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Bill Higgs, Genel Energy

Genel Energy CEO Steps Down


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Genel Energy has announced that after discussions with the Board following the recent AGM, at which Bill Higgs did not receive the required 50% majority of votes in favour of re-election as a Director, he has agreed to step down as CEO of the Company with immediate effect.

Dr Higgs will take up a role as Special Advisor to the Chairman until 1 September 2022, to support an orderly transition, after which he will remain as a consultant to the Company.

Paul Weir, COO, has been appointed as Interim CEO with immediate effect. A search for a suitable replacement is now ongoing and an announcement will be made in due course.

Paul joined Genel in January 2020, having worked for more than 30 years in upstream E&P with experience in the North Sea, South East Asia and Africa. Before joining Genel, Paul was Group Head of Operations and Safety at Tullow Oil, having previously spent 13 years at Talisman as VP Production and Exploration, and also worked in a variety of roles at Nippon Oil, Elf, Occidental, and Total.

David McManus, Chair, said:

"Bill worked tirelessly at Genel and oversaw a positive change in the strategic direction, operational capability, and culture of the Company. He steps down as CEO with Genel well positioned to utilise our robust balance sheet and material cash generation to fund growth and underpin our material and progressive dividend for the long-term.

"Paul has been a key contributor to the transition of Genel into an operator with interests in more producing assets than any other IOC in Kurdistan, and, given his longstanding operational experience with a range of world class companies, is perfectly placed to lead the team as it seeks to progress its next phase of growth."

(Source: Genel Energy)

Posted in Iraq Oil & Gas News
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Ahmed Mousa Jiyad 6

Jiyad: IEITI Annual Reports Continue, but Changes are Needed


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By Ahmed Mousa Jiyad.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

IEITI Annual Reports Continue but Changes in Form, Quality and Substance are Crucial and Needed

Iraq Extractive Industry Transparency Initiative (IEITI) issued its 2018 annual report and, currently, is processing its combined annual report, i.e., for 2019 and 2020 in a single issue.

Releasing the annual reports, though with two year time-lag, is undoubtedly commendable efforts. But the qualitative aspects and lack of impacts of these reports have been constantly identified with flaws and, thus, cause much concerns and raise very serious questions.

Consequently call upon IEITI and EITI is long overdue to undertake thorough revision aiming at making such annual reports different, better, relevant and helpful in enhancing real and effective transparency in the extractive industry in Iraq, more than what has been the case so far.

IEITI issued its tenth annual report, covering 2018, by end March 2021. 2018 preliminary report was delivered on 5 February 2020 and the final version was supposed to be released by latest end of 2020. Due to Covid-19 effect an extension of three months was granted by the International Secretariat of EITI- Oslo; it was release by 20 March 2021.

Currently, IEITI is processing its combined annual report, i.e., for 2019 and 2020 in a single issue; the preliminary report was presented to the MSG on September 2021 and the final report is scheduled for publication on March 2022.

Davinci Consulting / Geneva Group international (DCGGI) was contracted as the Independent Administrator- IP (according to EITI guidelines) to produce the annual reports for 2018, 2019 and 2020.

I reviewed all previous nine IEITI annual reports, and this current review is a continuation of my constant follow-up and monitoring of IEITI activities and my database relating to this topic.

This review covers first IEITI 2018 report followed by brief notes on the preliminary report of the forthcoming 2019/2020 combine report and ends with a few concluding remarks

IEITI 2018 Report

The 2018 Report comprises seven sections with executive summary and list for terms and abbreviations. It is a rather long report, 131 pages, and has 25 files (accessed through different web-links)

After reading the report I can make the following brief remarks on this report.

The executive summary, comparative to previous annual reports, is poor and  limited in coverage, conceptually ambiguous, misleading and, though it is short, its' data was presented twice in tabular and graphic forms; totally unnecessary.

Except a few substantive improvements much of the contents of the main report were repetition from previous reports and sometimes using the usual copy, modify and paste- CMP method.

The web-links to the above mentioned 25 files indicate those files are either prepared or provided by the related entities, mostly Iraqi entities. Some of the files are in MS Excel with many sheets of varying size, while others are in MS Word.

The consultant, i.e., the IP did not analyse or provide explanatory notes or reconciliation of the contents of most of these files. A random check on the contents of some of these files raises many questions on the validity, accuracy and relevance of their contents. IP left the burden of assessing and using these files on the readers. And since no comments on or revision of the annual report were posted on IEITI website, it seems the MSG members, probably did not read thoroughly the report itself and most or all these 25 files!!!

The reports uses excessively and unjustifiable both tabulations and graphs even for simple two items; this lengthened the report (page wise) and increase its size (bitwise). Moreover, some of the graphs are confused and confusing.

All tables in the reports haves no number and no title and some of them are not professionally done. No references were provided for these tables and thus, it is impossible to check their accuracy or validate their contents.

There are many methodological and conceptual flaws, which could cause serious misunderstanding; below are a few examples.

Neither all activities of the Ministry of Oil nor all activities of the Ministry of Industry and Minerals are "extractive"!!!

Similarly, "associated gas", "free gas", "dome gas" all are "natural gas"; but the distinction between them is vital when one considers their data and how it is used. Moreover the term "gas burnt non-investable" is technically wrong and misleading as it justifies flaring!!!!  Also there is difference between "liquid gas" and LPG!!

