Mana’a Al-Obeidi

In an interview in his office in Kirkuk (North Iraq) late August, Manaa al-Obeidi, director general of North Oil Co (NOC) talks to Ruba Husari, editor of Iraq Oil Forum, about the state of the northern oil fields and NOC plans:

Q: What is the state of the producing fields in northern Iraq?

A: We have witnessed a relative increase in output from producing fields in the last 18 months. For example, the Kirkuk field was producing 320,000 b/d and has now reached 400,000 b/d. In Bai Hassan, production went up from 150,000 b/d in mid-2008 to 175,000 b/d after we started water injection for the first time in this field about eight months ago and drilled three new wells. Jambour field was producing very little and is now at 70,000 b/d. As far as the smaller fields are concerned, Khabbaz is now producing at capacity, at about 25,000 b/d, and Ein Zalah started producing again in the last six months at 12,000 b/d. There are two other small fields in the same Nineveh area as Ein Zalah. These are Butmah and Sfaya. They are not in production at the moment. Note that Ein Zalah was producing in the past but the water cut increased significantly so we decided to do two things in parallel in order to keep production from the north stable: we reduced output from Ein Zalah while we started setting up wet crude treatment facilities which is still ongoing. Otherwise Ein Zalah would have been producing 23,000 b/d now had we not had the watering problem. So in total, our average production in the north is about 690,000 b/d -700,000 b/d. However, this is not sustainable all the time because it all depends on the state of the operations at any given time. Any stoppage in any plant will result in a reduced output.

Q: The Kar Group and the Kurdistan Regional Government (KRG) announced recently the start of production from the Khurmala dome in Kirkuk field. Is this under the old engineering contract the oil ministry awarded to Kar Group four years ago?

A: No it’s not. The Khurmala development project was never carried out. Actually work under the old contract was never started. What’s happening now is that crude is being pumped from Khurmala to a topping plant in Erbil which was planned anyway by the ministry. The plant’s capacity at 20,000 b/d is very small compared to the production capacity of Khurmala. It produces gasoil, kerosene and Naphtha from the crude pumped from Khrumala.

Q: How were you processing crude from Khurmala in the past?

A: Khurmala was never developed. We just set a small plant there to satisfy our immediate needs. According to the plan, there should have been three gas oil separation plants but since this was not done at the time, the processing was done at the nearby Sarbashakh plant. This was a quick fix in 2005 to start production from Khurmala but it was not part of the Khurmala development project.

Q: How is the crude being pumped from Khurmala to Erbil at the moment?

A: What Kar Group has done is in fact just tie-in other wells, about 12 wells that were drilled previously, directly to the topping plant. I’m not quite sure how they are doing that or whether they are taking risks by pumping crude without stripping the gas directly to the small refinery. But I’m assuming that they set up a small separation plant to treat the 20,000 b/d they are pumping. I really don’t know the details.

Q: Are the Kurdish peshmerga guards still preventing your staff from working on Khurmala? Are you unable to find out what’s happening on the ground?

A: There were problems in the past between the guards and NOC staff. Now we have reached a stage where each side understands its duties so we don’t have problems any more.

Q: Is there cooperation between the two sides?

A: Only technical cooperation.

Q: How is it possible that as director general of NOC you are not aware of what exactly has been going on in that part of the field?

A: That’s because I do not wish to know. I’m not a politician. Technically speaking, I know everything about Khurmala and what needs to be done. What happens on the ground is not of interest to me until the politicians reach an agreement. NOC does not conduct dialogue with politicians. We don’t have a dialogue with those on the ground pumping crude from Khurmala either because there is nothing to have a dialogue about.

Q: Would this haphazard production from the old wells impact the field in general?

A: If it’s done properly, it will not have a negative impact. Even though there is no coordination, we do know the average flow of each of the wells drilled previously in Khurmala, which is about 1,500 b/d each. If they have tied-in 12 wells, then they are within the proper technical requirements.

Q: How much would Khurmala dome be producing had it been developed properly?

