According to the documents of the oil ministry, as the pipeline construction is getting delayed production of Royal Dutch Shell’s Majnoon oilfield will get delayed by three months and it will miss the target of producing 175,000 barrels per day,
The reports Reuters have seen, proves that Shell is worried about Majnoon’s missing its target and that is why, it has requested the government of Iraq for a waiver which will help with the recovering of the cost.
The problems faced by Shell shows the hurdles created by the infrastructure the oil operators face in the OPEC nation. A few major oil producers have signed deals with the autonomous Kurdistan region, because according to them this area is far more interesting that the Southern region which is under control of the government.
The documents Shell filed with the oil ministry shows that right now Majnoon is closed for maintenance, but problem with development can delay the completion of the pipeline construction until the first quarter of next year.
The official letter sent by the managing director of Shell at Majnoon says that, uncertainty of the First Commercial Production is a one of the biggest troubles in this project.
According to another document of oil ministry, South Oil Company has been requested by Shell to review its proposal and start recovering the cost by 2012 if Iraq cannot provide a route for exporting the oil produced by Majnoon.
The same document state that this steps will reduce the amount of risk of investment in this project.
One of the senior officials at the oil ministry of Iraq has provided a statement at the condition of anonymity and has confirmed that the construction of the pipelines was quite slow. He also added that Shell is also to be blamed for the slow development of Majnoon and its production.
Majnoon is in the same league with the other famous oil fields like Rumaila, Zubair and West Qurna Phase One and it has the total reserve of 12.6 billion barrels and it has been set up by the government to recover from the war and it’s after effect.
According to the statement made by Shell, in February of 2012 the production of Majnoon was 54,000 bpd, but the average products was 18, 600 bpd which is way less than the target planned for the year end.
The same filed used to produce 45,000 bpd when Shell came into picture in the year 2010.
Since then Shell has invested about 1 billion dollar and is planning to invest another billion dollars by the end of 2012.
Old pipeline
The 28 inch pipeline of Majnoon which exists presently cannot manage the projected target of crude oil production.
Dubai based Dodsal Group was assigned a contract of $106 million to build a 79km or 50 miles long pipeline covering the distance from Majnoon and the crude oil storage depot of southern Iraq near Zubair. This contract was assigned by the Iraqi government and its partners Shell and Malaysia based firm Petronas.
The ministry of oil rejected this former contract because of the cost and assigned the same deal to an affiliate of the ministry. According to the statement of the oil officials, this pipeline will not be finished until March of 2013.
The documents of the oil ministry show that the contract directorate of the Iraq has said that the dues will be cleared only after the commercial production commences.
Oil officials of Iraq have stated that the companies run by the state are working pretty hard to speed up the construction of the pipelines. Not only that, China Petroleum Pipeline has been called on board to build a part of the pipeline.
The same official has added that he drilling procedure at Majnoon is pert slow and three wells are complete after the contract of 15 wells was created an awarded in the august of 2010.
After showing has doubt about the capacity of Shell to meet their target of 175, 000 bpd target by the end of 2012, the official has also confirmed that the production of two other facilities with the capacity of 100,000 bpd crude oil which is very important to increase the product are yet to be finished in Majnoon.
Shell’s request for comments on the documents is yet to be fulfilled.
Majnoon has been shut since 26th June for maintenance and the statement made by company spokesperson reveals that the estimated time for the repair work is impossible to confirm.
One of the documents at ministry claims that the maintenance period will take about four months and it will start from July 1st 2012.
As the biggest oil producing company is Europe, Majnoon is a part of the portfolio of Shell and with 17 billion dollar worth gas joint ventures, and shares in the West Qurna 1 oilfield along with Exxon Mobil, the company is quite important in Iraq.