Iraq Lures Investors To Boost Its Oil Output As OPEC Debates Cuts

Iraq Lures Investors To Boost Its Oil Output As OPEC Debates Cuts
As OPEC gathers in Vienna next month to consider cutting its oil output, a lower profile event in Baghdad on the same day will signal Iraq's longer term ambition to do precisely the opposite.

Reuters

LONDON/BEIRUT, Oct 26 (Reuters) - As OPEC gathers in Vienna next month to consider cutting its oil output, a lower profile event in Baghdad on the same day will signal Iraq's longer term ambition to do precisely the opposite.

Nov. 30 is both the date when OPEC ministers meet in the Austrian capital and the deadline set by Iraqi oil minister Jabar Ali al-Luaibi for international firms to submit bids to help it develop 12 "small and medium-sized" oil fields.

Crude output in Iraq, OPEC's second largest producer, is already rising dramatically despite corruption, poor infrastructure and the fight against Islamic State. This is complicating OPEC's efforts to revive prices by making its first output cut since the 2008 global financial crisis.

Ministers from the Organization of the Petroleum Exporting Countries are supposed to decide in Vienna which member states will make the cuts under an outline agreement struck last month.

Iraq says it will not reduce output because it needs oil money to combat Islamic State, and Prime Minister Haider al-Abadi offered strictly limited support on Tuesday. "We are prepared to cooperate on the correct basis," he said. "We want oil prices to increase."

At around $50 a barrel, crude prices are less than half their levels in mid-2014 and OPEC is seeking a production deal that will last at least six months.

Developing the 12 Iraqi oil fields, which lie in southern and central areas away from Islamic State strongholds, will take longer than that. Nevertheless, fellow OPEC members and rivals need read no further than the terms of the new tender to understand Baghdad's intentions.

The tender document sets quick output gains as the main requirement to win the contracts. Baghdad also wants maximum revenue, including from selling gas produced as a by-product of the crude extraction, rather than simply burning it off.

After achieving commercial production in the first phase of development, the Oil Ministry's document says, "in the second phase, the sustainable high production level will be achieved, along with complete utilization of associated gas".

With oil reserves of 143 billion barrels, Iraq controls almost every tenth barrel of oil in the ground in the world.

Aside from security problems, its crude is as cheap and easy to extract as in Saudi Arabia or Iran, but its energy industry suffered decades of under-investment under Saddam Hussein who was overthrown by a U.S.-led invasion in 2003.

Since then Iraq has signed deals with majors such as Exxon Mobil, BP and Royal Dutch Shell to develop its giant fields. Production has almost doubled to 4.7 million barrels per day this year from 2.4 million bpd at the start of the decade.

But the growth has lagged the initial forecasts of production at 9 million bpd by 2018, equal to Saudi Arabia's. Held back by red tape, infrastructure constraints and difficult contract terms, Iraq is now targetting a more modest 5.5 million to 6 million bpd by 2020.

The oil ministry is in a hurry. "Luaibi's plan is to boost production as quickly as possible to mitigate damage from lower prices, generate more revenues and have additional crude to repay contractors. This is the best way to keep everybody happy," a senior official with state-run South Oil Co said.


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