There is no "Amman" oil in SOMO's export price setting mechanism for the Asian market. This error has been repeated in previous annual reports due to CMP method; but, why SOMO representative in the MSG did not correct this apparent repetitive flaw!!

Also SOMO do not use "ICE Brent" or "NYMEX WTI" as marker crudes in its price formula for European and Americas markets.

SOMO is not "The revenue recipient government agency" for "Crude oil exports" and not recipient government agency for "the value of oil loaded by IOCs operating within the licensing rounds".!!!!

Moreover, IOBs do not make direct payment of export revenues to DFI.

When it comes to SOMO, the IP seems to be totally confused in understanding the role of SOMO and the flowchart of oil export revenues, or different parts of the report were written by different people without coordination among them!!!

The focus on "Budget allocation" and "actual transfer" regarding petrodollar and governorate development funds is misleading because it ignores the chronic problems regarding actual spending and how it was done; as the experience since 2010 demonstrates.

There is no West Qurna oilfield; what there are WQ1 and WQ2 oilfields and each is contracted to very different consortiums of IOCs, offered under different bid rounds and thus having different technical service contracts.

Moreover, Majnoon oilfield has been under the National Efforts since mid-2018.

There are no reconciliation done for "Quantities and Values of Crude Oil, Oil Products and Gas provide to Refineries, Oil Products Distribution Company and Ministry of Electricity during" between related entities and MoE.

Occidental (Oxy) relinquished its participation interest in Zubair oilfields in 2016; so why it lifted more than 7.6 million barrels in 2018!!

I have computed that average oil price for "Crude oil lifted by the licensing round companies in exchange for cost recovery and remuneration fees entitled to them" was $64.29426 a barrel, while the average oil price for "Exported crude oil to International Oil Buyers" was $65.73435 a barrel; IP provides no explanation or clarification for this price differentials or aware of it at all??

The report provides no information or data on DFI but refers to 18 page report, so who supposed to do the needed reconciliation comparative to SOMO or IOBs data!!??

The Report says "The revenues of crude oil exports in both the federal Iraq and the Kurdistan region are considered material revenues as their contribution to the total revenues of the extraction sector exceeds the materiality threshold of 1%." This is a manifestation of gross confusion and total misunderstanding, on part of the IP, of what "materiality threshold of 1%" is all about and what the purpose behind it.

The percentage of unpaid CIT by IOCs amounts to 19% of due CIT; this huge difference should have been investigated, specified and explained in details by the IP, but did not do it convincingly.

Total oil production was reported without making specific reference to the effect of the natural decline on base-line production particularly for the six oilfields contacted under first bid round. Ignoring this fact is erroneous and causes serious miscalculation especially with regards to remuneration fees and related CIT.

The "the value of internal service payments made by the MoF through SOMO to the North Oil Company to cover the cost of production that is exported" does not correspond to oil exported by this company compared to other NOCs such as Missan OC and ThiQar OC; IP provides no clarification or explanation!!

There are more important comments, but I think the above provides enough indication on the quality of the report.

IEITI Forthcoming Joint 2019/2020 Annual Report

Currently, IEITI is processing its combined annual report, i.e., for 2019 and 2020 in a single issue; the preliminary report (99 pages) was presented on September 2021 and the final report is scheduled for publication on March 2022.

The structure of the preliminary report is, in substance, similar to that for 2018, with one important difference or improvement, i.e., MSG remarks on 2019/20 report.

Item twelve of the preliminary report provide 44 different remarks made by MSG members; some of the remarks are broad and generic, while others are specific and to the point.

It remains to be seen whether and how IP addresses, these remarks as well as my notes mentioned in the previous part above, in its final joint report due in March 2022.

As there are only three months left to deadline for releasing the 2019/2020 annual report, it might be a farfetched hope for a well improved report.

Concluding remarks

  • By end March 2022 IEITI have had issued twelve annual reports; on the face of it this is impressive record. IEITI should have accumulated enough human and systemic professional capacity at its National Secretariat to have active, proactive and impacting contribution in preparing the annual reports and to ensure its quality control;
  • It is about time that IEITI and EITI (IS-Oslo) take a stock of the experience so far and revise the structure, contents, methodology and the process for future annual reports that should focus on recent issues and their future implications more than the repetition of a distant past.
  • Future reports should focus on providing detailed and verified data relating to the operational aspects of bid rounds field development in terms of reconciled costs (Capex and Opex), payments, remuneration fees, taxes-CIT among others more than repetition of their contracts terms that have been known since 2009/2010.
  • Comparative data for field manged by national efforts and those manged by IOCs should be provided in as much details as possible and reconciled accordingly.
  • The same applies to different SOMO activities according to a well-articulated matrix comprising different types of crude for different market configurations and related data reconciliation framework. Records of actual oil export price setting during the year should be provide instead of repeating SOMO's standard document.
  • Corruption has become very serious complex problem in the country, and much of it is in the extractive activities; yet not a single word on corruption was mentioned in IEITI Final Annual Report 2018 or in the preliminary report for 2018/2020 report. Future IEITI should provide sufficient cover on this issue.
  • All contracts signed under the bid rounds have mandatory obligations to undertake at least two Environmental Impact Assessments-EIAs. IEITI annual report should call upon MoO and related IOCs to undertake and publish these EIAs.
  • All contracts signed under the bid rounds have non-refundable contribution to TTS Fund which has a total annual allocation that exceeds $55 million. IEITI annual report should provide comprehensive reconciled data on the annual utilisation for such funding.
  • A "Validation" mission, as per EITI framework, is scheduled for July 2022; it could be an opportunity to address the necessity and feasibility to improve IEITI future annual reports as proposed here. Unless such change and improvement take place, future IEITI reports will be released unnoticed, with no real impacts and become unnecessary formality.

