Iraq Oil Minister Agreed with Eni to Cut Zubair Output Target

VIENNA - The Iraqi authorities and Italy's largest oil company, Eni SpA, have agreed to cut the final production target for the giant Zubair oil field in southern Iraq to 850,000 barrels a day, Iraq's Oil Minister said Thursday.

"Iraq has agreed with Eni to reduce the production plateau from the Zubair oil field to 850,000 barrels a day," instead of the original target of 1.25 million barrels a day, Iraqi Oil Minister Abdul Kareem Luaiby told reporters in Vienna. Eni has agreed to maintain the new level of production for 15 to 20 years, he added.

Officials from Eni, Iraq's state-run South Oil Co. and the oil ministry have been in talks for the past few months to lower the target of 1.25 million barrels a day, which they agreed to in 2009 when they signed the contract.

The deal with Eni is the second reached with international oil companies working in southern Iraq, following January's deal with OAO Lukoil Holdings to reduce the target for the supergiant West Qurna-2 field to 1.2 million barrels a day, instead of the earlier-agreed 1.8 million barrels a day.

BP PLC and Royal Dutch Shell PLC are also pursuing talks with the Iraqi oil ministry to reduce final production targets of the Rumaila and West Qurna-1 oil fields respectively.

"We are discussing with BP to reduce production from Rumaila," the minister said.

Logistical bottlenecks, weak infrastructure--including lack of water-injection systems used to drive more oil out of reservoirs--and delays in approving subcontracts by the government have eroded the original ambitious production targets.

As ambition has diminished in southern Iraq, oil companies including U.S. giants Exxon Mobil Corp. and Chevron Corp., Total SA of France and Russia's Gazprom Neft, a subsidiary of OAO Gazprom, have signed exploration deals with the Kurdistan Regional Government.

These moves, made despite Baghdad's warnings that they could invalidate oil contracts in the south of the country, have inflamed long-simmering tensions between the semi-autonomous region of Kurdistan and the central government. Baghdad considers these deals null and void because they need to be approved by the federal government first, while the Kurds argue that they are in line with the new constitution.

"Our stand is firm, that we don't recognize these contracts signed by the Kurdistan region with these companies," Mr. Luaiby said.

Iraq's Kurdistan is thought to have fewer oil resources than southern Iraq, but better security, infrastructure and contract terms are attracting companies seeking greater profits than those on offer elsewhere in the country.

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


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