May 20th, 2009

Jabbar Al-Luaibi

 

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Former Director General of South Oil Co and oil ministry advisor Jabbar al-Luaibi discusses in an interview with Ruba Husari in Dubai May 16, 2009 the state of the oil fields in southern Iraq and the reasons behind the recent loss in production capacity at Iraq’s major producing oil fields.

Q: You brought the oil sector back from the ashes in 2003 and ramped up production till you achieved an unprecedented peak in 2007. Why the sudden deterioration and the loss of production capacity now?

A: It’s true, the oil production profile was almost zero after the end of the war in 2003. We restarted production immediately at 50,000 b/d once the war ended in April and we were already producing 500,000 b/d by June 2003. We kept working hard thereafter until we achieved a rate of 2.150 million b/d in 2004. Then because of the lack of support from the ministry, whether to projects or procurement, it started to decline. In 2005 production rates went down to 1.730 million b/d. This is when I started to work on completion of some projects in South Rumaila and West Qurna as well as Halfayah, Touba, Luhais and Majnoon. By the first quarter of 2007, production reached 2.2 million b/d. That was the highest rate ever achieved by SOC since the start of production in southern Iraq. We implemented a major project to rehabilitate 320 wells that were drilled and connect them to the production facilities, without which our output would be close to 1.5 million b/d now. But we knew that this new plateau would be temporary unless we get support from Baghdad to maintain it. Before 2007 and as soon as the minister [Hussein Al-Shahristani] took up his position in 2006, I drafted a paper explaining the state of things in the south and I warned that although we were adding output here and there, this is not sustainable. I later sat with the minister for 8 hours at the ministry in Baghdad and explained the issues I made in the paper, point by point. I warned at the time that there are urgent requirements and measures to be taken and failing which the production will start declining. I stated clearly that production will go down by 400,000 b/d during 2008-2009 unless we speed up work to halt the decline in the major fields.

Q: What were the constraints that you mentioned?

A: I pointed out and defined clearly the urgent need for extraordinary work; drilling of new wells, completion of about 180 already drilled wells, work over on wells that ceased flow, work over activities, reservoir management, surface installation equipment like submersible pumps for water injection, ..etc. In 2007 I gave the minister a list of projects and I defined priorities in each category. I said to him please do something about water injection in West Qurna and North Rumaila, this is urgent and we cannot rely on Scop to do it. I asked him to find me a solution, especially for accelerated drilling activities, to bring any company regardless of nationality and contract it to do the urgent work. I was happy with any kind of help from all sorts of companies, be it Syrian, Iranian, Turkish, or any other as long as it’s not Israeli. That was the only red line.

Q: What was the minister’s response?

A: He did not take any measures. He agreed with me at the meeting, but we got little response after that. Then, as expected, production started going down increasingly and I was still begging for help from the ministry but the little response we were getting was not up to the task at hand. At that time an impression started spreading throughout the ministry that I was working on solo mode which was not true at all. I was like someone in the middle of a fire asking to be salvaged but nobody listens. Whenever approvals came they were often too late. For example, we asked for ESP (electric submersible pumps) to be installed urgently in 2006 because we were losing pressure in South Rumaila and many wells ceased to flow but it took the ministry over six months to approve the contract. Drilling contracts were halted for more than two years on the grounds that Iraq Drilling Co (IDC) would execute all the drilling work needed. I agree with granting IDC a portion of the high volume of work but to meet the plan to drill about 200 wells per year, it is evident that we needed another contractor with IDC in order to sustain our production together with going in line with increasing it. Another example is the failure to understand the pressures we worked under in the south. Out of our 830 wells, 300+ ceased to flow, which is a real tragedy. We tendered for contracts in 2007 to do logging in 140 wells to find out the reasons. Only one company gave us an offer which I recommended we take because it was crucial for us to get data on the wells. We got dramatic results and started working accordingly. The impact was very big. But the company was subjected to blackmail by militias of political groups and they had to pay a bribe before they could work. My attitude was that the work is vital for SOC and had to be done in any way possible but I was blamed for the militias taking bribes. Even making a request for flow tanks was met with hurdles. Our flow tanks are old and they are subject to high salt and corrosive media so naturally they collapse. We put out a tender to replace them. After sleeping on it for one year, the ministry sent it back to us last year and asked us to retender. I was so upset that I wrote to the deputy minister Mr Abdul Sahib Qutub, explaining that as someone with experience in the upstream, he would appreciates that we were losing 30,000 b/d in Buzurgan as a result of shortage in flow tanks. This at a time when the oil price was in the range of $100/bbl -$120/bbl, so the country was losing at least $1 billion per year while the cost of the tanks contract to us was about $3 million – $4 million. When nothing happened I went to see the minister in person, we discussed it for two hours, and only then he gave his approval. This is not the way to run an oil industry.

