Analysis: Ending the ExxonMobil Presence at West Qurna 1

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Ending ExxonMobil Presence in WQ1 Oilfield

Legal-Contractual Discussion with Economic-Financial Analysis

Information indicates that the Iraqi Ministry of Oil (MoO) proposed to acquire (buy) ExxonMobil's participation interest (PI) in the West Qurna 1 (WQ1) oilfield for $300 million, and that the final decision depends on the formation and approval of the new government.

The proposal revives the divergent positions that prevailed within MoO when discussing a similar situation in 2018 relating to the same oilfield.

Click here to download the full report in pdf format.

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq's Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad's biography here.

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Pertamina to Increase Holding in West Qurna 1

By John Lee.

Pertamina, the Indonesian state-owned energy company, will reportedly buy an additional 10 percent stake in the West Qurna 1 oilfield from ExxonMobil.

The Deputy Director-General of the Basra Oil Company (BOC), Hassan Muhammad Hassan, told the official Iraqi News Agency (INA) that the agrreement, "is subject to the signing of the settlement agreement with the Basra Oil Company."

Pertamina previously had a 10 percent holding.

The Iraqi cabinet had previously agreed to allow BOC to take over ExxonMobil's holding in the field, at a price of "up to $350 million."

(Source: INA)

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China “the Only Winner” in this Huge Iraqi Oil Field

Writing in Oil Price, Simon Watkins that the recent approval of the Iraqi National Oil Company (INOC)'s acquisition of ExxonMobil's 32.7 percent stake in the West Qurna 1 oil field is likely to leave China delighted, the U.S. irritated, and Iraq's oil industry still unable to achieve any of its key oil output goals.

Click here to read the full article.

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Iraq to buy Exxon stake in West Qurna 1

By John Lee.

The Iraqi cabinet has agreed to allow the Basra Oil Company (BOC) to take over ExxonMobil's holding in the West Qurna 1 oilfield, at a price of up to $350 million.

Addressing media after Wednesday's cabinet meeting, Minister of Communications Arkan Al-Shaibani (pictured) said the cabinet also allocated an initial payment of $250 million "according to the acquisition amount to cover the Basra Oil Company's share in the work program and the budget for the year 2022 according to new developments provided that ExxonMobil relinquishes its litigation against the Basra Oil Company at the International Court of Arbitration."

Note that other media list the acquiring entity as the Iraqi National Oil Company (INOC).

(Sources: Govt of Iraq, Reuters, S&P Global Platts)

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Deal Signed for 96 new Wells at West Qurna 1

By John Lee.

Iraq has signed a contract with Schlumberger to drill 96 horizontal and diagonal oil wells at the West Qurna 1 field in Basra.

Saad Al-Damen, Vice President of Schlumberger, said the contract will add 200,000 barrels per day to production at the field.

The Undersecretary at the Ministry of Oil, Hamid Younis, said that directional boring covers more area and reduces the water level in the oil wells.

The $480-million deal was agreed by the Iraqi cabinet in March.

(Source: Ministry of Oil)

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KRG Approves DNO Purchase of Exxon Stake in Baeshiqa

By John Lee.

DNO ASA, the Norwegian oil and gas operator, today announced that the Kurdistan Regional Government has approved the Company's acquisition of ExxonMobil's remaining 32 percent interest in the Baeshiqa license, doubling DNO's stake.

In parallel, commerciality has been declared on the license with plans submitted for fast-track development including early production from previously drilled but suspended wells.

DNO has already demonstrated proof of concept of producing these wells through temporary test facilities, having trucked some 15,000 barrels of 40 degree API and 22 degree API oil for export in 2019 and 2020 from the Baeshiqa-2 and Zartik-1 discovery wells.

Following the transaction, the joint venture comprises DNO as operator with a 64 percent (80 percent paying) interest, the Turkish Energy Company (TEC) with a 16 percent (20 percent paying) interest and the Kurdistan Regional Government with a 20 percent carried interest.

