Clarity around future operations at several of Iraq’s major southern oilfields emerged at the close of last year, as the government attempts to set production back on an upward course, writes Clare Dunkley
What: The operatorship of Iraq’s Majnoon field is set for an overhaul after Petronas joined Shell in stating its intent to relinquish a stake in the asset, while other fields are set for investment despite the hesitance of IOCs.
Why: Issues about security, remuneration and political stability have long plagued Iraqi upstream efforts.
What Next: With Western IOCs playing it cool, opportunities are being taken by Russian and Chinese firms as well as state-backed companies from elsewhere in the Middle East.
Indications were provided in late December of the future development paths of several oilfields in southern Iraq. This was sparked by a combination of Baghdad’s eagerness to capitalise on improving market conditions and by the shifting priorities of foreign players.
Russian and Chinese state firms deepened involvement. Meanwhile, the Ministry of Oil (MoO) also used both an IOC withdrawal and the failure in a long-running attempt to attract bids for another major field as an opportunity to proclaim the authorities’ ability to proceed with work alone should mutually-acceptable contract terms prove unattainable.
The technical services contract (TSC) for the 12.8-billion-barrel Majnoon field was awarded in late 2009 to a consortium led by Royal Dutch Shell alongside Malaysia’s Petronas during Baghdad’s second licensing round. A target plateau was originally set at 1.8 million bpd and later provisionally reduced to 1.2 million bpd.
However, development stalled after completion of the first phase in 2014 as the parties wrangled over terms and as the Anglo-Dutch firm’s priorities shifted through the merger with gas-focussed BG Group in early 2016. In September, Shell confirmed plans to relinquish its 45% stake.
On December 21, the MoO issued a statement announcing the formation of a state-led committee to manage the field and revealing that the handover of control was due to be completed by the end of March, with some Shell personnel remaining until June to conclude procedural matters.
During the same week, Petronas confirmed its intention also to hand back the company’s 30% interest. Oil Minister Jabbar al-Luaibi revealed in November that discussions were under way for a team of the US’ Chevron Corp., Beijing-owned PetroChina and France’s Total to take over operatorship. This would be expected to be on different terms from those that had proved so contentious in the past.
Output from the field, located in Basra province, is currently thought to be running at around 230,000 bpd.
Sino the times
Chinese state companies already play a prominent role in southern Iraq’s oil sector – with existing interests in several fields – and are frequently mentioned in connection with potential new investment opportunities.
On December 25, the MoO signed a contract with Beijing-owned Zhenhua Oil to develop of the southern part of the East Baghdad field – a giant complex field that has lain underdeveloped by dint of proximity to heavily-populated areas of the capital.
The five-year deal calls for plateau production of 40,000 bpd – with no further details provided on the contractual terms. A licence area comprising a portion of the field was included in the second bid round in 2009 but attracted no offers.
Shell’s Majnoon exit leaves the company’s sole interest in Iraq as a 44% stake in Basrah Gas Co. – a joint venture with state-owned South Gas Co. created in 2013 to execute a project to monetise the large volumes of associated gas produced at the Rumaila, West Qurna 1 and Zubair oilfields in the south.
Meanwhile, Petronas continues to operate the 1.3 billon-barrel Gharraf field, north of Nasiriyah city in Dhi Qar province – with a 45% stake in the asset. This currently yields 100,000 bpd from a plateau target of 230,000 bpd and where progress has likewise stalled since governmental financial and security crises struck in 2014.
In July, the MoO signed a contract with American firm Baker Hughes to implement a two-phase project aimed at recovering 200 mmcf (5.7 mcm) per day of hitherto-flared gas from both Gharraf and the nearby Nasiriyah field – presumed to signal a likely wider resumption of development activity.
Meanwhile, on December 23, the ministry appeared to indicate the abandonment of longstanding, frequently-changing plans to enlist IOCs in the development of the Nasiriyah field itself. This had included proposals for a project integrated with a greenfield refinery and for a development contract bundling the asset with various other relatively-small southern fields.
As recently as October, Al-Luaibi had claimed to be in talks with both PetroChina and Total over the ‘integrated Nasiriyah project’. However, a decision was now said to have been taken for state-owned Dhi Qar Oil Co. and other government firms to proceed with a project aimed at raising output from 90,000 bpd to 200,000 bpd rather than waiting to reach agreement with foreign companies – an approach which the ministry claimed would result in lower production costs.
State-owned Iraqi Drilling Co. would carry out the drilling at the field – which the statement said contained reserves of 16 billion barrels, although 2P reserves are commonly estimated at around 4 billion barrels.
Two days later, the MoO announced that national companies had brought on stream production of 20,000 bpd at the Saba field, also in Dhi Qar – noting that surface facilities had capacity to handle output of 100,000 bpd.
Failure to agree on Nasiriyah terms bodes ill for an international bid round launched by the government in November for nine blocks along the Iranian and Kuwaiti borders. It also hints at the difficulty likely to be encountered in reaching new terms for Majnoon, the size of which renders securing IOC involvement both more important and more sensitive.
The terms of existing TSCs reflect their signature during a prolonged period of high oil prices when a fee-per-barrel plus cost-recovery model appeared acceptable to both parties.
State of play
Some suggestion that Baghdad might seek to involve fellow regional parastatals rather than IOCs in future development was enshrined in an MoO statement in mid-December following a meeting between Al-Luaibi and Saad al-Kaabi, CEO of Doha-owned Qatar Petroleum (QP). This said that the latter had expressed interest in participating in upstream development projects and which mentioned the ongoing bid round.
Egyptian General Petroleum Corp. (EGPC) made the pararstatal’s maiden international investments in 2015 and 2016 by taking minority stakes in southern block 9 and in the Siba gas field, both operated by privately-owned Kuwait Energy Co. (KEC).
Meanwhile, QP’s regional upstream investment intentions were confirmed in November – as the company joined a consortium awarded an offshore licence in Oman.
The TSC of Moscow-owned Lukoil for the 14 billion-barrel West Qurna 2 field in Basra province was amended in 2013 to reduce the plateau target to 1.2 million bpd and extend the term to 25 years.
Output has again stalled since 2014 at around 400,000 bpd, but statement from the MoO in September revealed that a new development plan was being drawn up. It added that an amended contract was due to be signed imminently both for the producing field and for block 10 on the Dhi Qar/Muthanna border. This was awarded during Baghdad’s first exploration-focussed bid round in 2012 and where oil was struck in February last year with the Eridu-1 well.
In mid-December, Lukoil announced the appointment of Baghdad-owned Oil Exploration Co. to perform additional seismic studies on the 5,600-square-km licence area. This includes a 3D survey of 983 square km around the Eridu field and 2D surveying over 3,500 linear km in the central and southern portions of the acreage to identify future drilling targets.
Lukoil described the Eridu find as “the most significant discovery in Iraq for the past 20 years” – with second and third wells reported to have confirmed an assumed geological model.
KEC – the only firm to have commenced production from fields apportioned in the 2012 round – makes similarly-confident claims for block 9, where potential output of 250,000 bpd by the middle of next decade was mooted in disclosures ahead of an abortive initial public offering last year.