Photo courtesy of Chattahbox News Blog
Iraqi oil field near the Iranian border is not among fields foreign oil companies plan to further develop.

Anglo-Dutch energy giant Royal Dutch Shell PLC and Mitsubishi Corp. of Japan last month moved closer to pushing a new round of oil and gas infrastructure building in Iraq after signing an initial energy development deal with the oil ministry to process more than 700 cu ft per day of gas now flared at three domestic oilfields.

According to an Associated Press report, the 25-year deal could be worth at least $12 billion, but it still must be ratified by the Iraqi cabinet. The project is crucial to Iraq's intention to increase oil production, particularly for needed domestic use,  government officials told AP.

The deal would create a new entity, Basra Gas Co., to develop the project. State-owned South Gas Co. would have a 51% stake, Royal Dutch Shell would own 44% and Mitsubishi would have 5%. The new company will sell the processed natural gas and associated products such as liquefied natural gas (LNG) and liquefied petroleum gas (LPG) to domestic and export markets.

"We believe that this joint venture will make more dry gas available for power generation and reduce the amount of power taken from the domestic grid for oil production and is expected to help solve Iraq's chronic power shortages," says Hans Nijkamp, vice president of Shell Iraq.

Royal Dutch Shell had won a 20-year contact in late 2009 to raise output at southern Iraq's giant Majnoon oil field from 45,000 barrels of oil per day to a targeted production of 1.8 million bbl/d. It took effect in March 2010. Petronas of Malaysia has a 30% stake in that venture, while Iraqi state Missan Oil Co holds 25%. Majnoon has estimated crude reserves of 12 billion barrels and 9.5 trillion cu ft of gas.

The 2009 auction of oilfield licenses marked the re-entry of foreign companies into Iraq some 37 years after the country's oil industry was nationalized. Iraq has one of the world's largest oil reserves and is 11th largest in gas reserves. The new deals signed with global players could boost the country's output capacity to 12 million barrels per day. But until now effective production has been hampered by political instability, sanctions and wars.

Houston-based Halliburton, which serves as project manager for development of the Majnoon oilfields with global drilling giant Nabors Industries Ltd., and Iraq Drilling Co., has set up operations to dig 15 new wells, according to the terms of a $150-million contract signed in November 2010.

Seven of these drilling projects are set to begin by September. Halliburton CEO David Lesar told analysts on July 18 that “these contract delays have not dampened our enthusiasm for Iraq. We believe that Iraq will be one of the fastest-growing countries internationally in the coming years and we will benefit significantly as a result of a first-mover strategy."

Shell Iraq Petroleum Development B.V. awarded London-based Petrofac Ltd. a $240-million contract to provide engineering, procurement, fabrication and construction management services for a new early production system at the Majnoon field. It would compriseg two trains. each with capacity for 50,000 barrels of oil per day, along with upgrade of existing brownfield facilities.

Dubai-based Petronor FZE will develop Iraq Energy City near Basra as a next-generation supply base for oilfield service and independent contracting companies The firm believes it has a future capacity of 5,000 residents.