A: According to the plan, we would have constructed three gas oil separation plants, a pumping station and gas processing facilities to produce 100,000 b/d. Once the politicians reach an agreement, this could be achieved in 18 months and Khrumala would be producing to capacity at 100,000 b/d. This would also involve drilling additional 75-80 wells.

Q: Do you think Kar Group has the capabilities to produce Khurmala at 100,000 b/d?

A: I don’t think so. They don’t have the capabilities to do the design and carry out the plan. They are essentially a construction company. I think their role is done once they tied-in the wells.

Q: Does it worry you that the KRG might decide to develop Khurmala on its own and impose it as a fait-accompli?

A: No it doesn’t because Khurmala can only be developed by agreement. There are certain powers that are guaranteed to the region by the constitution and others that are not. The fact that the constitution says that oil and gas resources are the ownership of the Iraqi people does not give the Kurdish region the right to impose a fait-accompli. They have one of two choices: either they participate in all of Iraq’s oil resources, including Basrah’s oil which is the case at the moment since they have a share of the federal budget, or they decide to go their own way and start developing other fields and create facts on the ground, in which case they will lose the rest. I believe they are smart enough not to give up rights that serve them better than a field here and a field there.

Q: Some have been making noise about the fields in the governorate of Diyala that are now tendered as part of the 2^nd bid round by the oil ministry and claimed they should not be offered to international oil companies because they are contested. Could this become a point of contention?

A: No, because what is contested is the land and the borders, i.e. geography, not the resources. Once the Diyala fields are developed, this will increase Iraq’s revenues and as a result the Kurdish region’s share of the revenues will be bigger.

Q: Could the issue turn into a confrontation like in Khurmala?

A: In Khurmala force was not used because the federal government decided to avoid any confrontation.

Q: This could be interpreted as admitting that the KRG is right?

A: No, it does not. The federal government could have replaced Kar Group and started developing Khurmala itself but this could have led to a flare up and the government decided – and I fully support its position – that this is not the right time to let things flare up at a time when the world is talking about ethnicities and sectarianism in Iraq. A flare up is not in our interest.

Q: But this could lead to other similar initiatives by the KRG elsewhere.

A: It’s not possible to impose things because Iraq has two export outlets, through Turkey and the Gulf. Assuming they do impose things and take other initiatives, how are they going to export the oil?

Q: Still, the contention could be seen as higher risk by some companies who might be interested in those fields. The same could also be said about Kirkuk and Bai Hassan in the first bid round where the conception of risk by the companies is higher for those fields than for those in the south.

A: Companies are supposed to explore the green fields which have undefined volumes of hydrocarbons, confirm the reserves, then develop and produce those fields. So the reserves there are theoretical, not like the producing fields, and you cannot contest something that is theoretical. As far as the first bid round is concerned, I personally believe that the results of the bids had to do with the economics of the field development project, not political risk. ConocoPhillips bid for Bai Hassan because it was the only company that signed a memorandum of understanding to study Bai Hassan in the past. It knows what Bai Hassan is capable of producing and that’s why their bid fee was high. They needed to make a profit on a field that will have a limited incremental production, of some 50,000 b/d. The same logic applies to Rumaila. Had BP not thought it was capable of producing an additional 2 million b/d, it wouldn’t have done a deal.

Q: What do you think was the assessment of the companies regarding Kirkuk in the first bid round?

A: There is a problem with Kirkuk because of the limited data on the field and the fact that it has fractured reservoirs. In addition, Kirkuk has been overproduced. When it was supposed to be producing 500,000 b/d, we were pumping 850,000 b/d before 2003. Bear in mind also that companies’ first objective is to make profit, while the Iraqi philosophy in that matter has been that we will not allow those who exit through the door to come back through the window. If companies were getting 25% of the production before nationalization, and we still give them 25% under a service contract, then this means they have come back through the window. Our doctrine is that Iraqi oil is for the Iraqis and no return to the past. That’s why everyone in government agrees on a service contract and not a production sharing contract. We will not allow it to become a production sharing contract by applying an exaggerated fee.