Q: Is it a failure in communication?

A: It’s not a question of communication, it’s the whole system that needs to be restructured. The approach the ministry follows is totally wrong. Those in the ministry don’t understand what goes on in the fields and when we make requests for assistance, they don’t appreciate the nature and volume of work. Sometimes they get the wrong impression that we are dictating to them when the decision has to be theirs. Take Rattawi oil field for example; we brought Rattawi on stream by ourselves in 2007. The field is in a remote and difficult desert area and all the work was done by Iraqis. The cost of the entire plant which we built from scratch was no more than $8 million including the desulfurization and the wet crude treatment units. I said to the minister when he came to inaugurate it in early 2008 that it was producing 15,000 b/d and will be producing 50,000 b/d easily but with little extra work we could bring it to 100,000 b/d. But nothing came through and Rattawi’s output now stands at 30,000 b/d. You can contrast this with similar fields to be developed by foreign companies where the cost would come to around $4 billion.

Q: You brought West Qurna oil field on stream at 50,000 b/d yourself in 1997 as head of the project despite the sanctions at the time, and in 2006 you pushed it up to 450,000 b/d even though it was 80% damaged during the 2003 war. Now it’s down to 270,000 b/d. Had you stayed at the head of SOC, would you have been able to reverse it on your own?

A: Yes, certainly I would have done a lot of work to reverse the picture. I must point out that since 2003 I had repeatedly asked the ministry to take extraordinary measure to complete the water injection scheme in the field as without this scheme deterioration in production will continue. A reservoir study done by ChevronTexaco on the field indicated that 50,000 b/d per year will be lost without water injection. We shouldn’t be expected to work day and night on big projects like building a water injection scheme from scratch. It’s not the job of the operating company. It’s the ministry’s responsibility to procure those. Having said that, I took the challenge and started to do a water injection project there. I gathered some scrap equipment from old installations and parts of new equipment that was delivered and we started to build a project in the central degasing station-7 in West Qurna. The major constraint we faced was deaeration or the stripping of oxygen from water. I heard they were doing that in Iran so I got in touch with the Iranians and sent a delegate to check the processes they were using. We started work based on what he saw there but then I was removed from SOC before we could finish it. But this is not my job. I’m the operator. It’s not right that such projects are left to us to do with no serious support or follow up.

Q: Where do you put the decline rate in the southern oil fields at the moment?

A: In the case of the south it’s difficult to fix a percentage for a decline rate for oil fields. In West Qurna for example, the forecast that ChevronTexaco gave us, based on a study it did under the memorandum of understanding (MOU) it had since 2004, was 50,000 b/d of decline per year and then the rate increases after three years to 100,000 b/d per year. It’s a fearful situation. The same thing goes for the Mishrif reservoir in North Rumaila. In general we put the yearly decline rate between 5% and 10%, except for North Rumaila and West Qurna where it goes up to more than 10% per year.

Q: What’s the state of the 1400+ wells you have across the southern fields?

A: About 33% of those wells are completely out of service. In the upstream industry, there are four elements that go together and the absence of one will affect all of the others. These are: drilling, workovers, reservoir management, and surface installations. All four are in a poor state in our case in southern Iraq, and even when one is working, the others are crippling. We have no proper reservoir simulation to know exactly where our reservoirs and wells stand or how much they can produce. For years, I’ve demanding why we cannot have seismic equipment to do proper measurement in the producing reservoirs and see their conditions and how their fluid saturations are changing, which will then help us decide where to drill and what work over is needed. This is a basic requirement in order to draw up a program to sustain production and then increase it. Without reservoir management, it’s like driving your car without any indicators on the dashboard. And we are not asking for the modern technologies that our neighbors are applying in their oil fields, but just the very basic needs. I have asked many companies who were working under the MOUs for help and we got some monitoring devices for reservoir logging, which has kept us going so far and without it we would have been in an even worse shape.

Q: Isn’t reservoir management the responsibility of the department of fields and reservoirs studies at the ministry?

A: Yes, but unfortunately instead of concentrating on these problems and doing proper jobs and get proper results using our best engineers in Baghdad and Basrah, some seem to be too absorbed by their differences with each other and that takes priority over work. This is our dilemma. I purchased modern computers for staff at SOC to start doing the job but we are a very long way because we’re starting from scratch and whenever we try to do something, things get stalled elsewhere. We need equipment but the system is based on a tender process where we submit recommendations to the ministry, but then it takes them a year to go through it. This is not normal. Consider this: after I insisted that we need to contract a company to do drilling, we issued a tender in 2008 and received three offers to drill 45 wells. I recommended we divide them on the three companies to get the work done quicker which would have increased our output by 100,000 b/d. It took the ministry four months to respond to my recommendations, and their answer came back requesting we contract just one of the three companies which they chose. We did contract that company based on their response only to be questioned afterwards about why we contract one unknown company, which they recommended in the first place, to drill all 45 wells. They changed their mind again and asked that we contract all three companies. We did and yet again someone at the ministry objected again. The whole process took more than a year to conclude the contracts that were supposed to boost our production by 100,000 b/d. This was stated clearly during the conference that took place in Baghdad in February but nothing has changed.

