Shell Expects to Meet Iraq Oil Field Target Despite Setbacks

Royal Dutch Shell PLC said Wednesday its Majnoon oil field in Iraq is still likely to meet a key production target by the end of this year, despite a series of setbacks that have hampered its development.

Shell said the preliminary mechanical work needed before 175,000 barrels of oil a day can be produced at the super-giant field should be completed by the end of 2012, even though efforts had been stymied by "unexpected mine clearance work, occasional delays in customs and [the] impact of recent weather conditions."

The level, required for the Anglo-Dutch company to start recovering costs under its deal with the Iraqi oil ministry, is a critical milestone in Shell's plans to develop the field. Because Majnoon's existing pipelines aren't big enough to deal with the anticipated increase in output, Shell has had to concentrate its efforts on the necessary upgrades needed before output at the targeted amount can begin.

Majnoon, believed to hold as much as 12.6 billion barrels of oil, is one of four major fields that Iraq is developing with foreign companies.

Shell and Malaysia's Petronas Gas Bhd were awarded the deal in December 2009 to develop the field located in southern Iraq near the Iranian borders. Shell owns 45% of the venture and Petronas owns 30%, with the Iraq state-run company holding 25%.

They have pledged to eventually raise production from Majnoon to 1.8 million barrels a day.

Shell said plans for a wider development of Majnoon, including the rehabilitation of the field after years of conflict, could only go ahead after it reached its 175,000 barrel a day target, which it describes as "first commercial production."

"Once we reach full commercial production, we will look at an incremental, modular approach to full field development," the spokesman said.

Copyright (c) 2012 Dow Jones & Company, Inc.

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