Iraq Pipeline Delays Threaten Shell's Majnoon Output

By John Lee.

Delays in the construction of an Iraqi pipeline threaten to stall production at Shell's Majnoon oilfield for at least three months, forcing the field to miss a 2012 target of 175,000 barrels per day, reports Reuters.

In February, production at Majnoon was 54,000 bpd, Shell says, but averaged only 18,600 bpd for the first quarter of this year, far below the planned year-end target.

Production at the field was around 45,000 bpd when the company took over in 2010; Shell has since spent around $1 billion, and planned to invest another $1 billion in 2012.

It has asked Iraq for a waiver to start recovering costs if Majnoon does not meet its first commercial production target by year-end - a contract requirement before costs can be retrieved, according to documents seen by Reuters. "This principle will reduce significant investment risk," the document said.

The field has been shut for maintenance since 26th June, but lagging development could put off completion of the new pipeline until the first quarter of next year, according to a Shell document filed with the oil ministry.

"A key concern ... remains the uncertain delivery of the First Commercial Production (FCP) pipeline," said the official letter sent by Shell's managing director of Majnoon.

In June of last year, along with its partner Petronas, Shell awarded Dubai-based Dodsal Group a $106m contract to lay a 79-km (50-mile) pipeline from the Majnoon field to a crude storage depot near Zubair, but the oil ministry rejected the deal on costs and handed the project to an oil ministry affiliate; officials say the pipeline is not now expected to be finished until March 2013.

China Petroleum Pipeline (CPP) was contracted recently to build part of the line.

Drilling at Majnoon is also said to be moving at a slow pace, with only three wells completed since a contract for 15 wells was awarded in August 2010.

(Source: Reuters)

(Picture: Majnoon, June 2012)

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