ExxonMobil Water Project Exit Threatens To Derail Iraqi Upstream Schedule
ExxonMobil’s exit in February from Iraq’s multi-billion dollar Common Sea Water Supply Project, needed to provide water for reservoir pressure as production rises from Basra province’s critical upstream oil mega-projects, is going to have a serious impact on Iraq’s already-challenged oil capacity expansion schedule, industry sources warn MEES. Rafiq Latta reports.
“It is a complete disaster. We have to go back almost to step one,” one executive says. “SOC [state-owned South Oil Company], which is running the project now, told us it would take a couple of months to prepare the tender for the FEED [front end engineering design]. No way. I reckon nine months, at least, before they can award the FEED. Then they have to build it. Together with the delays we had last year, I think the project has been put back two years. So instead of 2015, it won’t come on until 2017.”
Even if this view is overly pessimistic, there is little doubt that the project has been seriously delayed – FEED was due for award last November (MEES, 3 November 2011). In the long-run, this water is vital. “Pretty much all the projects involved can reach their phase one production without it, and pretty much all of them cannot go anywhere beyond it without the water,” notes the executive.
A 4.2mn b/d Phase 1 capacity on the water injection project involves participation from bidding Round 1 Basra projects which comprise the 1.8mn b/d BP-led Rumaila field development, the 2.85mn b/d ExxonMobil-led West Qurna-1 expansion and the 1.125mn b/d Eni-led Zubair field project. Lukoil, whose 1.8mn b/d West Qurna-2 project was won in bidding Round 2, is also participating. The Russian firm was reported last week as saying it expected to complete the buyout of minority partner Statoil’s 18.75% stake by May. Shell, which leads the 1.8mn b/d Majnoun field development project, Basra’s other upstream mega-project, is staying out of the water injection consortium at this stage.
ExxonMobil was charged in 2010 with leading the project, which if contracted plateau production from Basra projects go ahead, could eventually rise to 12mn b/d of sea water. ExxonMobil’s controversial upstream investment last November in the Kurdistan Regional Government (KRG) area was the key factor in the US major losing the water injection project, MEES understands. For the $2.5bn Phase 1, each of the project partners committed to taking around 1mn b/d, with Eni 1.2mn b/d.
The experience of the last two years does not give grounds for optimism that SOC will be able to fast-track the project. At an 8 March meeting with international oil executives in Baghdad, the Ministry of Oil pledged to be in close consultation on the water injection project. “They said they would get SOC to send us their short-list of around seven companies for the FEED to see if we had any comments or suggestions. It is now 18 March and we still haven’t received an email,” said one source.
Iraq oil investors have been complaining about a whole raft of bureaucratic bottlenecks ever since they mobilized in 2010. Serious problems still remain, but some major issues are being tackled. “The visa situation has improved hugely. There really has been a lot of progress here,” notes one operator. One year, multi-entry visas were at the beginning of Iraq’s oil boom virtually impossible to obtain, and then for a while were limited to top executives. They are now fairly routine. Procedures over blood tests have been radically simplified, MEES understands. But this has taken sustained engagement from both the ministry and the office of Deputy Prime Minister Husain al-Shahristani. Dr Shahristani has also been instrumental in getting the electricity and oil ministries to speak to each other on a regular basis. “We see increasingly good alignment from [Iraqi Prime Minister Nuri al-] Maliki down,” says the operator.
However, decision making is still taking too long. And customs remains a major headache, with rigs often held for two-three months or more, before being allowed to enter Iraq, sources say. Waiting times at Basra airport also remain both long and erratic. Iraq’s ambitious upstream expansion timetable was lagging even before the water injection project ran into trouble. But some form of discussion is going to have to take place soon as to what plateau targets Iraq wants from its oil projects.
It is widely accepted that the contracted 12mn b/d plateau targets from Iraq’s two bidding rounds will be revised downwards radically, with Minister of Oil ΄Abd al-Karim al-Laibi at one point last year provisionally eyeing 7-8mn b/d (MEES, 13 June 2011). Both the ministry and the prime minister’s advisory commission, headed by Thamir Ghadhban, have had consultants study the issue (MEES, 5 March). But companies will require agreed final targets for their full field development plans, which are scheduled to be presented early next year. And discussions – obviously these targets are also needed for export infrastructure and water injection plans – should start soon.
“The ministry is nervous about initiating talks. There is a world of difference between ‘let’s revise the targets because we have not, or cannot meet our commitments’ and ‘let’s sit down and talk because you [the companies] haven’t met your commitments,” notes one executive. Difficult decisions over capacity come as oil tensions heighten with the Kurds (see page 19).
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