil) an important indicator for traders in the oil market.

3. Global Oil Reserves

The change in the index of global oil inventories, especially
for industrial countries of the Organization for Economic
Cooperation and Development and the rest of the world
affects directly and significantly on the demand for crude oil
and petroleum products, which in turn is reflected on the
price levels expected.

4. Relationship of Oil Prices with the EUR/USD
Exchange Rate and S&P500’s Performance
Crude oil prices are affected by the value of the dollar
against the euro since crude oil is traded internationally in
U.S. dollars, a rise in the value of the dollar against the euro
would therefore increase the cost of buying a barrel of
crude oil in general and reduces the number of barrels
purchased for the same monetary amount. Additionally, the
S&P500 index reflects the activity of major U.S. industrial
companies and therefore is an indicator used to assess the
activity of the global economy and to determine the general
trend in the demand for crude oil.

5. Refining Margins

It is important to study and analyze the rates and margins
of realized refining that reflect the profitability of the
refineries from the refinement of one barrel of crude oil.
The results are researched based on the type of crude oil
used in the light of the level of complexity of the
refinement system and for each of the three major
markets.

6/ Geopolitical Factors and Variables

Following the latest developments affecting the different
regions of the world and their repercussions on the state of
supply and demand for crude oil and petroleum products
and the resulting changes to the absolute price of crude oil
and the amount of price differences between light, medium,
and heavy oil.

7/ The Transportation Market
Follow the movements in rental prices of crude oil tankers
(Dirty Tankers) of their various sizes and their negative and
positive impacts on the price of crude oil and the
demanded quantities from one market to another.

Oil Marketing Company (SOMO) May, 2011

The increase in production of Kirkuk and Basra’s light oil
is considered a first step toward seeking to increase oil
exports, allowing the allocation of greater amounts for
export. There are however problems being faced by crude
oil exports from ports in the north and south, the most
prominent of which are:

1. Exposure of the loading ports to frequent bad weather
days, which effects cannot be avoided due to the
difficulty in having it under control.

2. Frequent interruptions in electricity faced by the port and
pipelines. Providing generators that provide electricity
solely for crude oil loading ports avoids the occurrence of
any halt in the export process.

3. Repeated delays in inspections of tankers coming into
the oil port of Basra by the international coalition forces.
Coordination between the General Company for the
Southern Oil and Iraq Ports Authority to provide an
alternative duty during the inspection of vessels by the
international coalition forces in a timely manner would
avoid delay in inspections and contribute to reducing the
impact of such delays.

4. Maintenance operations that take varying periods lead
to stopping the pumping until fixing the oil spill and the
problems with the crude oil pipelines, especially that
the current pipeline system (used to transfer the light
oil of Kirkuk and Basra) has been obsolete and subject
to many acts of vandalism during the last period.

5. The oil storage capacity which, in the south, currently
stands at less than 5 million barrels of Basra’s light
crude oil (at the site of production), and will move now
by the Oil Projects Company for direct execution to set
up 16 new tanks and a capacity of 58 000 cubic meters
for the tank. Contracting with a number of companies
for providing the necessary materials has taken place
and it is expected to be achieved during the coming
period.

Sophisticated
Software and
Analytical
Reports

The Spiral Csi software: A program specialized in the
calculation of the returns for crude oils refinement, allowing
the user many options related to the refinement
industry, including:

1 - Enable our company to find the refinement returns
(Netback) from Basra and Kirkuk, as well as for
similar competing crude oils in each market for the
purpose of reaching precision in determining the
monthly qualitative differences of our exported oil
and according to different markets.

2 - Building the required model to find the refinement
returns for crude oil and according to changes in
seasonal global demand in any of the global
markets.

3 - Find the return on the refinement of crude oil in
any refinery in the real world.

Provides a broad base of data and information and news and
reports in various fields of economic, political, and
particularly in various areas of the oil industry, including:

1 - a real-time feed of stock, energy and commodity markets
and their changes during the trading session.

2 – a database on supply and demand for crude oil and
petroleum products, according to different markets.

3 – a database on the oil companies and their refinement
capabilities in different markets and their quality.

4 - a database on various economic indicators for countries of
the world.

Provides a broad base of data and information and news and
reports in various fields of economic, political, and
particularly in various areas of the oil industry, including:

1 – a real-time feed of stock, energy and commodity markets
and their changes during the trading session.

2 – a database on supply and demand for crude oil and
petroleum products, according to different markets.

3 – a database on the oil companies and their refinement
capabilities in different markets and their quality.

4 – a database on various economic indicators for countries
of the world.

Specialized programs in the field of real-time tracking of
the movement of tankers in the world as well as providing
the possibility to know the path of each carrier.

This enabled the oil marketing company to track the
movement of tankers loaded with Iraqi crude oil, from the
date of loading to the date of discharge in any of the
international ports with a capability in a number of cases
to determine periods of time it takes carriers to cross the
waterways down to the final destination along with the
extent of conformity to what is established in the
documentary credit for the shipment.

A consulting firm for research and study of the world oil
market. Of the most important research and joint
publications are:

1 - Energy Market Report.
2 - Market Watch (Special Oil Market Analysis and
Outlook).
3 - US Inventory Report.
4 - Refining Outlook (Quarterly Report).
5 - Global Refinery Margins (Weekly Report).
6 - Energy Market Report.
7 - Asian Oil Markets.
8 - Med Oil Markets.
9 - Crude Markets (Monthly Reports).

Clarkson is considered a consultancy program for the
field of transportation and developments in the
transportation market through online news and
information, as well as daily, weekly and monthly reports
covering various activities of the tankers market, most
importantly oil tankers.

Iraqi crude export mechanisms

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