Iraq’s Ministry of Oil is said to be holding bilateral negotiations with three IOCs and a possible fourth for the development of the Nahr Bin Umar oilfield in Iraq.
It is yet another step being made by the Iraqi government in its quest to ramp up national production, with two ongoing licensing rounds and a recently signed JV deal with the UK’s Mesopotamia.
The latest development will also be cause for much interest due to the field being singled out in recent weeks for rapid development by Iraq’s state-owned South Oil Company, with a drilling services contract being tendered.
The three IOCs bidding for the 6.5 million barrel Nahr Bin Umar field have been named as France’s Total, US-based Chevron and Norway’s StatoilHydro, while the fourth has not been identified. The field currently produces around 50000 bpd, but could see an added production capacity of 450000 bpd within a few years.
“The field has never been properly developed, with production after the 2003 invasion being as low as 10000 bpd, before it was ramped up to current levels in late 2007 and early 2008,” explained Samuel Ciszuk, Middle East energy analyst, IHS Global Insight.
Nahr bin Umar field was initially to be part of the second licensing round, but was removed in favour for smaller fields located in Iraq’s border regions, “in order to bring those field’s rapid development and defuse fears that Iraq’s neighbours are stealing from its reserves,” said Ciszuk.
It seems that now, however, the field is being targeted by a capacity-boosting programme to reverse the country’s declining production output.
“Iraq’s actual ability to undertake swift development is questionable after decades of political mismanagement, brain-drain, and underinvestment. Furthermore, the announcement of a 10-well drilling programme on the field (with a connected tender) and political pressure from members of parliament and Kurdish factions to follow through on the Iraqi-only programme, renders news that the field is now being offered to IOCs confusing and politically controversial,” said Ciszuk.
A report from IHS Global Insight has said that Iraq is now willing to give IOCs up to 75% takes in their upstream projects, and therefore securing a clear management role of the projects.
“The political process necessary to build IOC confidence in Iraqi contracts remains at an impasse, making it hard for IOCs to sign long-term contracts of questionable legitimacy,” explained Ciszuk.
“Improved terms are a necessity and the reported measures are a step in the right direction, as the initial terms put all responsibility on meeting tight project deadlines on IOCs, while giving the actual management and implementation control in the joint ventures to the Iraqi partners.
“Nevertheless, the irony is that with every improvement of the terms in favour of IOCs, the terms become more politically controversial in the eyes of a population and polity largely skeptical of foreign involvement.”
With a less than stable legal framework in place for the deals to take place and a lack of national oil law, Ciszuk believes this may be a big problem when governments change during the course of the IOCs’ long-term contracts.
“Some of the IOCs have requested that Iraq’s parliament should approve the contracts while there is no oil law, in order to raise the contracts’ legitimacy – a step the Iraqi government has refused to take, knowing that the contracts are likely to prove too divisive and/or become deadlocked in the political process, as different groups jostle for influence in the fractioned body,” he said.
