Shahristani Eyes Extended Iraq Production Plateau Durations

Iraq is confident that a revised oil expansion plan will only “slightly reduce” targeted production plateaus from their current ambitious 12mn b/d-plus contracted levels. At the same time the revision will radically lengthen targeted plateau durations to maximize ultimate recovered volumes and oil revenues, Deputy Prime Minister Husain al-Shahristani announced on 18 April. Rafiq Latta reports from London.

A final decision is still some way off according to Dr Shahristani. “All I can say at this stage is that the revision will not reduce the already announced plateau by any significant figure,” he told reporters at the Iraq Refinery 2012 conference in London. Earlier provisional statements from the Ministry of Oil strongly pointed to a significantly more radical (and, in the view of most experts, realistic) revision to Iraq’s official 7-8mn b/d figure (MEES, 13 June 2011). 

Currently foreign operators have committed to maintaining plateau production for between seven and 13 years, with the plateau volumes to be reached by 2017. The critical Round 1 mega-developments – the 2.8mn b/d Rumaila project, the 2.825mn b/d West Qurna-1 and the 1.125mn b/d Zubair project – are all contracted to this lower 7-13 year duration, pointing to a precipitous decline in Iraqi production capacity after 2025. But Dr Shahristani says Iraq’s revised plan would now look “to maximise ultimate recovery, extend plateau production till perhaps 2035 and perhaps reduce the overall capital investment that is required to achieve those objectives.”

Consensus is mounting that even 7-8mn b/d by 2017 is overly ambitious, while the 12mn b/d target in this time frame is not just unfeasible from an engineering perspective, but could damage field potential. Also, the new production would hit the market all at once, leading to a potential glut and falling in prices. In time, Iraqi production of 10mn b/d or even more is achievable without damaging reservoirs or roiling world oil markets, but certainly not before 2020, and probably not before 2025, experts say (MEES, 6 December 2010).

Dr Shahristani put up a relaxed front as regards what will inevitably be tricky contract renegotiations. “We are not in a hurry,” he said. “We are working on it, the companies are working on it. Perhaps by 2013, we will be in a position to reach a final development plan.” Companies for their part need a clear road map by the end of this year at the latest. Foreign investors are paid on a per barrel fee basis for each incremental barrel produced. They reject Baghdad’s view that losses incurred from a lower production plateau can be simply compensated by lengthening plateau durations, arguing that the ministry’s case fails to take into account of inflation and the time value of money.

The choice of a project manager for the strategic multi-billion dollar Common Sea Water Supply Project, which will treat sea water for injection in the critical Basra province oil projects, will be made “very soon,” Dr Shahristani said. While the province’s mega-projects can all reach first phase development without the facility, going beyond this phase will need significant amounts of water to maintain reservoir pressure. Already delays to the project have made achievement of the 2017 target effectively out of reach. And any further delays will likely push the 4.2mn b/d first phase start-up to beyond 2017-18 (MEES, 26 March).

Provision of water for the foreign-led oil expansion is a contractual obligation on the Iraqi side, as is provision of the additional transportation infrastructure required to export rising production. Here, while construction contract awards for expanded export capacity via Turkey and Syria have yet to be made, capacity at Basra is rising. A new 900,000 b/d offshore loading facility came on stream end-February and by the end of this month or beginning of May, a second single point mooring facility will start up, Dr Shahristani said. But pipeline bottlenecks further upstream are limiting the actual increase in effective export capacity to 500,000 b/d, sources say. A lack of upstream production capacity means that at present this is not an issue, but MEES soundings could not ascertain when the pipeline bottleneck – an obvious obstacle for any major production surge – would be resolved.

Baghdad-Irbil Standoff Continues

The Kurdistan Regional Government (KRG) is wholly to blame for the stoppage in oil exports from the region, Dr Shahristani reiterated. The KRG stopped exporting late last month in response to what it says was Baghdad’s failure to pay amounts agreed under a deal whereby the Kurds committed to supply 175,000 b/d in return for around half the revenues from this crude to pay foreign oil investors their costs (MEES, 9 April). Dr Shahristani said the Kurds “must bear the consequences and the money that is owed to the [federal] Ministry of Finance must be paid up.”

Dr Shahristani maintained his standard rejection of the legality of the Kurdish region’s oil contracts with foreign oil companies. “We have asked the KRG to send a delegation to Baghdad to discuss these issues. Whether these disputes can be resolved shortly or not I cannot prejudge,” he said. “Only an authority that represents the whole Iraqi people, who are the owner of this wealth, is authorised to sign contracts on behalf of Iraq. Unless contracts are presented to the government of Iraq, accepted by the government of Iraq, these contracts have no standing.”

ExxonMobil, which late last year defied Baghdad to take operatorship in six KRG blocks, had “sent a letter to the Ministry of Oil confirming that they are not going to take any actions on the ground with the field development, with their seismic shooting or any drilling and so on till their contract is approved by the Iraqi government and a solution has been found,” Dr Shahristani said. While the US firm has not begun seismic work, tenders for seismic were issued last month and ExxonMobil has also rented out extensive offices in Irbil, MEES understands. The KRG in reply has issued a statement reiterating ExxonMobil’s commitment to the KRG projects. ExxonMobil’s name was not on a finalized list of pre-qualified firm’s for Baghdad’s upcoming fourth upstream bidding round, published by Reuters on 19 April. A finalized contract for the bidding round was expected to be released as MEES went to press.

© Copyright MEES 2012.