To meet plans for oil production and refining capacity, the Iraqi government must improve contracts with international oil companies and attract foreign investment, says Arab Petroleum Investments Corp. (APICORP), Dammam.
The group also urges the government to emphasize natural gas and water projects for oil-field injection and to further improve security and stability.
Diminishing interest
Of current Iraqi production of 4.5 million b/d, 3.37 million b/d comes from seven large fields covered by service contracts with international companies. Targeted plateau production of those fields totals 7 million b/d, renegotiated down from original targets totaling 11.2 million b/d.
The government wants oil production to reach 6 million b/d by 2020 but faces diminishing interest from international producers.
Its service contracts, APICORP points out, give companies little control over development and provide margins of only $1.15-2/bbl of oil. They have succeeded in raising oil production but failed to stimulate effective management of natural gas.
After crude oil prices slumped in 2014, the government at times had trouble making payments under the contracts.
“It is no surprise that there is an industry-wide trend to reconsider future involvements in Iraq, aided by the fact that neighboring Iran—with the exception of political risk—offers more favorable contracts for fields with similar profiles,” APICORP says.
In an offering of 12 fields under direct negotiation last year, at least 19 small and medium-size companies, most from Asia, have prequalified.
“However, it is evident that Iraq’s comparatively unattractive contracts are weighing on the sector’s potential,” APICORP says.
It notes that Royal Dutch Shell PLC plans to withdraw its 45% operating interest in giant Majnoon field, which produces 220,000 b/d of oil. And it cites “growing apprehension” that the company will relinquish its 20% interest in West Qurna 1 field, operated by ExxonMobil Corp. and producing 470,000 b/d.
Import bill
Refinery repair and expansion would ease budget pressures on the government, which spent $35 billion during 2004-16 on imported oil products, APICORP says, estimating seven operational refineries have combined capacities of 500,000 b/d.
Planned projects would add 1.25 million b/d of capacity, according to APICORP. But only two of them have advanced beyond the bid-invitation stage.
The government has let an engineering, procurement, and construction contract for a 70,000-b/d expansion of the 210,000-b/d Basra refinery. And construction has begun of a 140,000-b/d refinery at Karbala.
“Progress on most projects will be very slow given Iraq’s current difficulty in attracting serious foreign investors,” APICORP says.
