Iraq the cradle of major oil boom as development begins

Country's largest field increasing output to 1.1 million barrels a day.

One of the biggest oil development booms in history may be starting in Iraq. BP, China National Petroleum Company and the Iraqi state-owned South Oil Company plan up to 100 wells by the end of next year to increase output capacity from the 17 billion barrel Rumaila oilfield, Iraq's largest.

"Development is truly getting under way in southern Iraq, with more and more oil companies and service providers mobilising," said Samuel Ciszuk, the Middle East energy analyst at IHS Global Insight. The companies have awarded US$500 million (Dh1.83 billion) of drilling deals and plan to boost Rumaila's capacity by about 10 per cent to more than 1.1 million barrels per day (bpd). The "supergiant" field was the only one for which Iraq's oil ministry awarded a long-term services contract in its first post-war auction of oil and gas licences last summer. Several more contracts were signed after a second bidding round in December.

ExxonMobil and its partner Royal Dutch Shell planned to raise output from Iraq's 8.7 billion barrel West Qurna phase 1 oilfield by about 13 per cent to as much as 260,000 bpd in the first quarter of next year, an ExxonMobil executive said on Monday on the sidelines of an oil conference in Baghdad. The companies will soon award a contract for a work camp and seek bidders for drilling contracts. Russia's Lukoil and its Norwegian partner Statoil will invest nearly $5bn to develop the 12.9 billion barrel West Qurna phase 2 field, and award several contracts to oil services companies by the end of this year, a Lukoil executive said. The first deal would be for clearing unexploded landmines.

Italy's Eni planned to award contracts for more than 100 new wells at the 4.5 billion barrel Zubair field. Iraq's oil ministry organised the two-day oil conference in Baghdad as a forum for foreign oil companies to discuss their plans and the obstacles they were encountering. The landmine hazard is the tip of the iceberg. Iraq also lacks most infrastructure for oil development, including pipelines, port facilities and roads. Also missing are agreements on who will form the country's next government and a federal oil law.

One industry source said ministry infrastructure plans were poorly thought out, including "pipelines going all over the Middle East like spaghetti". "The lack of sufficient infrastructure and local energy and contracting industry capacity is bound to be a problem," Mr Ciszuk said. Project managers who met earlier to co-ordinate their grievances complained about difficulties obtaining visas, work permits and landing permits for chartered flights.

They said it was hard to get permission to move material and equipment across the border from Kuwait. On Monday, Kuwait provisionally approved a special border crossing for oil companies working in Iraq. Meanwhile, Iraq said it was working on agreements with Kuwait and Iran to develop oilfields straddling their borders. Other signs of Iraq's oil industry pushing forward include a recent deal with the engineering company Foster Wheeler to manage expansion of the country's main southern export terminal.

Baghdad has also ratified a contract with Shell for harvesting gas from its big southern oilfields. The gas would generate power for the country's economic recovery, including its oil projects. An extra worry is that a rapid increase in Iraqi oil production could trigger conflicts within OPEC. Iran is understood to oppose assigning Iraq a higher OPEC quota than its own. But Iran's oil development is lagging as the country deals with sanctions.

Iraq is the only OPEC member without a quota. Johannes Benigni, the managing director of JBC Energy, said BP's big oil spill could cut future deepwater oil production by up to 1 million bpd, for which OPEC could easily compensate. The group would be "very happy to have an outlet" for additional Iraqi crude, Mr Benigni said. [e-mail]