Q: How much damage can still take place if things remain as they are? Is there any permanent damage occurring in the reservoirs?

A: It is very damaging. The decline we are witnessing is a result of absence of reservoir management. I stated in 2006 that 400,000 b/d is going to disappear and I was right. If things stay as they are we will loose another 200,000 b/d in 2 years and maybe if it continues like that then who knows, we might have to start importing crude oil!

Q: You presented a 2-year accelerated plan to the minister and the prime minister to bring new production of up to 400,000 b/d. What are the main features of the plan?

A: The plan aimed at bringing 300,000 b/d-350,000 b/d at ease within 2 years. I relied on facts on the ground and that some fields have potential to produce more based on the fields’ capacity and available excess capacities in existing surface installations. For example, at Majnoon oil field, the sustained capacity at the moment is 50,000 b/d, and surface installation capacity is 100,000 b/d, so we have 50,000 b/d at hand. Relying on this fact shortens the time needed to construct new surface installations and reduces cost. What is needed is just the drilling of 20 wells in Majnoon. It’s straight forward drilling because the area is flat and we have experience in Mishrif reservoir where we drilled in the past without experiencing any problems. Connecting those wells is also straightforward and we have what is needed in terms of flow lines and capable people to do the job. It is a similar situation in Nahr Bin Umar where we have a 50,000 b/d excess capacity combined with a very high well flow rate where each well yields about 10,000 b/d. Drilling five to seven wells in Nahr Bin Umar would add at least 50,000 b/d. In Luhais, we have excess capacity and need to drill 12 wells to add 40,000 b/d. In Rattawi, the production rate of the wells is also 10,000 b/d and with the drilling of seven wells at most we can easily get an additional 50,000 b/d. Even adding another production plant similar to the one I installed there in 2005 at a cost of $7 million at the time, we can get another 50,000 b/d. In Tuba, we have a plant with 50,000 b/d capacity but we are producing 10,000 b/d, so all we need is to drill seven to 10 wells. In Nassiriya, the degassing plant there has a 50,000 b/d design capacity and we will start production there of 15,000 b/d-20,000 b/d, so we can drill and produce 50,000 b/d. This is how easy it is to get 300,000 – 350,000 b/d. I took the initiative to draw up the plan and I estimated it would not cost more than $500 million to bring this extra capacity on, which is insignificant as a cost and could be part of the company’s budget, not an additional budget.

Q: The plan has been adopted by a committee who investigated the state of the fields in December and later was approved by the prime minister following the February conference. We are already five months into the two-year plan, where does it stand now?

A: What happened is that my colleagues in the committee met with the prime minister and they arranged for someone else to be responsible for the execution of that plan and he [Idriss Al-Yassiri] was appointed in charge of it. I wasn’t at the meeting. I don’t follow what’s happening because I’m out of it all now on the minister’s instructions.

Q: Could the technical support contracts (TSCs) that were negotiated with the major oil companies last year and cancelled in June, have saved the situation?

A: I was one of the pioneers of the TSCs and I supported the minister when he decided to follow that route. I said to him I support you fully and this is the only salvage to the Iraqi upstream oil industry at the moment. It was the perfect solution and in my opinion calling them off was a grave mistake. Had they been signed last June, the companies would have been in the fields working by now. It was not the right decision and as a result both the industry and the country are suffering. The minister’s view was that the licensing rounds that he launched will compensate, but the first licensing round will take two to three years before we can see any results, assuming the contracts are concluded by the end of the year. So what are we going to do in the next two to three years and how do we stop the deterioration in the fields? Who is going to implement the vital big projects like water injection, artificial lift and gas injection schemes?

Q: Have the MOUs the ministry signed with several dozens of international oil companies from 2004 helped at all?

A: Yes, they helped a lot. The companies gave us reservoir studies which were very useful. They donated equipment and did training for our staff. We had more than 1700 people from SOC who were sent to training courses. We had a lot of trouble with water injection and bottlenecks, for example, and they found us solutions. They helped with the establishment of labs, including language labs. The ministry recently terminated them after it launched the licensing rounds.

Q: Was it your choice to become advisor to the minister in Baghdad?