Click here to download the full report in pdf format.

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq's Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad's biography here.

Posted in Ahmed Mousa Jiyad, Iraq Industry & Trade News, Iraq Oil & Gas News
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Ahmed Mousa Jiyad 6

IOC's Strategic Positioning in Iraqi Upstream Petroleum


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By Ahmed Mousa Jiyad.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

IOC's Strategic Positioning in Iraq Upstream Petroleum

Much talk have been circulating recently on "Big Oil" abandoning Iraq upstream petroleum projects after they rushed into the country many years ago. How much truth is in this; who is leaving, remaining and planning a comeback; why and what material evidences are available to provide verifiable realistic explanation are some of the topics this brief intervention attempts to address.

IOCs positioning in Iraq upstream petroleum have seen a dramatic shift since a Grand Opining Big Push Policy- GOBPP was pursued in 2004; offering IOCs opportunities to achieving unprecedented expansion in the petroleum production capacity during short period.

Their involvement and strategic positioning went through three phases: the first, 2004 to end 2008, comprises many memoranda of understanding/cooperation (MoU/Cs ) in search for foothold and as springboard for further opportunities; transparent competitive bidding phase, June 2009 to May 2012, includes four bid rounds and, third phase covers contracts implementation that began from January 2010 up to date.

Ministry of Oil- MoO concluded some 40 MoU/Cs with IOCs from 23 countries, with overwhelming dominance of the US (9); Japan and Norway (4 each); China, UAE, UK and Canada (2 each) and one company from 16 countries.

For IOCs, MoU/Cs represent invaluable direct contact with Iraqi staff and professionals at all layers of responsibility and access to most archives and database relating to upstream petroleum; that helped IOCs exploring where and what they could do to chart their way towards business in Iraq's upstream petroleum and beyond, i.e., to plan their strategic positioning in the sector. Some IOCs had their MoU/C terminated and were blacklisted from further involvement in upstream petroleum projects, due to their agreements with KRG in violation of the government declared policy.

MoU/Cs contributed in formulating and development of a model contract, and by the time they were terminated MoO succeeded, through direct government-to-government talks (with China), in converting Alahdab oilfield from production sharing to service contract. That conversion presents the model for what MoO offers: a long term service contract not a production sharing contract; an outcome many IOCs had not hoped for and probably impacted their decision for further undertaking.

The first bid round, for brown oilfields, was held end June 2009, followed by three bid rounds for green fields, gas fields and exploration blocks respectively; the last was convened end May 2012.

120 IOCs participated in the qualification process for the bid rounds, 55 from 27 countries were qualified: Japan (9); USA (7); Russia (5); China and UK (4 each); Australia, India and Italy (2 each), and 19 other countries with one company each; a different profile from phase one with obvious strategic positioning implications.

The outcome of the four bid rounds and Alahdab are: 14 oilfields contracted to 15 IOCs from 12 countries; a consolidation of strategic positioning. Total contracted plateau production was 12.3mbd and their total proven reserves ca. 67 billion barrels (58% of the country's proven reserves at that time). Three gas fields were contracted to 3 IOCs from 3 countries with total plateau production of 820mcfd and proven reserves of 11.2tcf. Finally, four exploration blocks were contracts with 7 IOCs from 5 countries resulting in discovery of Fayha and Eridu oilfields.

The contracted plateau production of 12.3mbd was IOCs making that proven to be unrealistic and unattainable, thus, consequently revised downward repeatedly!!

During the second phase many meaningful signs for significant shift in IOCs strategic positioning began to emerge, the most apparent consolidation was Russia.

The third phase, i.e., contracts implementation period, witnessed the most dramatic effective and lasting shifts in IOCs strategic positioning.

A complexity of combined reasons had contributed to such an outcome; some are related to IOCs themselves, others related to the Iraqi side (entities, policies and circumstances), while the rest are related to a variety of international factors and geopolitical considerations. Space limitation prevents from indulging in the details of relevant data, facts and documents, but it is useful to mention the most impacting among them: Fracking revolution in the US; ISIS and oil price collapse in mid-June 2014 that inflicted serious blow to Iraq fiscal, security and developmental efforts; OPEC+ impact on Iraq production; Covid-19 and finally energy/green transition and climate change debate.

However, it is vital to highlight briefly the IOCs that strengthened or weakened their positions during this phase.

In the context of Iraqi GOBPP, strategic positioning is taken here to mean IOCs persistent, competitive, enhanced and long-term underrating in Iraq upstream petroleum. Three dimensions manifest IOC involvement and its strategic positioning: horizontal (in multi-fields), vertical (the participating interest-PI in the fields) and volumetric (in terms of proven reserves and production due to field development).

