Oil executives look forward to Iraq production, but warn that challenges remain

Oil industry looks to Iraq for boost

LONDON — Oil industry leaders believe Iraq’s resurgence as a major producer will change the face of the world’s energy market, but they warn that the country — and the Middle East generally — still needs to improve infrastructure, security and export paths.

At the annual International Petroleum Week conference in London, energy executives and analysts said Iraq’s boost to production will have a profound impact, but were skeptical of the country’s target to raise output from the current 2.5 million barrels per day to more than 12 million in around six years.

Iraq last month awarded the last of 10 international licenses to develop oil fields as it looked to revamp an oil sector battered by years of sanctions, neglect and, most recently, postwar violence and political bickering.

Although it sits atop the world’s third largest proven reserves of conventional crude, the current production levels are far below its pre-2003 war output. Officials say international companies such as Shell, BP, Lukoil and Statoil are key to raising that output to its 12 million barrel plus target.

“I haven’t found a single person who finds that target achievable,” one industry member said at the London conference, where talks were held under the Chatham House Rule. The rule, which forbids the identification of executives and analysts, is designed to foster a more open conversation.

“It’s much lower than that, but even so, Iraq is a complete game changer, even if it delivers half of that,” he added.

The Baghdad target would rival the production of Saudi Arabia, which is seen as the de facto leader of the Organization of the Petroleum Exporting Countries. Saudi Arabia currently produces over 8 million barrels per day, but has an overall output capacity in excess of 12 million barrels per day.

The auction results for the Iraqi oil fields were mixed, with only 10 deals struck out of the 21 oil and gas fields offered during the two licensing rounds.

For the 15 international firms that won development rights in the various fields, the 20-year contracts were their first chance at access to Iraq since Saddam Hussein expelled foreign firms and nationalized the sector in the 1970s.

One executive said Iraq has much more work to do to improve infrastructure and reduce the chances of a terrorist attack — the oil ministry reported just last week that attackers had bombed a pipeline north of Baghdad, a frequent target.

The executive added that much would depend on the results of elections in March, which Iraqi officials hope will show that they are turning the country around following the turmoil and instability that has defined Iraqis’ daily lives since the 2003 U.S.-led invasion to topple Saddam.

“From the government which comes out of those elections, which we hope is free and fair, we’re looking for good multilateral support for Iraqi oil in the medium to long term,” he said.

Another executive said that the raft of contracts in southern Iraq, ramping up oil production in the area, would put pressure on the few available export routes.

The head of Iraq’s State Oil Marketing Organisation said over the weekend that the Rumaila oilfield, the country’s largest, will begin producing an extra 100,000 barrels per day by the beginning of July. The 17.8 billion barrel field is being developed by BP PLC and its partner CNPC of China.

Asked by reporters on the sidelines of the conference about that new target, Michael Daly, BP’s head of exploration, declined to comment in detail, saying only: “We’d be very happy with that outcome.”

Elsewhere in the region, an oil and gas executive from a major international said that his company would be interested in Iran, but noted that instability over the country’s nuclear ambitions made any foray unlikely in the near term.

“It’s politically constrained today,” he said. “And it looks like it’s getting worse, not better.”