A: No. When the minister visited Basra in early 2008, he offered to promote me but since I didn’t want to go to Baghdad he said I cannot be promoted to deputy minister, but to advisor to the minister. I agreed as long as I had authorities to continue working on the plans for the south fields. We agreed that I will have authority over the upstream and later will be expanded to include the whole sector in south Iraq. However, when he issued the decree he made me advisor but with no authorities. A big sect of people in Basrah and SOC disagreed with the decree and I sensed that there could be trouble coming within the company and outside it. Eventually the minister agreed to give me some authorities that included responsibility for supervising the projects connected with sustaining and increasing the production capacity in the south. But he later called me to the ministry headquarters in Baghdad and I was removed from my base in the south. I agreed to go because my priority was to make sure SOC and its operations continue and that there’s no room for chaos. But I do believe that had I stayed in the south, the situation in the fields would have been different and we could have managed to sustain our oil production even with the ministry stalling. We reached the peak while dealing with a similar situation and we could have done it again.

Q: Why did you turn down the offer to become oil minister and another to be deputy minister in 2006?

A: I don’t have ambitions to become minister. I take my biggest satisfaction in doing the work in the fields and see it grow.

Q: Was it a mistake in retrospect?

A: On the personal level it might have been, but SOC wouldn’t have been able to move to the shape it is in now had I left it in 2006.

Q: Do you think the new Director General of SOC,  Mr Fayyad Nemah, will be able to manage all these challenges even though he has no experience in the upstream?

A: We sat together on the same committee for six months. I explained everything to him then, including the challenges. I hope he will succeed for the benefit of the country.

Q: Do you think the ministry is losing sight by being too politicized in its appointments?

A: I hope lessons will be learnt from the experience of the past two or three years and that priority will be given to boosting the country’s production.

Q: Did the minister complain that you were too independent in the way you ran SOC?

A: No, he never mentioned anything of the sort to me but I think some of the people around him gave him that impression. However, in some cases I had acted and took decisions by myself for the benefit of South Oil Co and without such acts I wouldn’t have had put the company in its great shape and kept production going and pushed it upwards to over 2 million b/d.

Q: If you were minister, what would you change?

A: If I were a minister today I would change the whole system and the manner of work. I would confer daily with the operating companies (SOC, NOC and MOC) and see what problems, constraints and bottlenecks each is facing and where inefficiencies are occurring and try to correct them. I would work on things that are badly needed, like projects, reviewing them on monthly basis, and I would penalize directors who fail to deliver. I suffered a lot over the years in trying to get the work done because I didn’t have the authority to make decisions, and that everything had to go to the ministry for approvals. This is the way Iraqi regulations are. What we need is someone who is able to take decisions fast. There were times when the deputy minister did not even answer the phone when we needed a decision urgently. His secretary would say he is busy and days would pass while we wait for a decision to be made. At the same time no communication could be made with the minister for this would be considered as bypassing the deputy. This is not the way you handle oil affairs in a country.

Q: Can this be achieved in Iraq’s currently politicized situation?

A: I’m a technocrat. I have nothing to do with politics. If political parties have differences among themselves, this should not affect the oil industry or the work of the operating companies as this concerns the whole Iraqi people and it is the main lifeline for the country. I know oil is politics. But why should people working in difficult areas be affected by politics? They are doing their jobs and that is to produce more and they get their benefits and the company is responsible for them regardless of politics or what party is in charge of the ministry. The minister has a role in the cabinet as a politician and he has a role on the technical side where decisions are needed. Previously, we had ministers who were politicians and their deputies were doing the job on the technical side.

Q: Are you disappointed that the recommendations made by the committee which investigated the state of the sector in December and endorsed at the Baghdad conference in February were not followed up, starting with the new appointments?

A: Well, I hope the future will prove the right and the wrong.

Q: What’s your stand on the gas heads of agreement signed with Royal Dutch Shell last year?

A: I’m not against Shell personally but I don’t think the deal is 100% right. I’m not criticizing the whole deal, I’m just saying that certain things need to be adjusted in the final contract.

Q: Do you think the arrangements stipulated under the model contracts prepared for the first bid round could work on the ground?

A: It’s too complicated, particularly the field operating division (FOD) arrangements. I think the second bid round will be much easier and clearer. I think instead of the first bid round, the minister should have gone with five-year long TSCs. I did recommend it at the time. They were covered well and there was no big objection to them. The companies would have done the work needed now very easily.

Q: Do you think he was ill advised?

A: Yes he was. But he’s the minister after all.

Q: Are you worried that SOC might disappear as a result of the 20-year service contracts to be awarded under the first bid round for the major producing oil fields in the south?

A: It will not disappear but it may diminish in size.

The Interview