Exxon Walks Away From Iraq Seawater Project

Despite Baghdad’s push to drum up oil sector investment, foreign majors continue to balk at the opportunities on offer. Exxon’s decision to walk away from a major project has profound implications for Iraq’s ambitious upstream expansion plans.

ExxonMobil has exited talks with Iraq’s oil ministry for one of the sector’s most critical infrastructure projects – the long-delayed Common Seawater Supply Project (CSSP). The project is essential if Iraq is to secure major production gains from the country’s largest oil fields in its southern Basra oil heartland. Certainly, without CSSP Iraq’s ambitious overall output target of 6.5mn b/d by 2022 looks unachievable.

Negotiations between the oil ministry and the Exxon-PetroChina partnership never appeared to be progressing towards an agreement. Basra Oil Company (BOC) official Salah Mahdi Abdulah said last November that he hoped for a deal in Q1 this year ( MEES, 3 November 2017 ). But Iraq’s oil minister Jabbar Al-Luaibi cast doubt on the deal (weeks after announcing it was in its ‘final stages’) the following month, proclaiming that if a deal with Exxon were not reached the project would be put back on offer in February ( MEES, 5 January ).

Basra Oil Company (BOC) chief Ihsan Isma'il finally acknowledged that ExxonMobil is out of the project on 20 June. Speaking with reporters on the sidelines of the Opec Seminar in Vienna, Mr Isma'il said BOC is no longer in talks with Exxon and that a tender to award the EPC part of the project as a stand-alone is already well underway.

Mr Isma'il says BOC has whittled down seven bids to a shortlist of just three. He says a contract will be awarded by the end of next month; given the recent history of delays for CSSP and other major projects in Iraq, there is a strong risk of this deadline coming and going with no progress.

Phase-1 targets 5mn b/d of seawater injection, which can be extended to 7.5mn b/d at a later date. The scope of the CSSP has been expanded to cover the Nasiriya oil field as well as those in Basra.

Even if Iraq is able to secure a contract next month, Mr Isma'il’s assurance that ‘government funds’ will finance the project doesn’t exactly inspire confidence given Baghdad’s checkered history of drumming up state cash in a timely fashion. The CSSP itself was initially slated for a 2013 completion before the target date was pushed to 2018 ( MEES, 7 June 2013 ). Even if everything somehow goes smoothly from now, 2022 looks optimistic.

A MISSING CORNERSTONE

Baghdad’s failure to complete (or even commence) the CSSP is a major exacerbating factor behind many of its other woes in recent years.

BP has done its best to circumvent the absence of CSSP, by unilaterally developing its own 1mn b/d Qarmat Ali plant. This supplies water for injection into the 1.5mn b/d Rumaila field. But further substantial gains at Rumaila towards its 2.1mn b/d plateau production target (PTT), and at other major Basra fields, requires CSSP.

Shell’s 220,000 b/d Majnoon neatly exemplifies the problematic reality of kicking development of the seawater project down the road. Stakeholders initially targeted 1.8mn b/d by 2020. Shell tried to revise its PPT down to 1mn, but Baghdad would not acquiesce. Fed up with a performance that the company acknowledged as “embarrassing,” Shell is now walking away from the field altogether.

GOING IT ALONE?

Baghdad is maintaining (at least outwardly) a bold posture amid the major’s pullout. BOC is set to take over Shell’s 44% Majnoon stake next week. Mr Luaibi told reporters in Vienna he expects BOC to “far exceed Shell’s program.” The ministry is looking to services firms to fill Shell’s void, having signed two-year project management contracts with China’s Anton Oilfield Services Group and Houston-based KBR last month ( MEES, 18 May ). Petrofac has also signed an EPC at Majnoon.

A handful of services firms is certainly a downgrade from a global behemoth like Shell. But output is nonetheless set to rise. Halliburton and Chinese firm Zhongman Petroleum (ZPEC) drilled 12 wells at Majnoon in 2017, so output at the field will trend upward in 2018 ( MEES, 25 May ).

Shell also received regulatory approval in March to sell its 19.6% stake in the ExxonMobil operated 450,000 b/d West Qurna-1 development to Japan’s Itochu for $406mn ( MEES, 23 March ).

The oil ministry is increasingly keen to turn to Iraq’s several state oil companies to ‘operate’fields with help from services firms amidst the IOC pullout. Mr Isma'il confirms this week that talks with French major Total to takeover 90,000 b/d Nasiriya oil field are ‘no more.’ Field development was to have been offered in tandem with a 150,000 b/d refinery project ( MEES, 16 February ), but now state firm Dhi Qar Oil Company will manage upstream development, whilst the refinery will be offered separately.

The move doesn’t exactly inspire confidence given the NOC’s failure to maintain output at its flagship field. Iraq Oil Report this week quoted a senior Dhi Qar official saying production could ‘stop entirely’ at the 28,000 b/d Subba field just months after its start up due to insufficient funding and technical difficulties.

SMALL VICTORIES

With Iraq’s firms struggling to hold up their end of the bargain, little surprise then that Baghdad is keen to overstress their successes in securing new deals with major foreign firms.

Mr Luaibi repeatedly talks up BP’s (re)entry at Kirkuk where the British major is currently assessing reservoirs, adding at Opec that the ministry shares a ‘good harmony’ with Rosneft that could possibly see the Russian giant (in which BP has a 19.75% stake) farming into Kirkuk. But BP has repeatedly toned down its role at Kirkuk ( MEES, 19 January ).

The minister also flagged up a recent letter of cooperation signed with Chevron earlier this month to ‘do several things.’ Chevron’s interest is certainly a positive sign, but non-binding agreements are easy and the devil usually lies in Iraq’s tough conditions.

The only concrete deals of late were in Iraq’s fifth licensing round, when six blocks were awarded to foreign firms in April. But the winning firms were on a much smaller scale - two Chinese minnows, Geo-Jade Petroleum (2 blocks) and United Energy Group (UEG; 1 block) and the UAE’s Crescent Petroleum (3 blocks; MEES, 27 April ).