From November 2013 China began enhancing its presence in the country through consolidating CNPC , CNOOC, ZhenHua , Sinopec , UEG and probably CPECC, which   invests in utilizing all associated gas produced in Missan Province . In addition to the above, there are many Chines service companies that are involved in upstream petroleum activities such as drilling, supply and construct surface installations, pipelines, field management among others.

Russian Lukoil enhanced its position vertically horizontally and volumetric in West Qurna 2-WQ2 oilfield and in exploration Block 10 that led to Eridu oilfield discovery; Lukoil found other reservoirs beyond the field's current borders and thus requested to expand Eridu field. Surprisingly, the Oil Minister reportedly said recently Lukoil intends to sell its PI in WQ2 to a Chines company!

Other Russian IOCs with bid round contracts include Gazprom (operator of Badra oilfield) and Bashneft/ Rosneft (for Exploration Block 12), KRG not included here.

In addition to Chines and Russian IOCs Japanese companies increased their presence as well: Japex (Gharraf oilfield); INPEX (Exploration Block 10/Eridu oilfield) and Itochu bought entire Shell' PI (20%) in WQ1.

Against the consolidation of the Chines, Russian and Japanese companies, other IOCs lost or weakened their presence in upstream petroleum; these include Big Oil- as ExxonMobil, Shell and Oxy and medium-small size companies such as Petronas, Kogas, Kuwait Energy, TPAO.

Occidental Petroleum relinquished, in 2016, its PI in Zubair oilfield to South Oil Company (now Basra Oil Company), due to its decision pulling out from projects in the Middle East for financial reasons.

ExxonMobil demise began almost ten years ago soon after it had attained significant consolidation; a demise of its own making!! Apart from the contribution of the Iraqi factors ExxonMobil faced and facing many other challenges that exacerbate its decision to abandon Iraq. These include restructuring its international profile; energy transition (away from fossil-based to renewable-energy) environmentally-conscious; shareholder revolts, expulsion of ExxonMobil representative from EITI'MSG due to position regarding Dobb-Franck issue and the forthcoming SEC environmental compliance rules.

Royal Shell story is not very different from that of ExxonMobil. Shell launched initially a powerful strategic positioning, resisted the temptation of engaging with KRG petroleum and diversified its portfolio in oil, gas and petrochemical projects. Now it has much weakened role; withdrew from Majnoon oilfield, sold its PI in WQ1, rumors that it contemplate leaving Basra Gas Compan- BGC , whose  HoA was signed in 2008 but it did not deliver the contracted target, and Nibras petrochemical project, with MIM & MoO, draggeed for too many years without any prospect.

Again, Shell decision to leave WQ1 and Majnoon oilfields and possibly BGC was not entirely due to contractual and working conditions in Iraq; one possible explanation relates to Shell' overall plan to restructure its global business, following its takeover of British Gas Group- BGG. Also Shell faces legal action; A Dutch court ruled, recently, that Shell will have to reduce its carbon emissions by 45 percent from 2019 levels by 2030.

BP has only one engagement- Rumaila oilfield, with almost equal PI with CNPC (while during the June 2009 bidding round BP' PI was double that of CNPC). Recently, BP decided to spin off its involvement in Rumaila into a stand-alone company, a "ring fencing practice", for reasons relating to diverting its global assets and investment plans.  Though this move is more structural and organizational in nature that has, contractually, no effect on Iraq, it, nevertheless, could indicate possible departure from Rumaila sooner or later.

Total, rebranded TotalEnergies, have very modest PI in only one oilfield- Halfaya, is trying a comeback to Iraq through concluding HoA comprising four major projects, three of which are part of SIIP that Iraq wasted too many years discussing with ExxonMobil!!

Surely, IOCs strategic positioning has significant implications for petroleum sector and the prospect of the entire economy. There has been a tendency for some to be highly selective by focusing only on one Iraqi based, real reason, such as harsh contractual terms; type of contracts; corruption, resource mismanagement and security conditions among others. While all these are real and effective, they are absolutely not the only factors behind IOCs shift and change of priorities as there is a complex wed that one should be aware of; 20 IOCs have recently warned for tax violation and IOCs that lost their strategic positioning inside Iraqi petroleum had themselves contributed to that outcome.

Moreover, global energy/green transition and international geopolitics have powerful ramifications though the debate is, as usual, not conclusive. While IEA recent report could have effective impact, REN21 new report raises doubt; and such wide divergence suggests oil remains needed much longer than some thinks.

Click here to download the full report in pdf format.

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq's Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad's biography here.

Posted in Ahmed Mousa Jiyad, Iraq Oil & Gas News
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Ahmed Mousa Jiyad 6

The Demise of ExxonMobil in the Iraqi Petroleum Sector


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By Ahmed Mousa Jiyad.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

The Demise of ExxonMobil in the Iraqi Petroleum Sector

A recent announcement by the Ministry of Oil (MoO) confirms months of speculation regarding ExxonMobil exiting one of the world's super-giant oilfields, i.e. West Qurna 1 (WQ1).

Ten years ago this highly recognized IOC had golden opportunity to operate three giant oilfields in the southern Iraq with a combined production plateau of 6.275 million barrels daily (mbd); an opportunity unavailable anywhere in the world, but now this company exiting the country empty-handed!!

