Iraq’s newly announced proven oil reserves figure of 143.1 billion barrels is most likely closer to the reality than the old one of 115 billion bbls minus what has been produced since the last revision, which is put at 5 billion bbls. But the question is how did Iraq arrive at this magic number without new exploration or new discoveries and while 3-D seismic surveys for the southern oil fields is still ongoing and can’t yet give a comprehensive picture of the state of Iraq’s reserves.
The announcement made by outgoing Oil Minister Hussein al-Shahristani Oct. 4th raises question marks as to its validity and its timing. There is definitely new data available to the reservoirs department at Iraq’s oil ministry based on studies conducted by international oil companies even before they signed service contracts to develop oil fields in southern Iraq. The companies used estimates based on those studies to bid for higher plateau targets in Iraq’s licensing rounds of last year, and the same estimates were used again to draw up preliminary development plans for the signed up oil fields. One can also argue that there are more modern techniques available to the reservoirs department to analyze that data making the revision of old reserves figures somewhat justified.
However, seismic surveys at all contracts areas signed up last year by IOCs are yet to be completed making the announcement pre-mature if not rash.
In his presentation of the new reserves revision, Al-Shahristani said the new figures will be communicated to Opec. Reserves have in the past been one factor taken into consideration by the producing cartel when deciding the different producers’ relative production quotas but not the determinant one. Other factors include the country’s production capacity, population and per capita GDP. So revising Iraq’s proven reserves upwards at this stage has no immediate impact on Iraq’s current production nor will it have any for a few years to come. The only impact will actually be felt by Iran, the neighbor Iraq has displaced as the second largest reserve holder in the Mideast Gulf after Saudi Arabia.
So, since the announcement changes nothing in terms of Iraq’s current oil output or any presumed quota within Opec as long as Baghdad is way below the last quota assigned to it in 1990, and since reserves are likely to be revised further once more data emerges from the awarded field development contracts, one cannot help but wonder why the minister was eager to make the announcement now and whether it was meant to serve a certain political agenda. Hussein al-Shahristani wants to leave a legacy behind of not just the man who opened Iraq’s doors to international oil companies and signed them up to service contracts on terms even they would not have imagined were possible, but also the man on whose watch Iraq raised its oil reserves by a third without even making a single new discovery.
All those who worked in the Iraqi upstream sector know that the Iraq ministry of oil (MoO) always adopted the conservative estimates for the oil reserves. Adding reserves can only be achieved by good appraisal work, of which none has been done recently, and we all know the needed 3D seismic acquisition to be followed by completing the work flow of processing, interpreting and integrating the geophysical and geological data and hence achieve proper evaluation of the reservoir is still in the very early stages and takes some time to give a comprehensive picture of Iraq’s oil reserves. The Iraqi Oil minister statement was very clear and being a scientific man as he is, he did not leave any room for doubt. He said “what is available of current know how and data and from the services contracts which have been signed during the two licensing rounds with the winning companies” is the basis of his announcement of 30% increment in the proven oil reserve, which indicates the availability of new data to the related E&P Departments of Iraq (MoO). Most of these IOC’s had MOUs with MoO and were involved in various reservoir studies and evaluating production data which were made available to them together with their new technologies even before the signature of the services contracts, and one can understand why most IOC’s bid for higher production plateau. Furthermore, the Iraqi Oil Minister iterated that these figures are not final and not fixed, but are subject to further studies using the unexploited fields. We all know reserves can reach much higher than 143 billion barrels (at some point a figure of around 240 bb was mentioned). To assure your readers, the Iraq oil minister is still conservative in his declaration, and we who worked in the Iraq upstream sector should know better and nothing to do with the OPEC quota or the timing of the declaration, mainly facts!
