Shell has confirmed that it is engaged in ongoing talks with the Iraqi government over a revised production capacity target at the Majnoon oil field.
“We’re having ongoing exploratory discussions with the Iraqi government, to determine the optimum field development plan for Majnoon,” Hans Nijkamp, Royal Dutch Shell vice president and country chairman for Iraq told Reuters. “But you have to look at it in the bigger context of the optimum aggregate production level for Iraq.”
Shell and its contract partners have been charged with lifting Majnoon’s output from 65,000 bpd at present to 1.8 million bpd by 2017, for a gross fee of just $1.39 a barrel. As part of a new deal Shell is likely to demand a higher fee and adjustments to other contractual provisions, including a reducing of capex at the field, currently slated to total $50 billion by 2017. Shell is not yet recovering its costs for operating the field.
Iraq has finally discarded the 13.5 million bpd production capacity target long branded by the oil industry as unrealistic, and is in the process of settling on a national oil production capacity figure which will give the country significant clout as an oil exporter and fund huge government spending, while managing oil resources prudently and acknowledging the severe limits caused by the country’s poor security, infrastructure and bureaucracy. Iraq is reckoned to formally rejoin OPEC once production capacity reaches 5-6 million bpd, from 3.2 million bpd now.
“It depends on what Iraq wants out of Majnoon. You can develop this field in different ways with different plateau levels and durations,” Nijkamp said on the sidelines of an Iraq Britain Business Council event on Thursday, Reuters reports. “The 1.8 million barrels a day that we bid for was a realistic plateau level that we can responsibly develop and produce – but obviously for a shorter period of time than a plateau level below 1.8 million.”
Nijkamp says Shell is still mulling participating on the fourth auction of oil contracts. “We are in Iraq to stay for the long term – it might be more upstream, maybe gas,” he told Reuters.