Why was that? What went wrong? Who is to blame? Should any lessons be learned from this failed venture and what are the implications for Iraq as well as for ExxonMobil?

This article attempts to answer briefly the above questions and provide background review that could help in understand the complexity of the circumstances that contributed to and led to this eventuality.

ExxonMobil back in Iraq

IOCs comeback to Iraqi upstream petroleum began in earnest immediately after 2003 invasion.

ExxonMobil was one of too many IOCs that concluded Memorandum of Understanding/ Cooperation- MoU/C with MoO in 2004. That MoU/C was signed on 27 October 2004, renewed twice and remained valid until end of 2008; it comprises conducting seven joint studies and training. The joint studies includes: phases 1 &2 for the development of Zubair Oilfield; Seismic and evaluation study for exploration (old) block 12; Database; Model Tender Document  for exploration block 12; Rehabilitating Oil Training Center in Baghdad; Balad Oilfield; Deep drilling program for South Rumaila. Also, ExxonMobil committed to provide training for 129 MoO employees, totaling 1068 working days, during 2005 and 2006.

When MoO decided to hold the first bid round, ExxonMobil was one of seven American companies that were qualified, among 35 IOCs, for participating in the bid round that was held on 29 and 30 June 2009.

ExxonMobil formed three consortia and submitted bids for three oilfields but won nothing during the two days of the competition.

The first consortium with Petronas for Rumaila oilfield; eventually BP/CNPC won when they reduced their remuneration fee to the threshold stated by MoO;

The second consortium with Shell and Petronas for Zubair oilfield competing with three other consortia: Eni/Sinopec/Occidental/Kogas; CNPC/BP; Gazprom/ ONGC/ Turkish Petroleum. The third consortium with Shell for West Qurna1 oilfield competing with four other consortia: CNPC/Petronas/Japex; Lukoil/Conoco; Total; Repsol/StatoilHydro/Maersk.

None won during the biding event.

In October 2009, ENI accepted the MoO' maximum remuneration fee and agreed to expel Sinopec from its consortium, because Sinopec agreed, days after the biding event, to a C$8.3bn (US$7.2bn) takeover of Addax, which had a stake in the KR TaqTaq field. Hence, ENI consortium secured the Zubair contract.

As for WQ1 it was a totally different story.

Early October 2009 a BBC Monitoring report quoted Lukoil boss Vagit Alekperov had said, "We have let it be known to Iraq's Oil Ministry that the consortium of Lukoil and ConocoPhillips is ready to enter into direct talks concerning the West Qurna-1 project on the terms that were announced earlier by Iraq's Oil Ministry,"

Probably, ExxonMobil found itself left behind and empty-handed from the first bid round since BP/CNPC won Rumaila; ENI lead consortium secured Zubair and now Lukoil and ConocoPhillips conceding to MoO terms regarding WQ1. Moreover, ExxonMobil had no intention to participate in the second bid round to be held in December 2010.

All the above prompted ExxonMobil/Shell, four weeks after Lukoil and ConocoPhillips announcement, to present similar acceptance of MoO terms regarding the maximum remuneration fee.

The Ministry favoured ExxonMobil/Shell by not considering Lukoil/ConocoPhillips offer promptly, and when ExxonMobil/Shell made their offer it was selected; presumably due to suggested production plateau target-PPT differential that tilted towards ExxonMobil/Shell!!! The Cabinet approved the award of WQ1 to ExxonMobil/Shell on 25 January 2010.

But ExxonMobil negotiated secretly with KRG after the company secured WQ1 contract with the federal ministry and it had signed the second amendment to the contract on 18 August 2010 adding 500kbd to an already high PPT at a higher remuneration fee of $2/b.

ExxonMobil-KRG secret negotiation led to signing six production sharing agreements on 18 October 2011, though it knows of the blacklisting policy by the federal ministry of oil, i.e, ignoring and disregarding the federal government imposed policy.

Contracts with KRG add insult into injury since three of these contracts are related to exploration blocks and fields that fall within the "disputed territories"; these are Bashiqa, Al Qosh and Qara Hanjeer, the other three are Arbat East, Pirmam and Betwata.

That unwise and puzzling move by ExxonMobil led to excluding it from leading the Common Seawater Supply Project-CSSP; reducing its Participating Interest in WQ1 (through the Third Amendment of the contract dated 28 November 2013) and blacklisting it from any future upstream projects such as Nassiriya Integrated Project-NIP.

That unwise action was writing on the wall that had in fact commenced the demise of this giant IOC in the Iraqi upstream petroleum.

The position of ExxonMobil in WQ1 weekend further when Shell exited WQ1 after it had exited Majnoon oilfield in June 2018.

ExxonMobil attempted a comeback to Iraqi petroleum, by exploiting the naivety and narcissism of a former Minister of Oil, Jabbar Luaibi, through Southern Iraq Integrated Project- SIIP. He and ExxonMobil were close to trap Iraq in an Odious Contract. The Ministry of Oil was cautioned of the detrimental consequences of such a contract and luckily for Iraq that contract was dismissed.

The rise and fall of ExxonMobil in KRI was even more dramatic despite the fact that KRG offered lucrative production sharing agreements. Media sources' report that ExxonMobil had conducted geological studies that doubted the existence of enough reserves in most of these blocks. Such results prompted Exxon to relinquish three of its six blocks: Betwata in 2015, and Qara Hanjeer and Arbat East in 2016.

