Italy’s Eni will sign an initial contract aimed at boosting capacity at the 195,000 b/d Zubair field to 1.125mn b/d on 2 November, while BP and CNPC will formally sign for their deal to lift Rumaila capacity from around 1mn b/d to 2.85mn b/d the following day, a senior Iraqi oil official tells MEES. The Zubair contract will then go to cabinet for approval, which if it is obtained, as expected, will be followed by a final signing ceremony within a couple of weeks. Baghdad has signed contracts with CNPC for a 125,000 b/d development of the Ahdab field and an initial deal with Shell for southern gas development, but these will be Iraq’s first major oil contracts with foreign oil companies since nationalization in the seventies and could push crude capacity to well over 5mn b/d, making it OPEC’s second largest producer.

Eni, together with its partners, Occidental (25%), Sinopec (20%) and Kogas (20%) made a failed bid for Zubair late June at Iraq’s first bidding round. But the consortium revised its offer, accepting Baghdad’s tough maximum remuneration fee of $2/B in October (MEES, 19 October). Sinopec has disqualified itself through its purchase over the summer of upstream assets in the Kurdistan Regional Government (KRG), which is in dispute with the federal oil ministry over its unilateral oil policy. Occidental reportedly plans to offer part of its share to the UAE state investment firm, Mubadala.

So far there has been no word on the fate of the 8.5bn barrels West Qurna-1 project – one of the crown jewels of the Iraqi upstream. Two constortia – ExxonMobil/Shell (80/20) and Lukoil/ConocoPhillips (66.66%, 33.33%) are fighting for the right to develop the supergiant field, where production is currently running at around 260,000 b/d.  Both have accepted the ministry’s maximum remuneration fee of $1.90/B. ExxonMobil, with 2.1mn b/d bid reportedly offered a more superior plateau target than Lukoil, but the Russian firm has since made a counter offer (MEES, 26 October). Now talks are continuing, with, among other things, negotiations on remuneration fees for discovered but not developed reservoirs, which are subject to different fees, featuring prominently, MEES understands. The winner of West Qurna phase one would presumably be in an advantageous position to bid strongly for the giant 12.8bn West Qurna-2 development on offer in Iraq’s second upstream bidding round, scheduled for award on 11-12 December.

Also expected soon is a deal with a Nippon-led consortium for a development at the 20,000 b/d Nassiriyah field. Nippon is expected to boost capacity to 100,000 b/d within 18 months of the contract’s effective date, rising to 150,000-200,000 b/d after two years. The ministry was scheduled to meet with Nippon on 1 November. 

Sea Change

The interest from companies is markedly different from just six months ago. Then international oil executives found it hard to see how major Iraqi oil development could be brought about (MEES, 22 June). At a road show in Istanbul on 18-19 October there was a definite feeling that things had to go actively wrong for a capacity expansion of historic proportions not to happen. But the 25 October double suicide bombing in Baghdad in which over 150 people died was a brutal reminder that in Iraq a lot can go very, very wrong very easily. And on 26 October sabotage shut down the main crude export pipeline from Kirkuk to the Turkish terminal of Ceyhan. The line was due to re-open on 30 October, but the bombing underlined just how fragile the improvement in security over the past 18 months really is. And opposition to the government’s oil policy still continues. A parliamentary questioning of Oil Minister Husain al-Shahristani over his alleged mismanagement of the oil industry scheduled for 27 October was postponed to 11 November as parliament wrestled with debates over Iraq’s election law. Opponents of Mr Shahristani have 19 questions, two involving alleged constitutional infringements, and have the documents to back up their claims, Fadhila party MP and member of parliament’s oil and gas committee, Jabir Khalifa Jabir, tells MEES.

Security and politics aside, tough terms and white hot competition for the contracts are likely to make for razor thin profit margins for firms, allowing for no major project delays or mishaps. And a lot still remains unclear. Water – Iraq is currently suffering from a major drought – is emerging as an increasingly serious issue. Article 7 of a 21 October “semi-final” round 2 contract states that Iraq regional oil companies are to provide water for injection to the foreign-led joint ventures free of charge. Massive quantities will be needed if Baghdad awards a large proportion of the fields on offer. There has been talk of constructing a giant facility taking Gulf sea water and treating it on the lines of Saudi Aramco’s 14mn b/d Qurayah treatment plant, which would service all the southern fields.  This presents a daunting challenge and there are question marks as to whether it could be completed on time to service the increments as they come online. Any such facility would not be able to supply projects – such as Halfaya and East Baghdad – outside of Basra, putting further pressure on Iraq’s precious water reserves.

Hans’ Homes

Nevertheless there is optimism that major development will take place. Oil services firm Petronor, run by former Schlumberger executive Hans Hoiskar, is forging ahead with plans for an energy city, which will be home to the workers at the new projects. Petronor finalized an agreement with the ministry in July and has a dedicated site with a 40-year lease near South Oil Company’s Zubair facility. There is an initial 300,000 sq ms but “there is room for expansion” to 500,000 sq ms, Mr Hoiskar said. A $30mn phase 1 will include an air strip and one hundred units of two-to-three bedroom accommodation, with a hotel and training center planned for phase 2. Currently foreign oil workers pay around $150 a night for prefabricated accommodation and tend to stay for short periods. “We want to get out of this mindset as soon as possible,” Mr Hoiskar said. “What I wanted to help establish was an oil industry that lives with Iraqis,” he added. “We have a lot of interest. As soon as the companies sign, I expect firm commitments.”

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