x Abu Dhabi, UAETuesday 25 July 2017

Baghdad signs final deals for biggest oilfields

Lukoil and Statoil sign oil contract with Baghdad, completing the finalisation of oil licenses awarded in Iraq's second post-war bidding round.

Gas flares at the Rumaila oilfield in Iraq.
Gas flares at the Rumaila oilfield in Iraq.

Baghdad has finalised the last of 10 contracts with foreign firms that last year won the right to develop some of the country's biggest oilfields. The Russian company Lukoil and Norway's Statoil yesterday signed the final version of a 20-year development contract for West Qurna Phase 2, a "supergiant" oilfield in southern Iraq containing 12.9 billion barrels of reserves.

The flurry of deals signed last month could set Iraq on the path to becoming the world's top oil producer, said the country's oil minister, Dr Hussain al Shahristani. "We can't find a reason to prevent Iraqi production becoming higher than any other OPEC state or even states outside OPEC. We expect that to happen in the next six to seven years," Dr al Shahristani said on Saturday. Last December, in the second of two landmark auctions of oil licences, the oil ministry awarded seven long-term contracts that could add nearly 4.8 million barrels per day (bpd) to Iraq's oil output, which is currently about 2.4 million bpd. All have been signed on time.

Only one contract was awarded in Iraq's first post-war oil and gas auction, held in July last year, but it was for its biggest oilfield, Rumaila. Agreements to boost production from two more fields offered in the first bidding round were later negotiated and signed. As a result, the first-round deals could add nearly 6.1 million bpd to Iraq's production capacity. In total, the auction winners have promised to boost Iraq's production capacity to more than 13 million bpd by 2023, which could enable Iraq to pump more crude than Russia or Saudi Arabia, the world's top two oil producers.

While noting that actual production would be determined by demand, Dr al Shahristani has forecast that Iraq's output capacity could reach 12 million bpd within six years. "We are not interested to flood the market with oil," he said. "Our future policy is to get higher revenues for Iraq." But many analysts are sceptical that Iraq's oil output could be raised so rapidly. The country's energy infrastructure is in disorder after decades of war and misrule, and security threats are still a huge concern for foreign contractors.

Iraq also faces national elections next month, with no guarantee that the next government will accept the recent deals. Lukoil and Statoil have agreed to lift production from West Qurna 2 by 1.8 million bpd for a fee of US$1.15 (Dh4.22) a barrel. Lukoil will hold a 75 per cent stake in the development consortium, with Statoil holding 25 per cent. @Email:tcarlisle@thenational.ae