27 February 2003
Unfazed by the current US military buildup and the potential risk to rigs from air raids or invading forces, Iraq’s Oil Drilling Co. (ODC) is forging ahead with drilling across the country’s oil fields in an attempt to beat its record of last year.
But separate activities by foreign drillers under the UN’s oil-for-food program have been hit by the threat of war, with international companies either withdrawing or preparing to do so.
In 2002, ODC — one of 15 companies under the umbrella of the oil ministry — drilled 50 new wells and more than 100 rehabilitation wells in the northern and southern fields. It has a target of boosting that figure to 72 this year, a company official told International Oil Daily in Baghdad.
In line with ministry policy of starting initial production from a number of fields slated for development by foreign oil companies, rigs are currently at work at Majnoon, West Qurna, Nahr bin Umar, and Nasiriyah. Drilling is also under way at the southern producing fields of North and South Rumaila, Buzurgan, and Fakah, plus the northern Kirkuk fields of Avanah, Khurmallah, Naft Khanah, Baba, Saddam, and Khabbaz.
Late last year, Iraq pushed oil production to the limit, hiking sales under the UN’s oil-for-food program as high as 1.7 million barrels per day. It was assumed that this was intended to help stave off a war, in the sense that the more the country produces the harder it would be to replace its supplies. The production push coincided with the emergence of quality problems. More recently, levels under the UN program also have been running at about 1.7 million b/d.
With only five rigs in 1998, ODC drilled just one well. It bolstered this performance to 13 wells the following year, 20 wells in 2000, and 32 in 2001. This still compares poorly with the more than 300 wells drilled annually by state Saudi Aramco to the south.
ODC had only 20 working rigs at its disposal in 2000, but repairs to old and damaged ones have pushed this number to 34 now. Two new rigs that have been approved by the UN sanctions committee under the oil-for-food program are currently being assembled, the ODC official said.
Among foreign companies that have obtained approval for drilling contracts under the UN program in the last couple of years, Turkey’s TPAO has been the most active, drilling eight out of 22 wells in its contract at the Kirkuk field’s Khurmallah Dome. Iraqi oil ministry officials say TPAO has requested an extension of this contract for another 10 wells and has received approval. But ahead of a possible war, TPAO pulled its staff and three rigs out of the country this month.
Another company, Zarubezhneft of Russia, which also holds a contract with compatriot Tatneft to drill 30 wells at the Bai Hassan and Saddam fields in the north, launched its first drilling activity last month. However, the two companies are likely to pull out of Iraq soon, as well.
Drilling at the giant northern Kirkuk field aims at sustaining production at the mature field, which first started producing in 1928. Iraqi officials say output has been maintained so far by water injection and the installation of some oil treatment units received under the oil-for-food program at different fields located within Kirkuk, including Bai Hassan, Daoud, Baba Avanah, and Ein Zalah.
Any incremental production would have to come from the southern fields. So far, development of the first phase of the West Qurna field, which includes installation of three gas processing stations, has boosted capacity to 250,000 b/d, and the plan is to raise this to 300,000 b/d by year-end.
At the end of last year, Iraq canceled a production-sharing contract with Russia’s Lukoil for development of the second phase of West Qurna, which includes installing another five degassing stations and raising production by 600,000 b/d. Baghdad declared the contract void, saying Lukoil had breached contractual obligations by failing to start work.
Iraqi officials say the delay in starting the second phase at West Qurna has postponed development work on phase one and thus the ability to sustain production. The two phases were supposed to be developed simultaneously. Although Iraqi ministry officials said they will hold the contract for another Russian company, they do not exclude the possibility of starting on the second phase of development themselves.
“It will be slower if we do it on our own because we will have to do one degassing station at a time, which is totally different from the full development plan envisaged under Lukoil’s production-sharing contract,” said one ministry official.
Officials at Iraq’s State Company for Oil Projects (SCOP), which implemented the first phase at West Qurna, say they are willing and capable of implementing the second phase if funds were available. Lukoil’s contract was valued at $3.7 billion.
Ministry planners estimate that the development of all 14 appraised fields opened to foreign oil companies in the 1990s would increase Iraq’s oil production by more than 3 million b/d within a few years. This, together with additional development at reservoirs in producing fields, would bring Iraq’s current official production of 3.2 million b/d to a level just above the ambitious 6 million b/d target set in the ministry’s 10-year plan. Production costs in Iraq are estimated at $2 per bbl.
By Ruba Husari, Baghdad
(Published in International Oil Daily Feb. 27, 2003)