Bijan Mossavar-Rahmani, DNO's Executive Chairman, said:

"This acquisition and plans for fast-track development underscore our belief in the potential of the Baeshiqa license and more broadly our long-term commitment to Kurdistan.

"Once we get the green light from the authorities to proceed, first production will be a matter of months rather than years."

DNO's 3,204 meters discovery well, Baeshiqa-2, tested hydrocarbons to surface from multiple stacked Jurassic and Triassic zones. Two zones flowed naturally at rates averaging over 3,000 barrels of oil per day (bopd) of light gravity oil each and another averaged over 1,000 bopd also of light gravity oil. DNO drilled Zartik-1, the second discovery well, 16 kilometers to the southeast of Baeshiqa-2, to a depth of 3,021 meters. This well tested hydrocarbons to surface from several Jurassic zones, with one zone flowing naturally at rates averaging 2,000 bopd of medium gravity oil.

DNO acquired its first 32 percent interest and assumed operatorship of the Baeshiqa license from ExxonMobil in 2018. As consideration for both acquisitions DNO has covered ExxonMobil's share of exploration costs since January 2019 and the seller will receive payment of USD 15 million.

In addition to the 327-square kilometer Baeshiqa license, DNO operates the Tawke license containing the Tawke and Peshkabir fields in Kurdistan. Combined production from these fields averaged 110,300 bopd in the second quarter of 2021.

(Source: DNO)

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Kadhimi “wants US Firm to replace Exxon” at West Qurna 1

By John Lee.

According to a report from Reuters, the Iraqi Prime Minister Mustafa al-Kadhimi has told the press in Washington DC that he wants another American company to replace ExxonMobil when it exits the West Qurna 1 oilfield.

Meanwhile, S&P Global Platts reports that Exxon filed an arbitration case against the state-owned Basra Oil Company (BOC) related to its stalled attempt to sell its stake in the field.

More here and here.

Read also: The Demise of ExxonMobil in the Iraqi Petroleum Sector 

(Sources: Reuters, S&P Global Platts)

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IOC’s Strategic Positioning in Iraqi Upstream Petroleum

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

IOC's Strategic Positioning in Iraq Upstream Petroleum

Much talk have been circulating recently on "Big Oil" abandoning Iraq upstream petroleum projects after they rushed into the country many years ago. How much truth is in this; who is leaving, remaining and planning a comeback; why and what material evidences are available to provide verifiable realistic explanation are some of the topics this brief intervention attempts to address.

IOCs positioning in Iraq upstream petroleum have seen a dramatic shift since a Grand Opining Big Push Policy- GOBPP was pursued in 2004; offering IOCs opportunities to achieving unprecedented expansion in the petroleum production capacity during short period.

Their involvement and strategic positioning went through three phases: the first, 2004 to end 2008, comprises many memoranda of understanding/cooperation (MoU/Cs ) in search for foothold and as springboard for further opportunities; transparent competitive bidding phase, June 2009 to May 2012, includes four bid rounds and, third phase covers contracts implementation that began from January 2010 up to date.

Ministry of Oil- MoO concluded some 40 MoU/Cs with IOCs from 23 countries, with overwhelming dominance of the US (9); Japan and Norway (4 each); China, UAE, UK and Canada (2 each) and one company from 16 countries.

For IOCs, MoU/Cs represent invaluable direct contact with Iraqi staff and professionals at all layers of responsibility and access to most archives and database relating to upstream petroleum; that helped IOCs exploring where and what they could do to chart their way towards business in Iraq's upstream petroleum and beyond, i.e., to plan their strategic positioning in the sector. Some IOCs had their MoU/C terminated and were blacklisted from further involvement in upstream petroleum projects, due to their agreements with KRG in violation of the government declared policy.

