Iraq considers PSAs in second licensing round

April 6, 2009
Iraq is considering offering exploration blocks under production-sharing agreements (PSA) this year for its second licensing round, according to Oil Minister Hussain Al-Shahristani.

Iraq is considering offering exploration blocks under production-sharing agreements (PSA) this year for its second licensing round, according to Oil Minister Hussain Al-Shahristani. Along with other measures, the PSAs could help the nation boost oil production to 6 million b/d from 2.5 million b/d over the next 6 years, he said.

Speaking at the Organization of Petroleum Exporting Countries’ recent international seminar in Vienna, Al-Shahristani said there are 65 blocks that hold oil and gas potential, but Iraq has not yet decided which blocks to offer under production-sharing contracts.

During his address, he said he wants operators to invest $35 billion to improve Iraq’s fields under the two current bid rounds. Iraq wants “a fair market share for crude oil and gas on the world market,” he added. If its production target is achieved, Iraq would be one of the biggest producers in OPEC after Saudi Arabia.

Iraq’s oil industry has been badly affected by war and mismanagement. For the second bid round, operators are being offered acreage under service contracts, which are expected to be signed by the end of the year (OGJ Online, Dec. 31, 2008). Operators are looking at the fields: Majnoon, West Qurnha Phase 2, Halfaya, Gharaf, Badrah, East Baghdad, Central Euphrates oil fields (Kifl, West Kifl, and Marjan), Diyala oil fields (Qumar, Gilabat, Nau Doman, and Khashim Alahmar), Najmah, and Qaiarah. These are expected to add nearly 2 million b/d of production capacity with an estimated investment of £20 billion.

New oil, gas law

Al-Shahristani said it’s not known when Iraq’s new oil and gas law would be approved by the parliament. The law establishes a sector framework, outlines revenue sharing, restructures Iraq’s oil ministry, and creates an Iraqi National Oil Co. The cabinet passed the draft legislation in February 2007, but differences over provisions and among various political parties have blocked its progress in parliament.

“We are proceeding with the bid round; the ministry of oil has full authority to the round, and any contracts that are signed will be presented to the cabinet for approval,” Al-Shahristani said. Gas production is a key tenet of Iraq’s petroleum policy. It wants to raise production to 70 billion cu m/year and fully utilize associated gas to end gas flaring by rehabilitating partially damaged gas processing plants in the south and constructing new ones.

Plans to improve the gas pipeline network by connecting gas fields under development also need to be implemented. Iraq aspires to become a gas exporter by 2012. “An estimated quantity of 7 billion cu m/year that is regrettably flared now will be utilized for power generation and other industrial usage,” Al-Shahristani said.

The third crucial objective is to raise oil refining capacity to 1.5 million b/d from 600,000 b/d to meet the expected increase in internal and external demand, especially for light products. By next year, two atmospheric distillation towers, with a capacity of 70,000 b/d, in the Durra and Basra refineries are expected to be finished.

Five refineries with a total capacity of 840,000 b/d are to be installed by 2015. These include Nasiriya with a capacity of 300,000 b/d; Kerbala, 140,000 b/d; Missan, 150,000 b/d; Kirkuk, 150,000 b/d; and East Baghdad, 100,000 b/d

IOCs neccessary

Al-Shahristani said relationships with international oil companies (IOCs) would be crucial in realizing Iraq’s objectives, but with its revenues being generated from the oil sector, low oil prices are threatening future investment. A 60% fall from peak oil prices last July has severely damaged Iraq’s budget.

Contracts for successful operators in the first licensing round are expected to be announced at midyear. This was first publicized last year with six giant producing oil fields requiring rehabilitation: Rumaila (north and south), Zubir, West Qurna Phase 1, Misan oil fields, and Kirkuk and By Hassan oil fields. The fields’ production would have to be increased by 1.5 million b/d within 3-4 years under an estimated investment program of $15 billion. “Thirty five IOCs were prequalified and invited to tender for further development of these fields,” Al-Shahristani said.

Overall for these plans, more than $50 billion needs to be invested over the next 5-6 years to reach crude production capacity of 6 million b/d and a refining capacity of 1.5 million b/d.

According to reports, Iraq has invited Chevron Corp., Total SA, and StatoilHydro ASA to present proposals to develop Nahr Umr oil field in southern Iraq. But the security situation continues to be a concern along with tough contract terms and the lack of a formal legal framework for the contracts.