I have no doubt that previous reserves figures were conservative and I fully subscribe to the thesis that Iraq’s oil reserves would increase significantly once proper exploration is carried out using modern technologies. It is true that the minister used former studies carried out by IOCs under memoranda of understanding signed in 2004 and 2005 when he gave new reserves figures by field, including for example one done by Japex of Japan on East Baghdad field. However, I have an issue with the timing of the announcement before the reserves review based on ongoing seismic – which all contracts signed last year include as a part of their minimum work program obligation – has been completed.
While one cannot exclude strategic motive to announce the reserves increase at this time, there is certainly room for doing so.
Let us hope that the MoO is embarking on a policy of enlightening the industry, the public and the concerned Iraqi technocrats. The MoO statement while informative to the public, it is short of the necessary elaboration to be more meaningful to the oil technocrats.
However, in my opinion Iraq oil reserves, as the case with others, should be described in terms of the Oil-In-Place (OIP), which is based on more tangible parameters and less problematic to assess than the proven reserves, particularly before or at the initial stages of development. The proven reserve is the product of a Recovery Factor which is often in the range of 25%-50%, while the use of the latest art of technology has pushed the upper limit beyond to 55%-60% and the target is 70%. World average Recovery Factor assessed at 35% by BP over a decade ago.
My information suggests that the MoO past assessments used, with rare exceptions, Recovery Factors in the range of 25%-31%. However, our many friends with long involvement in the MoO’s assessment of reserves are better informed than me.
Our assessment of Iraq potential reserves of 1997 in Petrolog & Associates used 31%, simply to err on the conservative side.
I would guess that the present MoO announcement of Iraq increased reserves needs not go further than re-assessing the Recovery Factor in light of suggestions from its 11 IOCs’ contracts, let us hope, though, with proper technical justification.
Although no one can doubt that Iraq’s probable and possible reserves can be estimated as high as 200 billion barrels if not more, yet for the ministry to announce new proven reserves must depend on solid scientific approach based on approved industry standards.
In fact the exploration activities including exploration and appraisal drilling had been absolutely minimal for the past twenty years and since the second Gulf War of January 1991 followed by sanctions and then the invasion by USA and allies in 2003.
Iraq looses credibility by making such announcements that are not based on solid approach..
The IOCs, based on their current links with Iraq might be tempted to accept such facts but it will be hard to convince independent oil experts, geologists and credible institutions. We stand to hear the reaction of international institutes and world-wide experts.
Investigation on the current activities in Iraq ( other than KRG areas) show the followings:
– During the past two years, Iraq has had only three seismic crews..The first carried out some work on Nassiriya oil field. The second conducted work in Gharraf (500 km) then moved to East Baghdad. The amount of work carried out was very limited due to security concerns. Iraq did not so far use advanced technologies in its assessment as in 3D seismic surveys for the majority of the fields nor any sophisticated logging and sampling.
– There has been no exploration drilling for the past seven years.
– There has been no appraisal wells since 1990. It was planned for Iraq Drilling Co to drill appraisal well in Akkas gas field and another in Mansuriya gas fields but failed to send the rigs.
– Chevron and BP conducted preliminary studies on Rumaila in 2008 and Shell did the same for Kirkuk and both were based on available old data.
– Shell carried out a gas master plan study based on existing data only.
– Iraq had not made any new discoveries during the past ten years.
– Since the award of the service contracts a year ago, the IOCs had not actually started any 3D seismic work
The tables presented by the oil minister at the press conference showed that the whole exercise was based on re-assessment of old reserves based on nearly quadrupling recovery factors mostly in West Qurna and attributing the source to ExxonMobil, and to a lesser extent Zubair in the case of ENI. Another part was attributed to no more than six other fields while Iraq has over 85 discovered oil fields. May be we should hear from ExxonMobil & ENI about the real work that they have done in such a short time that convinced them of such huge increases. It should be noted that the ministry had re-assessed the reserves of West Qurna to 43 billion barrels from a figure of about 20 billion as published by the oil ministry itself no more than around a year ago when making the first and second licensing rounds.
Issam Chalabi
Amman