14 April 2005
The pending appointment of a new government in Iraq — the third since September 2003 — appears unlikely to open the doors to large investments by international oil companies, although the drawing up of a constitution later this year may take them one step closer.
But that’s not deterring firms from getting a foot in the door, with some 29 companies signing memorandums of understanding (MOU) with the Iraqi oil ministry to date, offering services from abroad for free, Iraqi sources say.
“From the companies’ point of view, it’s a preinvestment,” a senior Iraqi oil official told International Oil Daily from Baghdad Wednesday. “If they are asked for advice on a specific field, they can use the knowledge they accumulate on that particular field for better estimates of the risk involved if they ever decide to pursue a contract there. It gives them an advantage compared to others who will have to factor in contingency to cover risk which could lead to higher estimates.”
The only firm development jobs the Iraqi oil ministry has been able to award involved engineering and procurement contracts to little-known companies.
Companies signing MOUs range from majors such as BP, ChevronTexaco, Exxon Mobil and Royal Dutch/Shell to small independents like Norway’s DNO, Canada’s Ivanhoe and Australia’s Tigris. Asian and Russian companies such as Malaysia’s Petronas or Lukoil are also on the list.
Iraqi oil officials say the MOUs — which have one-year renewable terms — state clearly that the oil ministry is giving no commitment to award a contract to the company, either during or after the agreement. So far, only Chevron and the UAE-based Dome International, which has a joint MOU with US independent Anadarko, have seen their agreements renewed for a second year.
“We give the companies incentives to offer us help where we need it, by documenting everything they do systematically. It’s all being held at the ministry, and will be taken into consideration when we offer development contracts in the future,” the official said, who has been involved in negotiating the agreements.
The MOUs also offer companies the opportunity to demonstrate their capabilities, especially where they are asked to offer a free evaluation of certain reservoirs or to provide solutions to production problems faced by Iraq.
All MOUs are similar, according to the Iraqi official, and have three components. One deals with training Iraqi staff and technology transfer. This might take the form of overseas classroom or on-the-job training, scholarships for undergraduates and postgraduates, and the provision of equipment, technology hardware and software.
A second component is consultation and consultancy work, which can cover anything from a quick opinion on studies, to helping with bidding processes, or the design and planning of projects.
The third component is the provision of short-term studies on field production problems or reservoir work on producing fields, discovered but not developed fields, or exploration areas.
Chevron was the first company to offer training for Iraqi engineers and ministry staff before the MOU system was introduced. Other companies followed suit in organizing courses either in Jordan or at their headquarters, including Shell, BP and Lukoil.
Among others, Dome and Anadarko are providing a free reservoir study for the twin Subba-Luhais fields. And Shell has taken on a range of projects, including a reservoir study of Kirkuk, a joint MOU with Australia’s BHP Billiton and Tigris to study production improvement at fields in the southern Missan area in the south, and a natural gas master plan for completion by year-end.
The field studies are most attractive to both sides. Companies with previous knowledge of certain fields — dating back to the late 1990s, when several were involved in contract talks — are normally keen to keep up to date with the latest developments at those fields and to offer their expertise in these areas.
“In some cases we provide whatever data is available for certain fields that are scheduled to come on stream, and ask for help in drawing up development scenarios based on a quick study of the reservoirs,” the official explained.
However, oil companies cannot pick and choose which fields they want to work on. “We nominate the field where we are having production problems and need their help, or the reservoir where a quick study is needed to draw up a production profile,” the official said.
“We do not allow a company to choose where it wants to help, unless we see an advantage in a specific area that they are offering to help with,” he added.
For example, Exxon, which signed an MOU last year, has been asked so far for help with the small Balad oil field, north of Baghdad, as well as with Zubair, a big producing field in the south. Its help was also sought on data management issues and the supply of pressure-sensing equipment, as well as on a study to convert field control systems from analog to digital.
By getting so many companies to offer such work for free, the reservoir and field development department at the oil ministry is managing to carry out a long list of tasks it had failed to implement in previous years, when it was cut off from the outside world by sanctions. At the same time, some desperately needed technology transfer is taking place.
In February, the ministry department established a new reservoir data center, with the aim of creating a geophysical and geological database for Iraq’s oil fields. The move coincided with the award of two reservoir study contracts to the UK’s ECL and BP, for the country’s biggest fields, Kirkuk and Rumaila.
ECL, which is conducting the first stages of the two studies, comprising database construction, is scheduled to end the initial part of its work by the end of May. “They are on schedule. The first conversion process from hard copy to electronic versions is currently taking place. We’re going through the scanning and digitizing of data, as well as conditioning and cleaning all data, ahead of populating it into the database,” the Iraqi official said.
By Ruba Husari, London
(Published in International Oil Daily April 14, 2005)