Last Updated: Wed Jan 12, 2011 16:54 pm (KSA) 13:54 pm (GMT)

Iraq seeks to boost oil reserves through gas round

Experts believe that Iraq’s western province of Anbar hold up to 100 bln barrels in undiscovered oil reserves
Experts believe that Iraq’s western province of Anbar hold up to 100 bln barrels in undiscovered oil reserves

Any new oil reserves discovered by companies that win gas exploration contracts in a fourth energy bid round planned by Iraq will be used to maintain and boost reserves, an Iraqi oil official said on Wednesday.

Abdul-Mahdy al-Ameedi, head of the Oil Ministry's licensing and contracting office, told Reuters the new reserves would be important when it eventually comes for the OPEC oil cartel to set an export quota for Iraq.

Ameedi said the ministry had started to prepare for the bid round, which would offer service contracts and "definitely not production sharing contracts."

 The oil reserves in the exploration rounds will be used to maintain and boost Iraqi reserve levels and this will have a significant importance for future Iraqi quotas in OPEC 
Abdul-Mahdy al-Ameedi, head of the Oil Ministry's licensing and contracting office

The western province of Anbar, where some experts believe up to 100 billion barrels in undiscovered oil reserves lie beneath unsurveyed desert sands, will be one of around 12 areas opened up to exploration, he said.

"The oil reserves in the exploration rounds will be used to maintain and boost Iraqi reserve levels and this will have a significant importance for future Iraqi quotas in OPEC," Ameedi said.

The bid round, expected to take place this year, will be Iraq's fourth since the 2003 U.S.-led invasion. In two previous rounds it auctioned off service contracts on 10 oilfields -- including some of the world's largest -- and three gas fields.

The deals have the potential to more than quadruple Iraq's crude output capacity to 12 million barrels per day.

Ameedi said output at the end of 2011 should exceed 3 million bpd compared to 2.7 million currently.

He said that expected production in four to five years of 5 million to 6 million barrels per day would start to run down Iraq's crude reserves, currently estimated at 143.1 billion barrels, and it will be important to replace the lost deposits.

It will also be important for Iraq to increase its reserve levels to justify the higheqt possible OPEC quota.

Iraq has been exempt from an OPEC export quota since the first Gulf War but expects the organization to start discussing limits to how much crude it will be allowed to ship once its production goes above 4 million bpd.

Interest from companies

Iraq expects the fourth bidding round to attract more interest from global oil majors than its first three, said Oil Minister Abdul Kareem Luaibi.

"Definitely the participation will be much higher given the improvement in the security situation in the country and the more stable political situation," Luaibi told reporters.

Iraqi oil officials said oil companies qualified for the previous energy tenders would be automatically prequalified for the fourth, and other companies would be welcome to seek qualification.

Ameedi said the 12 gas exploration blocks would deliberately not be that massive, meaning small and medium-sized oil firms could compete because the required investment would not be prohibitively high.

"We want to give more companies a chance to participate in the fourth bidding round," Ameedi said.

Oil companies recover costs

 It's a key milestone not just in terms of field development but also project economics. It's the point at which they are entitled to service fee payments in cost oil and profit oil. It triggers the start of those payments 
Abdul-Mahdy al-Ameedi, head of the oil ministry's licensing and contracting office

Output at Iraq's Zubair oilfield has reached 265,000 barrels per day, enough to allow oil companies led by Italy's Eni to start recovering their investment costs, an Iraqi oil official said on Wednesday.

The announcement comes a day after officials said production at the supergiant Rumaila field also would allow developers BP and China's CNPC to start recovering their costs.

Zubair and Rumaila are among a series of massive oilfields Iraq auctioned off to international oil firms in 2009. The contracts could in theory take Iraq's oil capacity to 12 million bpd, which would rival leading exporter Saudi Arabia.

The increase in production at the two fields has boosted Iraq's overall crude output to 2.7 million bpd -- the highest level in two decades for the war-ravaged nation.

That has also helped increase exports to an average 2.1 million bpd so far in January, providing much needed growth in income for Iraq as sectarian bloodshed eases and the country starts to seek ways to rebuild.

The service contracts awarded to the companies stipulate that the firms start to be paid and to recover costs once they boost production by 10 percent above agreed baselines.

Zubair's output compares with baseline production of 184,000 bpd.

Eni, Occidental Petroleum Corp and Korea Gas Corp, working Zubair, and BP and CNPC developing Rumaila, have passed the milestone, said Abdul-Mahdy al-Ameedi, head of the oil ministry's licensing and contracting office.

"Both Eni and BP are qualified to retrieve investment costs," Ameedi told Reuters. "We will pay them this year."

Ameedi did not elaborate on the timeframe for payment or clarify whether the companies were expected to seek payment in crude or cash.

Alex Munton of Edinburgh-based consultancy Wood Mackenzie said the fact BP had exceeded the cost recovery level was very significant.

"It's a key milestone not just in terms of field development but also project economics. It's the point at which they are entitled to service fee payments in cost oil and profit oil. It triggers the start of those payments," he said.

"Whilst 10 percent reflects good progress over a 12-month period, BP will actually need to move more quickly than that over the next five years to get to their plateau target. They'll be looking at getting around 15 percent per annum."

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