Major oil contract of Eni, approved by Iraq

March 5, 20140

Iraq has approved major contract items for Eni’s giant oilfield project in its south, just hours after the Italian company threatened to pull out if red tape was not cut and Angola’s Sonangol quit projects in the north due to security concerns.
Rising violence has not hit operations at the southern fields driving Iraq’s oil expansion, but Western companies at work there say deteriorating security and the distraction of elections at the end of April may be slowing the contract approval process.
A senior Iraqi official said the circumstances affecting decision-making by Sonangol and Eni were not connected. He said, “Sonangol tried its best to stay, but this is a security issue – al-Qaeda-linked terrorists are active in this area. They have not done any work on the ground.”
Italy’s Eni, on the other hand, was seeking swift approval for contracts to push the Zubair oilfield, now pumping about 320,000 barrels per day (bpd), towards a target of 850,000 bpd. The Iraqi officials have also remarked, “We respect Eni and take their opinions seriously. We want them to stay in Iraq.”
“We’re doing our best to approve high-cost contracts as quickly as we can. If they are delayed, it affects productivity and profitability.”
Two such contracts for de-gassing stations at Zubair, worth about $1 billion in total, received cabinet approval within minutes on Tuesday, he said. A third contract requires minor follow-up with Eni. High-value contract items of $500 million or more require the blessing of Iraq’s cabinet.
Big Oil has been tapping the prized fields of Zubair, Rumaila – led by BP and West Qurna-1 – run by Exxon Mobil – since 2010 when companies signed a series of service contracts with Baghdad. Red tape and poor infrastructure as well as increasing security concerns have frustrated their efforts ever since they started to drill.
The Iraqi official said Baghdad had inherited an elaborate process for approving contracts that needed to be shortened. But he said hold-ups had also occurred because, in some cases, the cost of the contracts appeared to be inflated.
The Growing Oil Output
Iraq, already the second largest producer in OPEC, is gearing up for one of the biggest oil output jumps in its history with international companies further tapping major projects which have not been affected by unrest.
Production last year ran at around 3 million bpd, flat on the previous year. But growth is now expected to return – led by increases in the south, while gains are also expected from autonomous Kurdistan. Eni CEO Paolo Scaroni displayed his impatience with Iraq’s bureaucracy earlier on Tuesday before the news broke of the contract approvals.
Ina conference, he said, “If they do not sign the contracts in a couple of weeks we will go. We have waited six months,” adding that, “I am hopeful, we have no reason to believe they won’t do it.”
Eni is not alone in its concerns. BP has had to let around 100 contractors go after the Ministry of Oil failed to approve big contracts for its project at Rumaila, Iraq’s biggest oilfield. While Eni’s CEO is threatening to quit the neighbouring Zubair project, industry sources say BP has no intention of leaving Iraq. Rumaila is now producing at its highest rate – between 1.4 million and 1.5 million bpd.
As for Sonanagol’s departure, neither Iraqi officials nor Western industry executives were surprised. [ID:nL5N0L21I0}
Iraq’s top energy official Hussain al-Shahristani said last month that spillover attacks from the civil war in Syria have hindered development of reserves in the western region and its Qayara and Najmah oilfields, operated by Sonangol.
Those security problems have now led Sonangol to exit. Sonangol in 2009 won the right to operate the Qayara and Najmah oilfields in the Nineveh province in Iraq’s northwest, where Sunni Islamist insurgents remain active.
CEO Francisco Lemos Jose Maria said the Sonangol has received requests from parties wanting to buy its stakes. “There is always interest from those who like to expose themselves to risks,” he said.
Violence in Iraq climbed to its highest level in five years in 2013, with nearly 9,000 people killed, most of them civilians, according to the United Nations.