Shell Could Replace Exxon in Iraq West Qurna 1

BAGHDAD (Dow Jones Newswires), Nov. 21, 2011

The Iraqi oil ministry could ask Shell to develop Iraq's supergiant West Qurna Phase 1 oil field in southern Iraq, if the government decides to terminate ExxonMobil's contract after it signed a deal to explore for oil in the Kurdish region of the country, a senior Iraqi oil official said Monday.

"We have many options," said Abdul Mahdy al-Ameedi, head of the ministry's petroleum contracts and licensing directorate, when asked what the ministry would do if the West Qurna 1 oil field contract with ExxonMobil is canceled.

"It is possible that Shell, or any other company, can replace ExxonMobil in West Qurna 1 field," Ameedi told Dow Jones Newswires in an exclusive interview. "The partner of Exxon Mobil in West Qurna 1 is Shell and Shell is a giant and big company and it is well aware of and taking part in all operations and activities in the field."

Exxon Mobil Iraq Limited is the lead contractor at West Qurna Phase 1, with a 60% stake, while Shell has 15% and the remaining 25% belongs to the Iraqi state company.

ExxonMobil has signed six exploration oil and gas deals with the northern Kurdish region, which is at loggerheads with the central government in Baghdad over oil, land rights distribution of power between the regional and central governments.

Baghdad has said any oil deals signed with the semiautonomous Kurdish region in northern Iraq aren't valid because they haven't been approved by the central government, and has suggested the ExxonMobil accord in the north could jeopardize its contract to develop West Qurna 1.

Ameedi said the ministry is in the process of writing a new letter to ExxonMobil asking why it signed deals with the Kurdistan Regional Government, despite a warning from Baghdad. The new letter will be the fourth the Iraqi government has sent the company without response.

"Taking a decision to terminate West Qurna 1 contract is easy and the (oil) minister can take such a decision tomorrow, but we don't want to rush," Ameedi said. "We want first to make our position very clear and based on legal and sound basis despite the terms of the contract consolidating our position."

ExxonMobil hasn't so far commented. Chief Executive Rex Tillerson, who is currently in the Saudi capital Riyadh, declined to comment.

ExxonMobil is already producing about 370,000 barrels a day of oil from West Qurna. Many other large oil companies have similar contracts to redevelop aging oil fields.

These contracts have helped Iraq increase its oil output to around 2.9 million barrels a day in recent months, compared with 2.4 million barrels a day a year ago. They haven't been especiall

Copyright (c) 2011 Dow Jones & Company, Inc.


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ousaou | Nov. 23, 2011
What is the up side for a major O&G corporation to partner with a state member of OPEC or an independent oil rich state. The easy analysis is to say that Exxon is producing 370,000 BPD. On the face of it a 36 million daily income. A more closely evaluation of the profitability of these numbers need to be reviewed. Financial analyst among the many tools at their disposition use this formulary to handicap the value of the oil field: PCE: Project Capital Expenditure ELF: Expected Life of the Field PBPD: Price of Barrel Per Day ( I used the WTI) PBD: Production Barrel per Day BEP: Brake Even Price: PCE / (ELF x 12) / PBD PR: Profitability: (PBPD - BEP) / PBPE The capital invested to produce and export oil from Iraq must be massive. The security alone must be enormous. The Iraqi owner of 25% have not invested any money. The norm is for the majors to be paid once the production is sold, in some cases the majors are paid in crude oil. Shell is 15% partner and Exxon 60%, which means that Exxon has invested 72.5% and Shell 27.5%. Lets use the equation and see the possible return for and initial project investment of 10 Billion and 12 Billion. My experience tells me that these 2 levels of capital investment are OK, given the location and political situation Iraq offers, I would say this investment is at the highest risk possible. PCE = 10 Billion and 12 Billion ELF = 25 years PBD= 370,000 PBPD = $93.37 BEP = 10,000,000,000 / (25 x 12) /PBD = $90.09 per barrel, a PR of 3.64% BEP = 12,000,000,000 / (25 x 12) /PBD = $108.11 per barrel, a PR of -13.63 Exxon can do better elsewhere with less risks. I would advances that the up side for majors to partner with any OPEC oil producers are counted. The majors have to produce the upfront investment, but the crude price is dictated by the OPEC partner. The majors cannot realize the profit level at the pump that they once had. Exxon for one is moving into a more profitable side of the O&G business, the natural gas side. To prove my point, 2 majors have spanned off the refining side of their assets. Marathon and Conoco Philips. Exxon gas stations are not, by enlarge, corporate owned, but privately owned. I do not foresee Exxon building new refineries in the US. I see Exxon going into the LNG export, big time, soon, 5 years. Kurdistan looks, at first, to be land locked. A second look shows that oil can be exported through Turkey toward the Mediterranean sea. All this is high risks but Exxon is a very well managed company, do not discard Exxon management ability.

jackson onyeso(Nigeria) | Nov. 22, 2011
My contribution is that ExxonMobil should be given a second chance,though it has not been said what offense committed,before a final decision will be taken to terminate the contract. Thanks for the opportunity to contribute.

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