13 June 2008
A top-ranking Royal Dutch Shell official is in Baghdad this week to discuss a heads of agreement to establish a joint venture to invest in Iraq’s gas sector and process associated gas from southern fields for domestic and export markets, an Iraqi oil source told International Oil Daily Thursday.
The talks, the first held in the Iraqi capital by a senior international oil company executive since 2003, come as Oil Minister Hussein al-Shahristani prepares to announce Iraq’s first postwar upstream bid round, now scheduled for Jun. 30, at ministry headquarters. The event may coincide with the signing of technical support agreements (TSA) with five majors to boost production. These signings are also planned for the end of the month, with Baghdad Airport a possible venue.
Mounir Bouaziz, Shell’s gas and power vice president for new business development for the Middle East, North Africa and the Levant, met with oil ministry officials on Wednesday and Thursday in a bid to conclude an initial gas agreement this month, the source said. Last week, a ministry source told International Oil Daily that the talks, the second round since late May, were expected to be held in Damascus.
Bouaziz’s four-day visit to Baghdad was the first by a top Shell executive since the US invasion and signals a certain confidence by the Anglo-Dutch supermajor in doing business with Iraq. Bouaziz and other Shell executives had paid discreet visits to Iraq since the late 1990s, while the country was under UN sanctions, until Saddam Hussein was ousted. International firms have for the past five years refrained from visiting, citing security as the main reason.
Shell’s proposed South Gas Utilization project aims to gather 600 million cubic feet per day of gas now flared from most of the southern oil fields, develop infrastructure for future associated gas production, and market the gas — as well as associated liquefied petroleum gas and condensate — inside Iraq and abroad.
The two sides are discussing a joint venture between Shell and South Gas Co. (SGC) under which the latter would have a controlling stake of 51%, with Shell on 49%. SGC’s capital participation would be in the form of assets, while Shell would contribute cash equivalent to SGC’s holdings. The geographical territory would be defined as the provinces of Thi Qar, Missan and Basrah.
Initial investment is estimated at $5 billion over the first five years to capture about 1 billion cubic feet per day of raw gas and build LNG facilities with a capacity to produce 400 MMcf/d (2.5 million tons per year) of LNG. It follows on from a master gas plan that Shell drew up for Iraq in 2006, which provided the blueprint for gas industry development.
The two sides still need to agree the terms under which the joint venture would purchase raw gas from the state and sell treated gas for the domestic market, including for power generation and local industries. Once the heads of agreement is signed, engineering and project management work will be launched while the two sides continue to work in parallel on a final agreement.
Iraq’s proven gas reserves are estimated at nearly 112 trillion cubic feet, making it the world’s fifth-largest gas resource holder. But gas development has lagged because of wars with Iran and Kuwait and international sanctions.
Ministry sources said that according to plans now being discussed, al-Shahristani will officially launch the licensing round at the end of the month and detail the bid process and the oil and gas fields to be tendered. A timetable for data room visits and the submission of bids will come later.
Industry sources separately told International Oil Daily they are in the process of finalizing the wording of the TSAs. BP, Exxon Mobil, Chevron with partner Total, and Shell have submitted their final proposals for the five producing oil fields of Rumaila, Zubair, West Qurna-1, Missan and Kirkuk. Ministry sources said the plan is to sign the TSAs by the end of June once they are endorsed by the Iraqi cabinet.
Another TSA negotiated by a consortium led by US independent Anadarko for the Luhais field could be signed at the same time.
By Ruba Husari, Dubai
(Published in International Oil Daily June 13, 2008)
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