Q: Can NOC develop Kirkuk and Bai Hassan on its own?

A: Yes we can. I have plans to raise Bai Hassan capacity to 275,000 b/d without help from foreign companies. We are working on it and we can achieve that in a year or two, but it all depends on the equipment we need to import. As far as Kirkuk is concerned, according to our plan, we need to cut production there in a first phase and then increase it. We believe Kirkuk has a higher potential than it was thought but because we abused the field, we started having a water oil trap which we need to sort out first. We need a technical solution that allows us to drill straight to the oil, not to the water.

Q: Is this plan currently being applied?

A: No, we first need to develop other fields before we can reduce Kirkuk’s production in order to compensate for the cut. We will not cut output drastically, but gradually by the same proportion we can add from other fields. NOC must keep increasing production because the revenues are badly needed. I cannot propose to the ministry right now to reduce output by 100,000 b/d from Kirkuk unless I can make it up from other fields.

Q: Shell’s bid on Kirkuk was to get production to a plateau of 850,000 b/d. Do you see it as feasible?

A: No, I don’t think it’s feasible. It was very tempting and was meant to tempt the ministry. I don’t think we can produce more than 700,000-750,000 b/d from Kirkuk at best.

Q: What is the state of production in East Baghdad?

A: East Baghdad is producing just 10,000 b/d that is being used for electricity by the Al-Quds power plant. We have plans to increase production to 30,000 b/d even though it’s very heavy crude. That’s our plan. If any company is interested in developing it based on a reasonable fee, they will be welcome. Otherwise, NOC will do it. The problem with East Baghdad is that it’s in a residential area and we need directional drilling. It’s not practical to drill 50-60 wells but we can reduce the number and increase the flow per well if we drilled horizontal wells.

Q: Who will carry out the horizontal drilling?

A: In the first stage it will be a foreign drilling company but integrating Iraqi staff from Iraq Drilling Co (IDC) for training until IDC is capable of carrying out this kind of drilling.

Q: Is this under the joint venture IDC had with Mesopotamia Petroleum?

A: No, that joint venture is finished. There are new companies that have proposed to set up new joint ventures with IDC. What IDC needs to be able to carry out the job where it’s difficult to extract oil is to add rigs and train its staff.

Q: Which companies had a memorandum of understanding to study East Baghdad?

A: Only Japex.

Q: Can the other fields be developed by the national effort?

A: We can do everything by ourselves but the critical issue is time. For example, NOC can develop Najmah on its own, but it will take us five years. A foreign company can do that in less than two years. Our cadres can do everything from drilling to development to building surface facilities but we will need to import everything and that takes time.

Q: Can the existing infrastructure cater for the increased production if all those fields that are tendered are developed?

A: We are in the process of rehabilitating the western pipeline network through Syria to give Iraq a third export outlet for the incremental crude volumes.

Q: You had plans to develop Ajeel field. Have you started?

A: Work has been underway in Ajeel for the past two months. We expect to finish this phase in December and start producing 35,000 b/d. In a later phase we will raise it to 70,000 b/d.

Q: What about Himrin?

A: There are 41 wells drilled in Himrin. Scop (State Co for Oil Projects) is expected to start building the surface facilities at any moment. It will take about 18 months to complete the facilities. Himrin will produce 60,000 b/d. That’s the field’s maximum capacity.

Q: Has the problem of dumping fuel oil in the northern fields been solved? Do you think the damage the fields suffered will be permanent?

A: I don’t think the damage is permanent but it will certainly take a long time. The main effect of the damage is that we started producing heavier oil. That’s why we introduced gas injection. The porosity of the rocks have definitely suffered but this effect also will disappear after a period of time. We had a problem of reinjection of Basrah crude in Kirkuk in the past which reached as high as 700,000 b/d when it could not be exported, while what you call dumping did not exceed 30,000-40,000 b/d. We cannot say there has been no damage but it’s not permanent damage nor will it kill the Kirkuk field.