Dow Jones Newswires: Shell In Talks With Iraq Govt On Oil Contracts

DUBAI (Dow Jones)–Royal Dutch Shell PLC (RDSA) has approached the Iraqi oil ministry to explore options for a contract to help the country double output at a field in the oil-rich south, oil officials told Dow Jones Newswires.
Since last year the Anglo-Dutch major has been working on technical studies on the Maysan oil field in the south and the large Kirkuk field in the north, as well as helping draw up a natural gas master plan, officials said, adding that BP PLC (BP) is carrying out a study of the Rumeila oil fields in the south.
“Shell is eyeing a service contract to carry out oil field development in Iraq,” said one ministry official.
Maysan oil field currently contributes 50,000 barrels of oil a day to the country's total estimated production of around 1.5 million-1.9 million b/d, but Shell has detailed plans of how to boost the field's output to around 100,000 b/d, the officials said.
“We are currently involved in three studies, one of which is Maysan. They are a service to the oil ministry,” spokeswoman Caroline Wittgen said, declining to comment further.
Iraqi oil officials said the most complete information on Iraqi fields is on Maysan, hence Shell's interest in contractual options there.
Shell's targeting of the Maysan field, officials said, puts the company ahead of its peers when it comes to development activity in Iraq, where a tough security situation precludes operations for most oil companies.
Small firms are operating in the Kurdish region, where good security provides a relatively stable operating environment, but contracts awarded by the regional goverment there remain in a precarious position in terms of what the country's final constitutional will allow.
Now, as Middle Eastern banks rush to open branches in Iraq to position themselves for a potential business boom, oil companies, too, are jockeying for position.
Iraq aims to become one of the world's leading oil producers, with output exceeding 5 million b/d.
Oil officials said firms besides Shell are already closing in on deals with the Iraqi government, or setting up shop in Baghdad.
Norsk Hydro ASA (NHY) Chief Executive Eivind Reiten said the Norwegian firm is planning to open a very small, third-party-operated representative office in Baghdad soon.
Reiten said the company has “no plans to open a bureau for some time,” and the decision is based on overall business conditions in Iraq rather than just security concerns.
Like Shell and BP, Hydro is studying several existing reservoirs in partnership with the oil ministry, said spokeswoman Kama Holte Strand, but she declined to name the fields being examined.
Exploration and development is the logical progression for Hydro, Strand added.
“Of course, we are interested in doing things there in time, and we are studying to see what is possible (with the reservoirs),” she said.
CEO Reiten added the company is making “good progress” on a memorandum of understanding on the reservoirs, and emphazised that it is part of a broader agreement between Iraq and Norway.
He wouldn't comment on possible development plans or a timeframe for the deal to be finalized. Asked if Norsk Hydro had approached the Iraqi government to sign an oil services deal similar to Russia's Shtokman, Reiten said the company wouldn't exclude that scenario, “but it's not a priority.”
An Iraqi oil official said Statoil ASA (STO) is also set to sign a new memorandum of understanding, building on the firm's field studies.
Shell, as it presses the ministry for a development contract, is about to move its base for Iraqi operations from its regional Dubai headquarters to Amman in Jordan to smooth its path into Iraq.
For some Iraqi officials, foreign investment can't come fast enough.
One senior official said the country's oil development stalled last year, when the ministry failed to drill new wells, start projects or even complete repairs.
“There has been a hiccup in oil reconstruction in general,” he told Dow Jones Newswires.
The official said the Shell and BP studies are almost complete and the oil majors will soon give the ministry detailed assessments of what is needed to boost crude production.
The oil ministry plans to achieve a marked increase in investment in development activity, said Assem Jihad, a spokesman for the oil ministry.
It plans to award contracts for oil-field development in both the north and south of Iraq, and has budgeted for the drilling of between 100 and 200 wells.
The ministry has a budget of $4.5 billion for development this year, but most of this cash goes into fuel subsidies, so the government will have to tap foreign capital to meet its plans to boost output capacity by 1 million b/d to total 3 million b/d this year.
Many of the estimated 30 firms that are carrying out studies of Iraq's fields are expected to follow Shell's lead and bid for development contracts, but all will depend on the new government.
Last week's reappointment of incumbent Prime Minister Ibrahim al-Jaafari should reignite the search for a government two months after Shi'ite groups won most votes in the general election.
The ministry has yet to decide if the fields currently under study will be offered on a service contract basis, which would still need some form of parliamentary approval, or whether the contracts will be similar to the development contracts awarded last year for the Khormala, Himreen and Subba/Luhais fields, in which foreign firms provided equipment to local engineers.
Oil companies and officials said contracts to boost productivity at existing fields will be able to sidestep the legal framework that the new government is expected to draw up to regulate investment in new fields.
That will be needed to turn Iraq into an oil superpower.
The oil officials say these contracts are now bearing fruit as the ministry's engineers have just started work on boosting output at these fields, with equipment provided by the foreign firms.

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