Basra Oil Company and Anton Oilfield Services secure deferred payment agreement for Majnoon Integrated Oilfield Management Services Project

On or around June 30, 2021, Anton Oilfield Services Group and Basra Oil Company — a company that is wholly owned by Iraq's Ministry of Oil — signed a deferred payment agreement (DPA) for the Majnoon Integrated Oilfield Management Services Project. The estimated monetary value of the deferred payment facility agreement is $400 million. The borrowing terms of the facility are unknown. However, it is known that Sinosure provided credit insurance (covering loan principal and interest worth $500 million). The proceeds from the facility were to be used to finance an oilfield management service contract between Anton Oilfield Services Group and Basra Oil Company, which was signed on June 30, 2021 and went into effect on July 1, 2021. The purpose of project is to provide integrated oilfield management services for a large oilfield in southern Iraq known as the Majnoon oilfield, and to continue providing the customer (Basra Oil Company) with integrated comprehensive management of the oilfield, including the overall production and operation management of the oilfield, oilfield engineering management and the provision of materials and other management support services required for oilfield operation. Under the terms of the June 30, 2021 contract, Anton Oilfield Services Group was also given an expanded the scope of work (vis-a-vis an earlier 2018 oilfield management service contract with Basra Oil Company that expired in 2021) covering the management of third parties in various areas. The project follows a ‘2+1’ model (with a two-year service period starting from the official launch, subject to extension of an additional year of service period at the option of both parties by agreement in writing depending on the project situation). The Majnoon Integrated Oilfield Management Services Project is considered to be part of the Belt and Road Initiative (BRI).

Additional details

1. In Chinese, a deferred payment agreement is known as《延期付款协议》. 2. The Chinese project title is Majnoon油田一体化油田管理服务合同. 3. The monetary value of the earlier 2018-2021 oilfield management service contract was $300 million. The value of the 2021-2024 oilfield management service contract (and deferred payment agreement) is unknown, but it is almost certainly greater than $300 million since (a) Anton Oilfield Services Group was given an expanded scope of work, and (b) Sinosure provided $500 million of credit insurance coverage. For the time being, AidData assumes that the monetary value of the deferred payment agreement is $400 million. However, this issue requires further investigation. 4. In a typical receivables financing agreement (or deferred payment agreement), the company that the project owner in the host country has selected as its engineering, procurement, and construction (EPC) contractor is also a lender to the project owner. The company assigns receivables under its EPC contract with the project owner to one of or more banks. Upon assignment of receivables, the bank or banks will release funds to the company so it can discharge its obligations under the receivables financing agreement as a lender. Receivables financing is also known as accounts receivable financing (finance) or A/R financing (finance) or 应收账款融资 (in Chinese). These other terms are used because the accounts receivable of a company (i.e., unpaid invoices) are being used as collateral to unlock working capital—typically in the form of a bank loan (‘receivables loan’). Sellers often face cash flow problems when their buyers do not make full payment at the due date of the invoice. A receivables financing arrangement addresses this problem by allowing them to sell their outstanding invoices to a bank at a discounted rate. This approach allows the seller to receive the remaining invoice amount before the due date of the invoice. The bank either gets its money back at invoice maturity through the seller (acting as a collecting agent) or directly from the debtor. 5. More likely than not, a Chinese state-owned bank signed an accounts receivable transfer agreement with Anton Oilfield Services Group to provide financing for the construction period of the project. In this type of arrangement, the exporter (seller) procures insurance from Sinosure and transfers its accounts receivable under the insurance policy to a bank. The bank then grants financing to the exporter (seller) and becomes the insured under the transferred insurance policy. When an insured loss occurs, Sinosure pays indemnity to the financing bank pursuant to the insurance policy and the Accounts Receivable Transfer Agreement. The question of whether a Chinese state-owned bank signed an accounts receivable transfer agreement with Anton Oilfield Services Group requires further investigation. 6. The Majnoon Oil Field is a super-giant oil field located 60 km (37 mi) from Basra in southern Iraq. Majnoon is one of the richest oil fields in the world with an estimated 38 billion barrels of oil in place. The field was named Majnoon which means crazy in Arabic in reference to excessive amount of oil in a dense area.

Number of official sources

6

Number of total sources

10