Shell blamed for Iraq's $4bn oil losses

Pipes are put in place as the land is cleared at Iraq's Majnoon oilfield, where the government is blaming Shell for production shortfalls. Ali Al Saadi / AFP

Iraq's oil ministry, struggling with sputtering output, blames the Anglo-Dutch energy giant Shell over US$4.6 billion in lost revenue due to production delays, a letter revealed yesterday.

The document, dated July 21, sharply criticises the foreign energy firm for shortfalls in oil extraction at the giant Majnoon field in southern Iraq and comes as oil exports have fallen to their lowest level in 16 months even while Baghdad has looked to cement its role as a key global energy producer.

Two separate sources with knowledge of the letter's contents confirmed its authenticity to AFP, but declined to be identified discussing the matter.

The letter was addressed to Shell's Iraq vice president Hans Nijkamp and bore the letterhead of the country's oil ministry petroleum contracts and licensing directorate.

According to parts of the letter seen by AFP, it stated that "production from Majnoon Oilfield ... has been stopped for an unacceptably long time" and added that "aggregated losses of production" at Majnoon amounted to 44 million barrels of oil.

"As a result, Iraq has suffered heavy direct losses, which we have determined conservatively at more than [4.6] billion US dollars," read the letter, which was written in English.

"Of course, Iraq continues to suffer losses each day as a result of Shell's failure to perform its contractual obligations."

It said that "the field has been shut down and the production stopped since 1st July 2012 based upon Shell's request to perform the rehabilitation of the existing surface facilities."

"This rehabilitation was to have been completed in four to six months with production resuming no later than 1st January 2013."

It continued: "So far, Shell has neither resumed the previous production ... nor achieved the first commercial production."

The ministry in Baghdad also alleged that the company has "not taken any serious measures to handle the associated gas produced from the field".

"The flaring of this gas has had a negative impact on Iraq both economically [ie revenue losses] and on the environment as well as it's in violation with the Iraqi laws," it continued.

A consortium of Shell and Malaysia's Petronas signed a contract with Baghdad in January 2010 to develop Majnoon, a giant oilfield in southern Iraq.

Shell holds a 45 per cent stake in the project, while Petronas has 30 per cent, with the remainder held by a state-owned Iraqi energy company.

The Shell spokesman Diego Perez and the Iraqi oil ministry spokesman Assem Jihad declined to comment on the letter.

* AFP