MoU/Cs contributed in formulating and development of a model contract, and by the time they were terminated MoO succeeded, through direct government-to-government talks (with China), in converting Alahdab oilfield from production sharing to service contract. That conversion presents the model for what MoO offers: a long term service contract not a production sharing contract; an outcome many IOCs had not hoped for and probably impacted their decision for further undertaking.

The first bid round, for brown oilfields, was held end June 2009, followed by three bid rounds for green fields, gas fields and exploration blocks respectively; the last was convened end May 2012.

120 IOCs participated in the qualification process for the bid rounds, 55 from 27 countries were qualified: Japan (9); USA (7); Russia (5); China and UK (4 each); Australia, India and Italy (2 each), and 19 other countries with one company each; a different profile from phase one with obvious strategic positioning implications.

The outcome of the four bid rounds and Alahdab are: 14 oilfields contracted to 15 IOCs from 12 countries; a consolidation of strategic positioning. Total contracted plateau production was 12.3mbd and their total proven reserves ca. 67 billion barrels (58% of the country's proven reserves at that time). Three gas fields were contracted to 3 IOCs from 3 countries with total plateau production of 820mcfd and proven reserves of 11.2tcf. Finally, four exploration blocks were contracts with 7 IOCs from 5 countries resulting in discovery of Fayha and Eridu oilfields.

The contracted plateau production of 12.3mbd was IOCs making that proven to be unrealistic and unattainable, thus, consequently revised downward repeatedly!!

During the second phase many meaningful signs for significant shift in IOCs strategic positioning began to emerge, the most apparent consolidation was Russia.

The third phase, i.e., contracts implementation period, witnessed the most dramatic effective and lasting shifts in IOCs strategic positioning.

A complexity of combined reasons had contributed to such an outcome; some are related to IOCs themselves, others related to the Iraqi side (entities, policies and circumstances), while the rest are related to a variety of international factors and geopolitical considerations. Space limitation prevents from indulging in the details of relevant data, facts and documents, but it is useful to mention the most impacting among them: Fracking revolution in the US; ISIS and oil price collapse in mid-June 2014 that inflicted serious blow to Iraq fiscal, security and developmental efforts; OPEC+ impact on Iraq production; Covid-19 and finally energy/green transition and climate change debate.

However, it is vital to highlight briefly the IOCs that strengthened or weakened their positions during this phase.

In the context of Iraqi GOBPP, strategic positioning is taken here to mean IOCs persistent, competitive, enhanced and long-term underrating in Iraq upstream petroleum. Three dimensions manifest IOC involvement and its strategic positioning: horizontal (in multi-fields), vertical (the participating interest-PI in the fields) and volumetric (in terms of proven reserves and production due to field development).

From November 2013 China began enhancing its presence in the country through consolidating CNPC , CNOOC, ZhenHua , Sinopec , UEG and probably CPECC, which   invests in utilizing all associated gas produced in Missan Province . In addition to the above, there are many Chines service companies that are involved in upstream petroleum activities such as drilling, supply and construct surface installations, pipelines, field management among others.

Russian Lukoil enhanced its position vertically horizontally and volumetric in West Qurna 2-WQ2 oilfield and in exploration Block 10 that led to Eridu oilfield discovery; Lukoil found other reservoirs beyond the field's current borders and thus requested to expand Eridu field. Surprisingly, the Oil Minister reportedly said recently Lukoil intends to sell its PI in WQ2 to a Chines company!

Other Russian IOCs with bid round contracts include Gazprom (operator of Badra oilfield) and Bashneft/ Rosneft (for Exploration Block 12), KRG not included here.

In addition to Chines and Russian IOCs Japanese companies increased their presence as well: Japex (Gharraf oilfield); INPEX (Exploration Block 10/Eridu oilfield) and Itochu bought entire Shell' PI (20%) in WQ1.

Against the consolidation of the Chines, Russian and Japanese companies, other IOCs lost or weakened their presence in upstream petroleum; these include Big Oil- as ExxonMobil, Shell and Oxy and medium-small size companies such as Petronas, Kogas, Kuwait Energy, TPAO.

