The delay in the construction of the pipeline in Iraq is all set to hamper the production of Majnoon oilfield operated by Royal Dutch Shell. The delay will be of about three months at the least and the field will not be able to reach the target of 175,000 bpd by the end of 2012. This is clear from the documents of the oil ministry.
A worried Shell has asked the Iraqi government to waiver the recovery costs in case Majnoon is unable to complete its commercial target for production by the end of the year. The documents shows that a contract is required even before the cost can be retrieved.
The troubles faced by Shell only highlights the hurdles all the oil operators have to face while working in the OPEC nations. Some of the biggest oil operators are right now signing deals with the autonomous Kurdistan region of Iraq. According to these oil operators, Kurdistan is offering better and more interesting conditions in comparison to the offers of the federal government of Iraq.
Presently Majnoon is closed for maintenance and the delayed development project is going to be deferred until the first quarter of 2013. This information can be derived from the documents Shell has filled with the oil ministry.
An official letter from the managing director of Shell at Majnoon says that the main worry in part of Shell management indeed is the delay and uncertainty in the delivery of the First Commercial Production through the pipeline!
Another document form the Oil Ministry has made it clear that Shell has also requested the chief of South Oil Company to start retrieving the cost if Iraqi government fails to provide the export route for dealing with the production of Majnoon oilfield.
The document also stated that this step will reduce the investment risk significantly.
A senior official from the oil ministry of Iraq has provided information on the condition of anonymity and he has said that the progress of the pipelines is rather slow, but he has also admitted that Shell is also lagging behind in boosting the production of the Majnoon oilfield.
Majnoon, with its storage of 12.6 billion barrels, is one of the most important oilfields of Iraq along with Rmaila, Zubair and Qurna Phase One, and all these oilfields are being developed by Iraq in collaboration with foreign companies to recover from the years long war and its negative effects.
According to the information from Shell, Majnoon produced about 54,000 bpd in February, but throughout the first quarter the production was only 18,600 bpd, which is way less than the target it has to fulfill by the end of the year.
During the time when Shell first took charge of this oilfield the production was 45,000 bpd way back in 2010.
From that time onwards Shell has spend about $1 billion and is planning to spend another $1 billion.
The old pipeline
The 28 inch pipeline that already exists will not be able to cope with the crude oil production by Majnoon.
In 2011, Iraq, Shell and Petronas of Malaysia had signed a contract with the Dubai based Dodsal Group for building the 79 kilometer long pipeline from Majnoon to Zubair in the southern part of Iraq. It was a $106 million worth contract.
This deal was rejected by the ministry on the ground of cost and then the same project was handed to an affiliate of the ministry. According to the officials, the pipeline will not be completed until the month of March in 2013.
According to the documents of the oil ministry, the contract directorate of Iraq has said that all the due payments will be paid only after the commencement of commercial production.
One oil official has stated that the state run companies along with the China Petroleum Pipeline have been called forward for completing certain parts of the pipeline.
The same official has also added that the drilling procedure of Majnoon is still pretty slow and only 3 of the 15 wells according to the contract of August 2010 has been built yet.
He has also questioned the ability of Shell to produce 175,000 bpd by the end of 2012 and has informed that two production facilities at Majnoon with eth total capacity of 100,000 bpd are yet to be completed.
All the requests to Shell to comment on these documents returned without any response.
The shutdown of the Majnoon oilfield took place in 26th June and a spokesman from the company has informed that the estimation for the repairing work is yet to be finished.
According to the documents of the oil ministry, the shutdown is implemented form 1st July, 2012.
In this context, it is to be remembered that Majnoon is just a part of the portfolio of Shell in Iraq. The largest oil company of Europe has a noteworthy amount of footing in Iraq and the reason behind that is the $17 million worth gas joint and the shares in the oilfield of West Qurna (which is lead by Exxon Mobil).