Of Exxon's six blocks, Bashiqa may be the most promising.  However, in 2017, it transferred half of its 80 percent interest in this block - along with operatorship - to DNO and early this year it agreed to sell 32 percent to DNO, which practically and effectively ends ExxonMobil involvement in this block. Finally, ten years on with no much progress in AlQosh and Primam.

ExxonMobil adventure in Kurdistan Iraq ended, mostly, miserably!

To sum up, in that first biding round the company had three valuable opportunities and, analytically and legally, it and its partners could have won all three super-giant oilfields (Rumaila, Zubair and WQ1) with a combined production plateau of 6.275 million barrels daily-mbd against a combined minimum PPT proposed by MoO of 2.758 mbd; it won nothing during the bidding event!!!!!!!!!.

Instead, ExxonMobil sought a divisive course of action in the domestic Iraqi politics by concluding ill-fated PSAs with KRG; was that due to lack of vision, or geopolitical nativity or arrogance that still reflects a "Seven Sisters" mentality, or a hidden political agenda aiming at disintegrating the country; who knows!!!!!

What went wrong with ExxonMobil and its economic model?

Many views argued that the fiscal terms of the Iraqi long term service contract-LTSC for WQ1 are tough enough that eradicate the Internal Rate of Returns-IRR of the economic model which the IOC premised its final investment decision-FID on it.

This might be partially true as the comparative analysis of LTSC with other types of contract, particularly the production sharing contracts-PSCs indicates the "Government take" are higher under the LTSC than the PSCs. This, from international energy political economy perspectives is good for Iraq and, moreover, that corresponds with the Iraqi constitutional provision that calls for "develop the oil and gas wealth in a way that achieves the highest benefit to the Iraqi people" (Article 112, Second)

Nevertheless, contractually and analytically LTSC for WQ1is identical in structure, contents and fiscal terms, except the particularities of WQ1 oilfield,  to all LTSCs for the brown fields offered under the first bid round, i.e, Rumaila, Zubair and the 3 Missan oilfields- Buzurgan, Abu Ghrab and Faqa. This leads one to question why ExxonMobil finds the fiscal terms unfavorable while other IOCs continue in the redevelopment of the oilfields.

It took almost one year to prepare for the first bid round and the final text of the LTSC was thoroughly examined by all qualified IOCs for that bid round. Logically and imperially, all IOCs should have formulated their economic model and bid on what the LTSC offers. It is rather surprising to claim, ten years later, that the offered fiscal terms do not match with the company economic model!!

The economic model of any IOC is its own making; reflecting its vision, its global profile, strategic positioning, strengths, and stakeholder/shareholder's interests among other things. Accordingly, the level of IRR is the fiscal measure upon which the FID premised. Majors or Big Oil usually have high IRR, due to their international profile , their integrated structure across the value chain of petroleum industry and the "opportunity cost" of a particular investment.

IRR under LTSC fiscal terms depends mostly and directly on: production level, capital cost-investment, cost recovery and remuneration fee; indirectly it depends on oil prices through the term of "deemed revenues" provision that impact the quarterly cost recovery and remuneration fee entitlement.

Oil price fluctuates, and nothing new about that at all; its fluctuation like a "Yu-Yu" is more normal and usual than otherwise. Iraqi oil export price averaged at $53.19 a barrel during the 12 months period November 2008-October 2009; the time that IOCs considered oil prices in their economic model. During the period from July 2008 to March 2021 Iraqi oil export price averaged at $69.55 a barrel; hence the argument that IRR eradication was attributed to oil prices and, accordingly on cost recovery and remuneration fee is not convincing.

What remains is the impact of oil production level on IRR value. Oil production levels have implications and direct impact on capital cost, cost recovery and remuneration fee, and hence on IRR.

For WQ1 the MoO requests a minimum plateau target of 600kbd during the first bid round. ExxonMobil presented 2.325mbd, i.e., nearly four folds what MoO had envisaged!! Moreover, soon after signing the contract ExxonMobil requested adding further 500kbd leading to higher plateau target at 2.825mbd.

ExxonMobil should have known that such unreasonable unattainable plateau target within the contracted timeframe weakens the logical premises of its economic model and the assumed IRR; it was a problem of its own making and shed much doubt about the validity and soundness of its model not the LTSC stringent fiscal terms.

However, Amendment 4, signed on 19 February 2014, to WQ1 contract, provides further relieves from the terms of the contract such as reducing the plateau target, performance factor and R-Factor among others that provide significant fiscal incentives to WQ1 consortium.

All the above refutes the argument that put the blame squarely on the terms of the contract in the deteriorating IRR and ExxonMobil economic model.

Even if one, for the sake of the argument, accepts for a while the tough terms of WQ1 contract, what about ExxonMobil economic model for KRG' PSCs!!

All commentators and oil experts agree that KRG' PSCs provide lucrative terms for the benefits of the IOCs. Why then ExxonMobil fails measurably there too?

