Page 5 - MEOG Week 17 2021

MEOG COMMENTARY MEOG

bpd by 2029 from today’s current 4.8mn bpd – less than $1.2 per barrel after deduction of
level. taxes – under a 20-year technical services con-
It is in the last of these that Total may gain tract (TSC) signed in 2010.
insight into the frustrations that have dogged
ExxonMobil’s efforts in southern Iraq since 2010, China on the rise
with OilPrice reporting recently that widespread Chinese companies have increased their foot-
corruption associated with major infrastructure print in the Iraqi oil and gas sector over the last
projects was a key factor in its decision to pull out few years as part of a strategic alignment that
of the country. ensures energy supply security for the world’s
Talks broke down between Baghdad and the second-largest oil consumer.
super-major in 2019, with the project already This relationship was recently highlighted by
having been delayed by nearly a decade. Zhenhua Oil Co.’s planned prepayment deal to
acquire 4mn barrels per month of crude under
Exxon exit a five-year term crude supply arrangement with
Meanwhile, Basra Oil Co. (BOC) rejected claims state oil marketer SOMO.
last week that it was at loggerheads with Exxon- This was set to kick off in January and cover
Mobil as the US firm intends to sell its stake in the supply of 48mn barrels between then and
WQ-1 to two Chinese firms rather than Bagh- December 2025 with a $2bn pre-payment for
dad’s preference of another US major. crude loadings between July 1, 2021 and June
This followed the revelation that Chevron 30, 2022.
had declined the opportunity to take over from However, it was frozen in February, with
ExxonMobil, with Baghdad intent on finding a Oil Minister Ihsan Abdul Jabbar saying: “With
replacement by the end of June. The US firm is the start of this year and the economic stabil-
clearly in more of a hurry, having set a deadline of ity resulting from the stability in the oil price,
the end of April, suggesting that talks have been we decided to freeze this attempt, to freeze this
ongoing in the background for several months. option.”
Iraq Oil Report had said that the disagree- Meanwhile, SOMO deputy director-general
ment over who buys the asset had led to “fraught Ali al-Shatari told S&P Global Platts that the
negotiations” with the Ministry of Oil (MoO). country is unlikely pursue such initiatives again
BOC’s director-general Khalid Hamza Abbas soon.
said: “We hoped that Chevron would buy Exx- He added that even if it were to be revisited,
on’s share and be the replacement, but it seems prepayment deals would not become a ‘trend’
that they didn’t have the desire to be the replace- because SOMO’s “target is not to allocate more
ment. [The MoO] told us officially, with an offi- than, for the time being, around 5% of our
cial letter, referring to the contractual text … monthly exports for that purpose, so that Iraq
that ExxonMobil [is proceeding toward] selling will be more than 100% sure it can meet its obli-
its share to a coalition of the two companies, Pet- gations under such deals.”
roChina and CNOOC.” Gas has also begun to play an important
He added: “We have no objection either on part in Sino-Iraqi relations. The MoO last week
PetroChina nor CNOOC, they are our partners awarded a contract to Sinopec to partner with
already,” noting that BOC “or any of the oil min- state-owned Midland Oil Co. for the develop-
istry’s companies may” choose to buy the US ment of the Al-Mansouriyah gas and condensate
firm’s 32.7% stake in the supergiant oilfield. field, while in 2019, China Petroleum Engineer-
ExxonMobil has already divested nearly ing & Construction Corp. (CPECC), a subsidi-
half of its original 60% and is partnered by Pet- ary of China National Petroleum Corp. (CNPC),
roChina (32.7%), Japan’s Itochu (19.6%), Indo- was awarded a $121mn deal to upgrade facilities
nesia’s Pertamina (10%) and state-owned Basra and increase the capture of flare gas at WQ-1.
Oil Co (BOC, 5%). Chinese state energy firms are known for
WQ-1 has capacity to produce 500,000 bpd of their longer-term outlooks compared to the
oil from remaining combined oil and condensate IOCs, and in the case of Iraq, this approach looks
reserves of more than 22bn barrels in the north- likely to win the day. While Total’s presence may
ern portion of the broader West Qurna deposit. eventually assure the availability of water to
The developers are paid a maximum of just allow production to rise, what benefits Baghdad
$1.9 per barrel of oil produced from the asset seems certain to benefit Beijing as well.™

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