Higher oil prices helped Iraq earn $34.1 billion in oil revenue in the first five months of this year, a 34% increase over the governmentâs budgeted revenue."This means that there is a surplus in the first five months of $8.7 billion," said Deputy Prime Minister Hussain Al-Shahristani, who added that government calculations had earlier estimated $25.4 billion in revenue for the period.The announcement came as the country is considering a downward revision to its earlier goal â set by Al-Shahristani â of increasing its oil production capacity by nearly 9.35 million b/d by 2017 from the current 2.65 million b/d.Iraqâs Oil Minister Abdul-Kareem Luaibi, reversing earlier policy statements, said his country is now considering revisions to the prior goal of increasing oil production capacity to 12 million b/d."We are studying several scenarios for more economic production rates, we can reduce the production and increase the period to reach the plateau targets," said Luaibi. "For example, instead of producing 12 million b/d for 7 years, we can produce 8 million b/d for 13 or 14 years," the minister said, reversing earlier remarks by Al-Shahristani, Iraq's deputy prime minister for energy.Last month, Al-Shahristani said Baghdad believes the goal of "12.5 million bpd ⦠is realistic and feasible, as currently there are no signs we will not be able to achieve this goal in a timely manner."Even as late as June 4, Al-Shahristani was quoted as saying that "export terminals and pipelines will not be the obstacle" to the country's increased exports.After two bidding rounds in 2009, Iraq signed a series of agreements with international oil firms in an effort to increase its production capacity to 12 million b/d by 2017 from the current 2.7 million b/d or so.But analysts have questioned whether Iraq can actually reach its stated target of 12 million b/d due to infrastructure constraints, suggesting that a goal of 6-7 million b/d might be more realistic.The US Department of Energy noted recently that Iraq faces "many challenges" in achieving the production targets it has set, largely because of the "lack of an outlet for significant increases in crude oil production."In March, the International Monetary Fund also cast doubt on Iraqâs production targets by drawing attention to the need for vast investment in port facilities, pipelines, desalination plants and storage facilities. However, Al-Shahristani countered by saying that his country's development plans for oil fields were proceeding "normally" and even faster than contracted.Al-Shahristani said there were no major delays in Iraq's new export facilities being built to handle the extra crude expected from a series of agreements signed with international oil companies."We are comfortable that new [oil] export outlets will be ready to received extra crude according to the plans to boost oil production with the contracted oil companies," he said (OGJ May 23, 2011).Meanwhile, Luaibi said his ministry had not yet approached oil companies over renegotiation, but he insisted that the proposed changes would not have adverse effects on the companies."In general, the oil companies will not be hurt,â said Luaibi, adding that âwe can increase the period to reach the plateau targets to 13-14 years.âBut analysts said that the contracts are production driven, and that oil companies receive fees for each barrel they produce. Reduction in the countryâs overall target could mean lower returns for oil companies, at least in the short term."The point about increasing the plateau period, is that sufficient to compensate the IOCs (international oil companies) for lower production? We have to wait and see," said one oil executive working in Iraq."Yes, potentially, it gives the same number of barrels â lower plateau but longer years â but money has time value ... It is not a very simple and straight forward calculation."IHS Global Insight analyst Samuel Ciszuk said that Iraqâs open acceptance of a much lower target highlights the challenges facing the country in addition to renouncing its ambition to rival Saudi Arabia as a swing producer."Few if any forecaster, even outside of the energy industry, has really planned for Iraq to come anywhere near its 12 million b/d production target, meaning that on the face of it the Iraqi target slash should have few implications on the markets," Ciszuk said.Contact Eric Watkins at
[email protected]