Page 4 - MEOG Week 48

MEOG Commentary MEOG
In first update for a
while, CPECC wins
West Qurna-1 work
The contract will ensure Chinese involvement in the West Qurna-1 field, with CNPC and its compatriots having increased their involvement in the Iraqi oil sector of late.
Iraq
What:
wQ1 is one of Iraq’s largest oilfields and currently produces around 480,000 bpd.
Why:
Iraq flares much of the gas that it produces and contracts have been signed with CPECC over the last year that make the Chinese firm a key part of Baghdad’s efforts to stop the rot.
What next:
Beijing wants its companies to retain a significant role in the development of Iraq’s oil and gas reserves and is happier to play a longer game than most.
LAst week, China Petroleum Engineering & Construction Corp. (CPECC) announced that it had been awarded a $121mn engineering con- tract for upgrade work at the giant West Qurna-1 (WQ1) oilfield.
The scope of the work includes upgrading gas extraction facilities at the field, which produces around 480,000 barrels per day (bpd) of oil from the 9bn barrel field.
A statement by CPECC’s parent firm, China National Petroleum Corp. (CNPC), said the work was due to be completed within 27 months, with a view to increasing output from the asset and reducing flared gas.
Flaring is a major thorn in the side for Iraq, which struggles to generate electricity to power its domestic grid, while wasting large volumes of gas.
Positioning
Little update had been provided about WQ1 since June, when operator ExxonMobil with- drew non-critical staff amid security concerns.
ExxonMobil owns a stake of 25% in WQ1 and is partnered by Japan’s Itochu (20%, bought from Royal Dutch shell last year), PetroChina (25%), Pertamina (10%) and south Oil Co. (sOC, 20%). The field holds an estimated 9bn barrels of crude oil reserves and the Ministry of Oil (MoO) has been pushing for its expansion, with the asset key to national production goals.
Even before shell withdrew, Middle East Oil & Gas (MEOG) understands that the MoO was talking to ExxonMobil about increasing its par- ticipation in the site, including raising the per barrel fee the company would receive, but tech- nical problems persist.
The developers of WQ1 are paid a maximum of just $1.90 per barrel of oil produced from the asset, compared with up to $6 per barrel at other fields, and the IOCs have so far baulked at increasing their exposure to the field.
It may be that CPECC and CNPC are tak- ing a longer-term view that by increasing their
involvement in smaller work at the field, they will guarantee a larger slice of the asset further down the line, particularly if ExxonMobil grows tired of the low returns from developing WQ1.
Laying down roots
CPECC has certainly been increasing its Iraq footprint during 2019.
In February, following the final investment decision (FID) on the $17.5bn south Gas Utili- sation Project (sGUP), Basra Gas Co. (BGC), a joint venture of Basrah Oil Co., shell and Japan’s Mitsubishi, signed a contract with the Chinese firm to carry out the work, scheduled for com- pletion in late 2020.
The latest stage comprises the so-called Bas- rah NGL project, covering the installation of the two-train gas-processing plant at Al-Ratawi in the west of Basra to process an additional 4.1 bcm per year of gas.
Then in late April the MoO selected CPECC to build gas-processing facilities at the nearby Halfaya oilfield.
sources were quoted by Reuters at the time as saying that CPECC would construct natural gas-processing facilities at the Halfaya oilfield on a build and operate contract. The facilities will have a processing capacity of 3.1 bcm per year.
Based on estimates by the Iraqi government, the field has recoverable reserves of around 4.1bn barrels, with production running at around 370,000 bpd.
the field falls under the remit of regional state-run Missan Oil Co. (MOC) and is operated by PetroChina.
Much of the natural gas produced from Hal- faya is currently flared because of a lack of gas infrastructure, but the new facility is seen as helping to reduce flaring.
In December 2018, MOC director general Adnan Noshi noted the firm’s intention to build processing facilities as it works to increase pro- duction at Halfaya to 470,000 bpd. CPECC was named as the frontrunner for the contract at the
exPorts:
Total Iraqi oil exports for November increased to 3.999mn bpd, reversing declines
from the previous two months. The average price per barrel for the month was $59.82.
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w w w . N E W S B A S E . c o m Week 48
04•December•2019