6 December 2007
Four majors met with Iraqi oil ministry officials in Amman last week to initiate talks on the first commercial technical support contracts to be awarded since the US-led invasion over four years ago, Iraqi and industry sources told International Oil Daily Wednesday. The ministry is aiming to raise output by 500,000 barrels per day over the next two years.
The talks with BP, Chevron, Exxon Mobil and Royal Dutch Shell were initiated by Oil Minister Hussein al-Shahristani in a desperate bid to get technical help boosting output at producing fields and stemming declines, especially in the mature Kirkuk oil field in the north and Rumaila in the south. While in Abu Dhabi for the Opec meeting Wednesday, al-Shahristani requested a follow-up meeting with executives from BP and Shell.
The bilateral talks in Jordan, held between Nov. 26 and Dec. 3, were aimed at “exchanging views on how the international companies can help to solve operational problems and increase production if possible within the terms of the technical support contract,” an Iraqi source told International Oil Daily.
The technical support contracts are viewed as an extension of the memorandums of understanding (MOU) that many companies have signed with the oil ministry since 2004 offering free technical assistance on designated oil fields. The contracts will be limited to two years. International oil companies (IOC) will provide remote support similar to that offered under the MOUs, but will be paid.
“What North Oil Co. [NOC] and South Oil Co. [SOC] need is technical support in drawing up development plans, defining their needs, help with procurement — including with the choice of specifications of equipment and material — design and engineering, and market follow-up,” one Iraqi source said.
The oil ministry will fund all purchase orders, which will be prepared jointly, but the orders will be issued by NOC and SOC, not by the IOCs. The two Iraqi firms, and not the ministry, will also sign the technical support contracts. The companies, as contractors, will be reimbursed for costs and remunerated on a fee basis that will be negotiated under the contracts in coming weeks.
“This is in line with the draft petroleum law. The ministry will not have an executive role,” the source added.
Under the plan, the four majors are expected to submit detailed proposals, including technical and financial offers, before the end of December, which will then be unified under one model contract. BP will submit a proposal for Rumaila, Chevron for West Qurna stage 1, Exxon for Zubair, and Shell for Missan and Kirkuk. The target is to increase output by 100,000 b/d at each of the five fields in the first year after signing the contract and sustain it over the second year.
West Qurna stage 1 is in the southern part of the West Qurna field. Russia’s Lukoil had in the past negotiated the stage 2 development, which lies in the northern part of the field. The Iraqi oil minister said this will be open for bidding once the ministry is able to award long-term contracts.
The Rumaila north and south fields are currently producing about 1.2 million b/d, West Qurna roughly 400,000 b/d, Zubair about 200,000 b/d, and Missan just over 100,000 b/d. Output from Kirkuk, in the north, varies, but averages 250,000 b/d when no crude is pumped to the Turkish Mediterranean export terminal of Ceyhan. The Majnoon and Subba-Luhais fields are together producing some 100,000 b/d, but they are excluded from the current short-term contracts.
“If the contracts are signed in early 2008, Iraq’s output should be raised by 500,000 b/d by end-2008 and sustained all through 2009,” the Iraqi source said.
Iraqi sources said the four majors are keen to link the technical support contracts to commitments they will be awarded long-term contracts for the same fields. But the oil ministry is adamant that long-term contracts cannot be discussed until the hydrocarbons law has been approved, and that the deals will then be awarded through competitive bidding.
Both BP and Shell have worked extensively on Rumaila and Kirkuk and provided free assistance to the oil ministry over the past four years. They were also involved in detailed reservoir studies for the two fields, which they freely provided to the ministry with the aim of snapping up long-term development deals.
“It was made clear to them [IOCs] that we cannot talk about anything beyond 2009. The mandate is up to 2009 only,” the source said.
Despite their eagerness to sign deals with Iraq, companies are skeptical about the feasibility of achieving the production targets defined by the oil ministry.
“To add 100,000 b/d within one year is a very tall order. It’s very ambitious,” one company executive told International Oil Daily Wednesday. And “to aim for an additional 500,000 b/d at different locations at the same time is also a stretch on Iraqi resources.”
As the majors will be providing remote assistance under the technical support contracts and will not be deploying staff on the ground, on-site construction and installation will be carried out by Iraq’s State Co. for Oil Projects (Scop) and by NOC and SOC staff. The dozens of Iraqi engineers who have been trained by IOCs under the MOUs will come in handy, but industry and Iraqi sources say international service firms’ input will be needed on the ground.
By Ruba Husari, Dubai
(Published in International Oil Daily Dec. 6, 2007)