Dow Jones reports that the gas capture project with Shell and Mitsubishi in Southern Iraq is expected to start production this year.

The head of the South Gas Company, Ali Hussein Khudhier, told the news agency that they expect to produce 50 Mcfd of gas this year.

He added that the floating LNG plant and terminal to be built off the Basra coast is expected to cost around $3 billion, and should be operational in 2017 or 2018. The project would export 600 MMcfd of gas in the form of LNG.

The consortium will soon invite international companies to tender to build the LNG facility.

Before this deal, Iraq was producing around 450 million cubic feet a day of gas from Rumaila, West Qurna Phase 1 and Zubair, but within two years Khudhier expects to also be capturing the 1.1 billion cfd that are currently flared.

Under the agreement, Iraq has to supply the Basra Gas Company with at least 2 Bcfd of raw gas even if it has to bring it from other fields, but it is expected that gas output from these three fields will exceed 2 billion cubic feet a day at full production.

(Source: Dow Jones)

Vinson & Elkins and Cleary Gottlieb Steen & Hamilton are advising Iraq’s oil ministry in a $17.2 billion deal with Royal Dutch Shell and Mitsubishi to develop the infrastructure required to process natural gas in the southern part of Iraq.

The transaction agreements, which were signed on 27th November, came as Iraq attempts to rebuild its oil and gas industry following years of sanctions and conflict.

The 25-year contract, one of the biggest deals that Iraq has signed in recent times, will see the creation of a new company, the Basra Gas Company (BGC).

The BGC will process gas from three large fields near Basrah in Southern Iraq in order to satisfy domestic consumption requirements, and will also have the right to pursue a Liquefied Natural Gas (LNG) or other gas export project for any remaining gas.

The Vinsons team includes partners Christopher Strong and Ahmed el-Gaili, while the Cleary Gottlieb team includes partners Andrew Bernstein and Gamal Abouali. “We are thrilled to be working with the Ministry on such an innovative and large-scale project,” said Ayman Khaleq, Middle East managing partner at Vinson & Elkins, in a statement.

“The signing… was a key milestone for this deal, which is significant to the overall gas industry in Iraq, and it’s a privilege to be a part of that.” 

(Source: Legal Business Online)

Officials in Basra are reportedly trying to cancel a $17 billion Shell gas deal because they want a bigger say, highlighting the pressure on central government to ease its control over the provinces.

According to the report from Reuters, the province is increasingly restless with the slow pace of development and wants more control over its natural resources and revenues.

Demands for more provincial power have simmered for years in Iraq, split by ethnic, sectarian and tribal tensions, but the Basra push and an autonomy drive from Salahuddin [Salahadin, Salah ad Din] province threaten to stir tensions as the last U.S. troops withdraw.

The contract with Shell and Mitsubishi to capture flared gas in three southern Iraqi oilfields was signed on Nov. 24 despite objections from the Basra local council that it was not included in talks or the deal’s signing.

Officials from the Basra Provincial Council filed a lawsuit against the Iraqi Oil Ministry on Nov. 25 demanding the cancellation of the gas agreement.

“In principle, we don’t have any problem with developing the gas but when the contract is signed, there has to be an article that shows the provincial council has agreed … Unfortunately, we did not know anything about this contract,” said Sabah al-Bazouni, head of the Basra Provincial Council.

“Basra is the most suitable province to become an autonomous region.”

Regional autonomy would give the province more power over finances, administration and laws, and an upper hand in supervising public property, which could loosen Baghdad’s grip on the oil and gas sector.

The legal case is unlikely to deter Shell and delay the project, but it raises concerns about future disputes over oil and gas rights in Iraq, which is struggling to rebuild after years of violence just as Washington prepares for a full troop withdrawal by the end of December.

Bloomberg’s Eduard Gismatullin interviewed Peter Voser, chief executive officer of Royal Dutch Shell Plc, at the World Petroleum Congress in Doha, Qatar, on Tuesday.

His comments on operations in Iraq start about 9 minutes into the interview.

(Source: Bloomberg)

His comments on operations in Iraq start about 9 minutes into the interview.

Russian news agency RBC Daily reports that Lukoil, Russia’s second-largest oil producer, is looking to expand its business in Iraq through buying part of ExxonMobil‘s 60% stake in the West Qurna 1 field.