Occidental Petroleum relinquished, in 2016, its PI in Zubair oilfield to South Oil Company (now Basra Oil Company), due to its decision pulling out from projects in the Middle East for financial reasons.

ExxonMobil demise began almost ten years ago soon after it had attained significant consolidation; a demise of its own making!! Apart from the contribution of the Iraqi factors ExxonMobil faced and facing many other challenges that exacerbate its decision to abandon Iraq. These include restructuring its international profile; energy transition (away from fossil-based to renewable-energy) environmentally-conscious; shareholder revolts, expulsion of ExxonMobil representative from EITI'MSG due to position regarding Dobb-Franck issue and the forthcoming SEC environmental compliance rules.

Royal Shell story is not very different from that of ExxonMobil. Shell launched initially a powerful strategic positioning, resisted the temptation of engaging with KRG petroleum and diversified its portfolio in oil, gas and petrochemical projects. Now it has much weakened role; withdrew from Majnoon oilfield, sold its PI in WQ1, rumors that it contemplate leaving Basra Gas Compan- BGC , whose  HoA was signed in 2008 but it did not deliver the contracted target, and Nibras petrochemical project, with MIM & MoO, draggeed for too many years without any prospect.

Again, Shell decision to leave WQ1 and Majnoon oilfields and possibly BGC was not entirely due to contractual and working conditions in Iraq; one possible explanation relates to Shell' overall plan to restructure its global business, following its takeover of British Gas Group- BGG. Also Shell faces legal action; A Dutch court ruled, recently, that Shell will have to reduce its carbon emissions by 45 percent from 2019 levels by 2030.

BP has only one engagement- Rumaila oilfield, with almost equal PI with CNPC (while during the June 2009 bidding round BP' PI was double that of CNPC). Recently, BP decided to spin off its involvement in Rumaila into a stand-alone company, a "ring fencing practice", for reasons relating to diverting its global assets and investment plans.  Though this move is more structural and organizational in nature that has, contractually, no effect on Iraq, it, nevertheless, could indicate possible departure from Rumaila sooner or later.

Total, rebranded TotalEnergies, have very modest PI in only one oilfield- Halfaya, is trying a comeback to Iraq through concluding HoA comprising four major projects, three of which are part of SIIP that Iraq wasted too many years discussing with ExxonMobil!!

Surely, IOCs strategic positioning has significant implications for petroleum sector and the prospect of the entire economy. There has been a tendency for some to be highly selective by focusing only on one Iraqi based, real reason, such as harsh contractual terms; type of contracts; corruption, resource mismanagement and security conditions among others. While all these are real and effective, they are absolutely not the only factors behind IOCs shift and change of priorities as there is a complex wed that one should be aware of; 20 IOCs have recently warned for tax violation and IOCs that lost their strategic positioning inside Iraqi petroleum had themselves contributed to that outcome.

Moreover, global energy/green transition and international geopolitics have powerful ramifications though the debate is, as usual, not conclusive. While IEA recent report could have effective impact, REN21 new report raises doubt; and such wide divergence suggests oil remains needed much longer than some thinks.

Click here to download the full report in pdf format.

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq's Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad's biography here.

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Iraq may Buy Exxon stake in West Qurna 1

By John Lee.

Press reports quote Iraq's oil minister as saying that Iraq could buy ExxonMobil's 32.7-percent stake in the West Qurna 1 oil field.

Ihssan Abdul-Jabbar Ismail told a news conference on Monday that the government might purchase the stake via the state-owned Basra Oil Company (BOC).

BOC previously took over the Majnoon field from Shell and Petronas at the end of June 2018.

It had previously been rumoured (see here and here) that China would take over Exxon's holding in West Qurna 1.

Earlier this year, ExxonMobil sold its share in the Baeshiqa license in the Kurdistan region of Iraq to DNO.

(Sources: Reuters, Bloomberg)

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