Abdul Karim Al-Luaybi

Senior Deputy Oil Minister for upstream Abdul Karim al-Luaybi speaks to Ruba Husari, editor of Iraq Oil Forum in Baghdad Aug.18.

Q: How are your upstream plans progressing following the first bid round in June and as you prepare to practically launch the second bid round in Istanbul Aug.25?

A: We are going ahead with parallel plans. Plans under the national effort on one hand are being executed in cooperation with Iraq Drilling Co (IDC) to achieve our targets for development and increase output, and developing some of the fields that have not been awarded in the first bid round including Akkas, Mansouriah and Bai Hassan fields on the other hand. We are also forging ahead with the licensing rounds with the expected road show in Istanbul Aug. 25 to present the fields on offer and we expect to launch a third round for exploration blocks by the end of the year.

Q: How many blocks will the round include and in which parts of Iraq?

A: It is still too early to say. We are still going through the process to determine how many blocks to offer and in which areas. People who deal with the technical side of the fields will come up with recommendations.

Q: Do you expect to offer more EPC (engineering, procurement, construction) contracts for fields being developed by the national oil companies?

A: Yes, we are now working on Touba and Rafidain. We think the two fields can be developed within 3 years in one phase and we are currently preparing the specifications for the EPC tenders. We will invite companies who have done studies on those fields under memoranda of understanding or who have looked at those fields under the previous regime. There were several companies who studied those fields previously such as Petronas, Sinochem, Sonatrach and Indian companies. We expect to invite about 3 or 4 companies to bid for each EPC contract.

Q: How much increment to Iraq’s total output will the two fields contribute?

A: We expect Rafidain to produce about 100,000 b/d while Touba varies according to the previous studies between 100,000 b/d and 300,000 b/d. We will know better in the next few weeks once the technical requirements for each are defined.

Q: Do you expect this kind of contracts to attract interest from oil companies when their main interest is actually a full field development contract?

A: We invited the companies to express interest and some have already answered positively, others are still to answer. We will see how many are interested. I agree that some might not be interested.

Q: How will this be different from the Nassiriya offer? My understanding is that companies were invited to make proposals for Nassiriya but they were not given clear definition of Iraq’s short term plans for the field.

A: We will fix the target for the fields in order for the offers to be comparable and so that the companies have similar criteria. We will invite them to make proposals based on the development plan.

Q: You have chosen Nippon to develop Nassiriya but at the same time the financial issues surrounding the contract have taken too long to agree and are yet to be agreed. Why are the financial aspects so complicated?

A: In those contracts we imposed one condition: that payment is made after production starts and up to 50% of production. The reason is that we need to guarantee revenue to the state from those fields. The second issue related to payment is that it can only start after five years from the start of the effective date of the contract even though the EPC contract takes just two or three years to complete.

Q: I understand Nippon asked for payment guarantees that could take the form of loans from Japanese banks. Would the ministry agree to this arrangement?

A: No. The government said the ministry of finance will give this guarantee and there will be allocations for the repayments in the national budget. And since the annual budget is legislated into law, that should give them sufficient guarantees.

Q: Did they agree?

A: We have a meeting with them next week. But they are fully engaged and their technical staff are doing a survey on the ground at the moment in coordination with South Oil Co.

Q: Would you tender EPCs for the two gas fields of Mansouria and Akkas?

A: We have a time pressure because the gas is urgently needed for electricity. There’s a new power plant in Haditha planned which will take gas from Akkas. We have equipment that was purchased for the development of the Kor Mor gas field which will be diverted to be used in Akkas and Mansouria in order to feed the power plants there as soon as possible.

Q: How long will the gas processing equipment take to install at the two sites?

A: About 18 months. We are conducting seismic work at Akkas at the moment. We already have four wells drilled there in the past by a Syrian company that will be rehabilitated. Two other wells need completion. The six wells will hopefully produce about 100 MMcf/d.

Q: What’s the state of the joint venture that IDC concluded with Mesopotamia Petroleum? Has it really been cancelled?

A: The joint venture agreement was cancelled because there is a clause in the agreement that annuls it if the partners fail to arrange financing for buying new rigs within a limited period of time. They did not succeed so as a result the deal is off. That’s a fact.

Q: But you lost a lot of time as a result and IDC is the backbone of the field development.

A: When we decided to go ahead with this joint venture about two years ago, companies didn’t want to come to Iraq and didn’t want to participate in joint ventures with us. By comparison, today there are a lot of companies knocking on our door every day and offering to partner with us. Two of the big and known service companies came to see me here in my office last week. It’s true Mesopotamia was not a known company with a track record but we had to go with them at the time because of the conditions of work in Iraq at that time.

Q: So what’s next?

A: We are now preparing for a new joint venture with new partners and at the same time we are going to lease new rigs to speed up the work. We will probably tender for eight new rigs to lease. IDC purchased 24 rigs on its own and 14 of these have already been delivered. Of these, five rigs are already drilling in the fields, three are being built and six will be assembled soon. The rest of the rigs should be delivered in the coming months.

Q: Who are the potential partners of IDC in the new joint venture?

A: It could be one or two of the big ones. This is still under negotiation. The big service companies are known and some have already leased land in southern Iraq recently to build a base for their work there.

Q: With the development of new fields, there will be pressure on the existing infrastructure. What are your expansion plans in that respect?

A: We are working on our export plans which include rehabilitating the export lines via Syria. A company is currently doing the survey to determine the amount of damage to the pipelines linking west Iraq to Syria. Based on its report we will rehabilitate the old pipeline and possibly build a new one in the future. We are also working on a plan to expand our export capacity from the south to bring it up to 4.5 million b/d. We hope to achieve that by 2011.