4 July 2002
Iraq is developing its oil fields with or without foreign help — including the giant fields promised to companies such as France’s Total Fina Elf and Russia’s Lukoil. But the firms are always welcome to hop on board, Iraqi Oil Minister Amer Rashid says.
Under a “national effort” launched in 1999, Iraq brought the giant southern Majnoon oil field on stream last year, Rashid says. The field was supposed to be developed by Elf Aquitaine — now part of Total — under a production-sharing contract. But after initialing the deal in 1998, Elf never signed on the dotted line because of UN sanctions. Total also signed up for Bin Umar, another big southern field, but again didn’t firm up the deal. Iraq may bring Bin Umar on next, Rashid says.
“We told the companies in mid-1999 that the Iraqi train could not stay idle at the station waiting for them,” he told Energy Compass in Vienna last week. “We warned them that we would go ahead and develop the fields ourselves, but we have given them the option to jump on board whenever they are ready.”
Majnoon started up at 50,000 barrels per day, less than a year after work started, and is expected to break the 100,000 b/d barrier by the end of 2002, the former army general says. Since the work entailed installing all new infrastructure, clearing mines, and building roads, the path to higher production — a potential 600,000 b/d — should be faster and easier.
Iraq initially tested its development skills in two northern fields, adding 80,000 b/d at Kirkuk and 50,000 b/d at Hemrin in 2000. It then turned to West Qurna, in the south, where Rashid says it has just finished the first development phase. West Qurna came on stream in 1999 at 30,000 b/d, rising to 120,000 b/d in mid-2000. With the first phase completed, it should be producing around 250,000 b/d. A second phase would boost capacity to 600,000 b/d. Iraq may carry out this phase itself, although a consortium led by Lukoil signed a production-sharing agreement for the field in 1997. But as with the French firms, UN sanctions mean it hasn’t started work.
Rashid did not mention China National Petroleum Corp.’s (CNPC) production-sharing agreement for the Al-Ahdab field, also signed in 1997.
The Iraqi oil minister says the “national effort” had two aims. One was to show foreign companies they would lose their fields unless they started work. The other was to increase production to make up for declining capacity in aging fields.
“We always had two lines of action,” he says. “One was our indigenous work, and the second was to bring in foreign oil companies to help.” But heightened US military attacks in 1998 meant the first took precedence: Iraq realized that the continuing US threat meant no company would be willing to risk seeing its efforts destroyed or investments disappear.
The UN sanctions regime imposed in 1991 bars foreign investment in Iraq’s oil sector. But under the UN oil-for-food program launched in 1996, Baghdad is allowed to export crude to pay for humanitarian assistance, which includes drilling work. In the past two years, the UN sanctions committee has approved the award of several drilling contracts to Russian and Turkish oil companies. Turkey’s TPAO has a $3 million contract to drill 22 wells in the Khurmalah Dome in the Kirkuk field, while Russia’s Zarubezhneft and Tatneft are to drill about 80 wells in the northern Bai Hasan and Saddam fields.
According to Rashid, TPAO moved in a rig a few weeks ago to join the 40 Iraqi rigs now at work. Although the Russian firms have not made a move, he says he expects them to do so soon. They don’t have TPAO’s advantage of sharing a border with Iraq, which makes it easier and less risky to move a rig in and out. Still, from Rashid’s point of view, the contracts merely scratch the surface. “What Iraq needs is the drilling of at least 1,000 wells to sustain production,” he says.
Rashid says production capacity stands at 3.2 million-3.3 million b/d, or roughly the volumes produced in 2000 and the first half of 2001. Of that, Iraq exported about 2 million b/d through the UN program, while the rest was either used domestically, smuggled to Syria, Turkey, and the Arabian Gulf, or sold to Jordan outside the UN program. Pushing capacity above 3.3 million b/d would require the release of $740 million in oil equipment contracts put on hold by the UN sanctions committee, Rashid says.
Exploration contracts have also been signed with India’s Oil and Natural Gas Corp. (ONGC) and Indonesia’s state Pertamina. ONGC agreed to explore Block 8 in the Western Desert in 2000, and Pertamina Block 3 this April. Rashid says progress has been “reasonable,” without giving further details. State PetroVietnam has meanwhile signed a development contract for another southern oil field, Ammarah, with a production capacity of 80,000 b/d.
By Ruba Husari, London
(Published in Energy Compass, 4 July 2002)