If the deal goes ahead Lukoil would hold 37.5% of the business. It is already in partnership with Norway’s Statoil in the development of the West Qurna-2 oil field.

Vice CEO Leonid Fedun says Lukoil is interested in developing West Qurna-1.

The report quotes Alexey Kokin, analyst in Uralsib Capital, as saying “ExxonMobil is probably giving up the project, because its economics are not clear yet. It requires $15-20 billion to be invested in the next 20 years.”

Anglo-Dutch Shell is reportedly going to buy the rest of ExxonMobils’s share. The purchase would increase Shell’s share from 15 to 37,5%. The Iraqi state North Oil Company holds 25% of the project.

(Source: RBC Daily)

Shell, Mitsubishi and the Iraqi government have finally signed the $17.2 billion deal on Sunday to capture flared gas at Iraq’s southern oilfields.

The 25-year project is intended to boost production of badly needed electricity and reduce the environmental damage caused by flaring, as well as opening up the possibility of gas exports.

It will harness more than 700 million cubic feet per day of gas from the oilfields of Rumaila, Zubair and West Qurna, increasing eventually to 2 billion cubic feet per day.

The goal of 2 billion cubic feet per day capacity is linked to peak production at the southern fields, which is expected by 2017, Deputy Oil Minister Ahmed al-Shamma told Reuters.

“This day represents a historic change in the Iraqi oil industry … the best utilisation of (associated) gas to meet the increasing needs for gas in Iraq,” Luaibi said at a signing ceremony attended by Shell Chief Executive Peter Voser.

The Shell deal will involve the creation of the Basra Gas Company joint venture, in which the government will hold 51 percent, Shell 44 percent and Mitsubishi 5 percent.

Existing facilities are currently handling 370 million cubic feet of gas per day from seven southern fields.

The project may include the construction of an LNG export facility with a maximum capacity of 600 million cubic feet per day. Exports are possible once Iraq’s domestic needs are met.

Officials say the project requires investment of $17.2 billion — $12.8 billion to rehabilitate existing facilities and build new ones, and $4.4 billion for the LNG export unit.

The Shell-Mitsubishi partnership expects an internal rate of return on the project of 15 percent on an initial investment of $6.98 billion, while SGC plans to put in $3.7 billion of public funds initially and fund the rest through gas sales.

(Sources: Reuters, Wall Street Journal)

At the ‘Iraq: Untapped Opportunities‘ conference in London, Charles Hollis (pictured), Director General of the Middle East Association asked a panel of leading businessmen to make one suggestion each as to how Iraq can improve its development efforts.

Hans Nijkamp, VP and Country Chairman for Iraq at Shell, said the authorities need to make a real effort to tackle bureaucracy and ensure that decisions are made in a timely manner. At present, he said, decisions are always late. He also recommended streamlining the visa system for expats entering the country.

Gordon Turley, who has been Mott MacDonald’s Iraq country manager since 2003, stressed the need to properly think through all tender documents before release, making sure that internationally-recognised terms are used, and not unduly changing the specifications and procedures afterwards. He also said that the British government needs to improve its regulations for Iraqis entering the UK.

Jeff Larkin, Market Sector Director for Parsons Brinckerhoff, said that contracts should be drafted in FIDIC format, so that everyone could understand them. Western governments should also increase their export credit insurance for Iraq.

Managing Director of Eschmann, Philip Kennedy, had no additional advice for the Iraqi side, but reiterated the need for the British government to sort out the entry visa situation for Iraqis, especially those coming to the UK to train in the medical field.

Now it’s your turn: What advice would you give the Iraqi government to encourage business and development in the country? Why not tell us in the comments section below.

At the ‘Iraq: Untapped Opportunities‘ conference in London on Tuesday, Padraig O’Hannelly, for Iraq Business News, pressed the Chairman of the Kurdistan Board of Investment, H.E. Herish Muharam, on reports that the KRG had been in discussions with Shell:

IBN: “Is it true that Shell was in discussions with Kurdistan relating to exploration contracts, and that it has since broken off those discussions?”

KBI: “Unfortunately I’m not well connected to the oil sector, but all I want to say is that we have a constitution that we will go back to, and try to understand it properly and have a common understanding under that articles of [the constitution].”

The Chairman gave no further clarification.