Was that demise due to wrongly-premised economic model or "inside-misguidedness"!! Media sources revealed that Ali Khedery, a former American diplomatic advisor in Iraq who subsequently joined Exxon as director of public and government affairs for ExxonMobil Kurdistan Region of Iraq Limited (EMKRIL), Exxon's KRG-focused subsidiary, "had facilitated the negotiations that brought the company to Kurdistan." Was ExxonMobil victimized by its own staffer!!!!???

ExxonMobil Exit and MoO Options

Contractually, to exit WQ1, ExxonMobil should invoke the termination Article 8 in WQ1 service contract, particularly sub-article (8.2) and, therein, sub-article (8.1 (c)). If ExxonMobil wishes to assign its rights and obligations, as it seems doing so far, it should comply with the provisions of Article 28-Assignment.

Available information indicates that the company launched the contractually exiting process in January by sending a formal letter to notify MoO it had found prospective buyers; ExxonMobil and MoO had three months, until 28 April, to agree on a course of action.

The ministry has three options: the first is to accept the prospective buyers found by ExxonMobil; 20 percent to CNOOC and 12.7 percent to PetroChina-CNPC. This means increasing CNPC participating interest to 45.4% and increase China position in WQ1 to 65.4%.

The second option is to find another American company to acquire ExxonMobil share; this what the Ministry has publically announced and it seems to favour Chevron, but Chevron  was reportedly not hugely encouraged to invest in WQ1. (But again Chevron was blacklisted by the Ministry due to the company' involvement in KRG oilfields, though such blacklisting was revoked, unofficially, during the time of former minister Jabbar Luaibi. He paving the way for this company to enter the upstream petroleum through direct backdoor. By the way the Iraqi team in MoU/C with Chevron 2004-2008 was chaired by Jabbar Luaibi).

The third option is to acquire ExxonMobil share by the Ministry through Basra Oil Company-BOC or any other national companies affiliated under the Ministry. This option is similar to what was done when Occidental - Oxy relinquished its participating interest in Zubair oilfield

In any of these options, the Ministry should extract a "capital gain tax-CGT" from the total value of the sold share. The Iraqi tax authority decides the CGT rate, the estimation equation and the compounding rate to arrive at the present values taking into consideration three related variables: the value of the sold share (minus) the present value of the invested capital (plus) the present value of the recovered invested capital (cost recovery).

In my article written almost twelve years ago assessing the first bid round I wrote the following: "What is rather surprising is the somewhat weak contribution of the American oil companies. While they topped the 35 qualified IOCs with 7 companies, only three had participated in the bidding. Were they expected to capitalise on the American military presence and political pressure to have guaranteed access to the Iraqi oil? Or they simply have their own capacity, technical and financial limitations? Or Iraq is not on their strategic priority screen? Or they are trapped in a mind-set of own making that centred on production sharing agreements and "reserves booking"? Or they are not used to this type of open bidding and transparency, and they prefer behind closed doors deals? Only time would provide the satisfactory answer." (MEES 52:33 17 August 2009)

Any lessons learned, Ministry of Oil????????

Click here to download the full report in pdf format.

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq's Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad's biography here.

Posted in Ahmed Mousa Jiyad, Iraq Oil & Gas News
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Qurna, Fao, Zubair, Basra

Zubair Oil Production hits 500k bpd


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By John Lee.

Zubair oilfield has reportedly reached a production level of 500,000 barrels of crude oil per day (bpd).

According to Business Korea, Kogas made the announcement on Thursday, adding that its "second-stage goal" is 700,000 bpd.

The project is being developed by Eni (32.81%), Kogas (18.75%), Maysan Oil Company (25%), and South Oil Company (23.44%). Occidental had a 23.44 percent share in the field, but relinquished it to the state-owned South Oil Company in October 2016.

(Source: Business Korea)

Posted in Construction & Engineering In Iraq
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Loris Tealdi, Managing Director, ENI Iraq (CWC)

Interview with Loris Tealdi, Managing Director, ENI Iraq b.v.


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The eleventh edition of the Iraq Petroleum Conference taking place on 22-23 May 2017 in London is set to gather the Country’s industry experts to discuss the future of Iraq’s hydrocarbons sector.

Ahead of the conference, CWC Group Director Nawar Abdulhadi interviews one of the key speakers of this year’s event, Mr Loris Tealdi, Managing Director, ENI Iraq b.v. Mr Tealdi shares his experience working on the Zubair oilfield, how Eni is working towards innovation and his outlook for the future of the industry.

Nawar Abdulhadi: Why is Iraq such an important market for the global oil and gas industry?

Mr Loris Tealdi: Iraq is historically one of the most important areas in the world in term of oil reserves and production potential. In addition, there may be also future evolutions to improve gas valorisation and empower the downstream sector.

The Iraq reservoirs are of great size and excellent properties. On top the government is quite open to the application of new technology and innovation that can lead to very important results in term of production enhancement also in the short run. Eni has a story to tell here: the exceptional oil production ramp-up of over 70% that we had in giant Zubair field over the last 2 years.

 

Nawar Abdulhadi: How does the Government of Iraq and the oil and gas industry work together to drive innovation?

Mr Loris Tealdi: The drive for development is the effective deployment of new technology; here the presence of IOCs in the country and the effective know-how transfer from the industry to the brightest Iraqi personnel can be the leverage for a significant improvement from many perspectives. As far as Eni is concerned in Iraq, an important event that marked a new attitude of the country is the entry of SOC as second party in The Zubair JV replacing Occidental after its withdrawal in 2016. This event is a step change in the cooperation between IOCs and NOCs in Iraq and has the potential to strengthen win-win solutions and to further improve the deployment innovative technology In Iraq.

