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Shell in talks to cut Majnoon output target

Baghdad, May 8, 2012

Royal Dutch Shell is in talks with Iraq to cut the production target for the Majnoon oilfield, oil ministry documents show, in a move that may prompt discussions with other companies and lead to a downsizing of the country's unrealistic output goals.     

The documents, seen by Reuters, mention a reduction in the target at the super-giant Majnoon field to 1 million barrels per day from 1.8 million bpd.     

Shell executives met oil ministry officials on March 15 and also proposed to extend the oilfield's plateau period - the time in which its peak production can be sustained and which is to begin in 2017 - to more than 20 years from seven years now.     

Europe's largest oil company is also seeking to slash its overall development budget for the project, the documents said.     

"Shell proposed to extend Majnoon's plateau time to more than 20 years from 7 years and to cut required total development costs by $10 billion," the oil ministry document read.     

The proposals were made during talks between Shell and the oil ministry to hammer out the firm's final development plan for the field. Shell is the first foreign firm to hold such talks, according to oil ministry officials.       

Its discussions may prompt other oil majors to seek revisions to their existing deals with the ministry, reached when they were competing for projects in Iraq's two bidding rounds and made ambitious promises to win contracts.      

Shell has spent around $1 billion since taking over the field in 2010, and planned to invest another $1 billion in 2012.

Total spending over the life of the 20-year project was estimated to be around $50 billion.                 

Iraq's service contracts initially committed foreign firms to boosting capacity beyond 12 million bpd by 2017, but this target has proved unrealistic due to widely flagged infrastructure bottlenecks and logistical shortcomings.     

It is now targeting 8-8.5 million bpd, an amount that oil analysts and executives say may also be too ambitious.     

Royal Dutch Shell and minority partner, Petronas of Malaysia, won a deal to develop Iraq's Majnoon oilfield in the country's second bidding round in December 2009.     

The companies had proposed a per-barrel fee of $1.39 and a plateau production target of 1.8 million barrels per day.     

Shell's new target, if accepted, could lead to protracted discussions to amend the contract and ensure the new output target will not affect the project's economics.      

Iraq has signed multi-billion dollars deals with several international oil companies, including Shell, Exxon and BP, to develop fields in the south, where most of its crude is pumped. – Reuters




Tags: Shell | Iraq | Baghdad | production | Majnoon Oilfield | Output Target |

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