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Posted in Iraq Oil & Gas News
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screenhunter_4393-oct-05-14-58

South Oil Company takes over Oxy's stake in Zubair


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By John Lee.

The South Oil Company (SOC) has officially taken over the stake in the Zubair oil field formerly held by US-based Occidental Petroleum, which has withdrawn from the project.

Repressentatives of Italy's Eni and the Korea Gas Corporation (KOGAS) signed the agreement along with the Ministry of Oil.

Mr. Laith Al-Shaher, the director general of the legal directorate in the ministry, said that output at the field has increased from 150,000 bpd in 2010 to 400,000 bpd today. There are plans to increase this to 450,000 bpd next year.

He said that Occidental was pulling out of all projects in the Middle East because of the global financial crisis and the oil prices drop.

Mr. Ahmed Fadhil, the deputy director general of SOC said his company entered the consortium with a share of 29.95 percent.

(Source: Ministry of Oil)

Posted in Iraq Oil & Gas News
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Drake and Scull, water injection

DSI Wins $61m Zubair Project


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Dubai-based Drake & Scull International PJSC (DSI) has announced that it has been awarded a AED 226 million ($61 million) engineering, procurement and construction (EPC) contract for the construction of a water injection network installation project at the Zubair oil field in Basra, Iraq by ENI Iraq B.V. (EIBV) a subsidiary of the Italian oil and gas multinational firm ENI S.p.A.

EIBV is the Lead Contractor of the Zubair Project consortium which currently comprises EIBV, Occidental of Iraq LLC and KOGAS Iraq B.V. which is undertaking the redevelopment of the Zubair Oil Field.

Under the terms of the agreement, Drake and Scull Oil & Gas (DSOG) will oversee the Engineering, Procurement and Construction (EPC) of a gas supply pipeline system to a power plant in addition to water injection systems consisting of flow lines, trunk lines, manifolds stations and wellheads hook-up work to enhance oil recovery. Mobilization activity on the project has commenced with a scheduled completion of early 2018.

Commenting on the project award, Wael Allan, Chief Operating Officer (COO) of Drake & Scull International PJSC, said:

Drake & Scull Oil and Gas continues to achieve substantial progress and has gained a noticeable foothold in the oil and gas infrastructure construction sector in the MENA region in short period. The contract award has also raised DSI’s total project wins to AED 570 million in very challenging circumstances.

"We are confident that our high margin businesses including Oil & Gas, Rail & Infrastructure and Engineering will significantly contribute to our sustainable growth, in line with our strategy of focusing on profitability and cash generation.

Fares Khatib, Managing Director of Drake and Scull Oil & Gas added:

The Zubair oilfield contract is a positive development for DSOG, particularly as it represents our second collaboration with EIBV. EIBV had previously awarded DSOG the EPC pipeline installation contract for the Zubair oil field in 2012 which was successfully completed in 2015 on the strength of our in-house engineering management, procurement and construction capabilities. 

"Our prior experience with EIBV in Zubair oil field will prove invaluable in ensuring the successful execution of project delivery on the new project award. We are committed to leveraging the skillset and experience of our teams in Iraq & Abu Dhabi to achieve scheduled project progress and meet our completion target.

DSOG has established its credentials in undertaking large scale, complex Oil, Gas, Chemical & Petrochemical-related projects across the wider MEA region. The company has successfully delivered prominent projects such as the EPC pipeline installation Project for the Zubair oil field in Iraq.

(Source: Drake & Scull International)

Posted in Construction & Engineering In Iraq, Iraq Oil & Gas News
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Stephen Chazen, Occidental

Occidental to sell Zubair stake to Iraq's South Oil


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By John Lee.

Occidental Petroleum intends to sell its stake in the Zubair oilfield to Iraq's state-run South Oil Company (SOC), according to a report from Reuters.

The news agency quotes ministry spokesman Asim Jihad as saying on Wednesday:

"Occidental asked the ministry for permission to sell its stake in Zubair field and the ministry is in the process of approving the request. South Oil Company will acquire Occidental's stake."

Occidental holds 29.69 percent of the field, with Italy's Eni holding 41.56 percent and operating the field, while South Korea's KOGAS has 23.75 percent and Iraq's state-run Missan Oil Company owns 5 percent.

(Source: Reuters)

(Picture: Stephen Chazen, President and CEO of Occidental)

Posted in Iraq Oil & Gas News
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Seung-hoon Lee, KOGAS

KOGAS to Invest $4.9bn in Zubair


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By John Lee.

The Korea Gas Corporation (KOGAS), the state-run South Korean gas company, is to invest $4.9 billion (5.7 trillion Iraqi dinars) to develop the Zubair oilfield.

In a stock exchange filing, the company said this investment is part of the total $19.4 billion capital expenditure required for the project, and added that it had invested $370 million in the first half of 2015.

KOGAS is developing the field together with Eni and Occidental.

(Source: Reuters)

(Picture: Seung-hoon Lee, CEO of KOGAS)

Posted in Iraq Oil & Gas News
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