Outlook for Iraqi Crude Oil Production and Exports

Axelrod Energy Projects LLC www.axelrodenergyprojects.com 1

Axelrod Energy Projects LLC www.axelrodenergyprojects.com

Outlook for Iraqi Crude OilProduction and Exports

Muayyad Al-ChalabiAxelrod Energy Projects LLC

Columbia UniversitySchool of International and Public Affairs

December 3, 2012


Overview

• Brief history of the Iraqi oil sector• Iraqi reserves• Development contracts• Infrastructure development• Challenges– Internal– External

• Conclusion


Brief history of Iraqi oil sector• 1912: Establishment of the Turkish Petroleum Company to

negotiate an oil concession from the Ottoman Empire• 1920: TPC receives concession from the British Mandate in Iraq.• 1927: Oil struck near Baba Gurgur. Broad international

participation in the TPC.– 75 year term for exploration rights– Iraqi government would receive royalties on production, but royalties

contingent on oil company profits, and not payable for the first 20 years• 1930: 70-year concession negotiated by the Iraq Petroleum

Company (IPC)• 1932: British mandate ends, but Hashemite monarchy maintains

a pro-western stance.


Brief history (continued)• 1951: Mossaddegh nationalizes oil operations in Iran. British

led embargo on Iranian oil. Mossadegh overthrown in 1953.• 1958: Hashemite Kingdom overthrown by Abd al-Karim

Qasim• 1959: Qasim withdraws Iraq from Baghdad Pact• 1960: Iraq helps found OPEC. Qasim threatens legislation to

revoke a large portion of the concession granted to the IPC.• 1963: Qasim ousted in Ramadan Revolution.• 1968: Ba’ath Party rises to power.• 1972: IPC nationalized


Brief history (continued)

• 1979: Saddam Hussein assumes presidency• 1980–1988: Iran-Iraq War• 1990–1991: Gulf War I.– 1990–2003: Sanctions on Iraq. No-fly zones

enforced.– 1995–2003: UN Oil-for-Food Program

• 2003–2011: Gulf War II – 2007: The military surge


Iraq oil production (1958-2012, kb/d)Q

asim

Cou

p (1

958)

OPE

C fo

rmed

(196

0)

Ba'a

th P

arty

(196

8)

IPC

nat

iona

lized

(197

2)

Iran-

Iraq

War

(198

0)

Iran-

Iraq

War

end

s (19

88)

Inva

sion

of K

uwai

t (19

90)

Oil-

for-F

ood

Prog

ram

(1...

IOC

reen

try (2

008)

0

500

1000

1500

2000

2500

3000

3500

4000


Iraq proven oil reservesIraq Historical Proven Reserves (billion barrels)

Oil Reserves in the ME by Country (million barrels)

Country 2012

Saudi Arabia 264,520

Iran 151,170

Iraq 143,100

Kuwait 101,500

UAE 97,800

Qatar 25,380

Oman 5,500

Syria 2,500

Yemen 3,000

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

0

20

40

60

80

100

120

140

160


Iraqi oil fieldsFields Region Reserves

(bbl)West Qurna South 43.0

Rumaila South 17.0

Majnoon South 12.6

Kirkuk North 8.6

East Baghdad Middle 8.1

Halfaya South 4.1

Zubair South 4.0

Missan Middle 2.5

Bai Hassan North 2.3

Najmah North 0.9

Gharaf Middle 0.9

Qayarah North 0.8

Other 38.2

Total 143.0


Oil Development Contracts

Type Ownership of Extraction Rights

Ownership of Production

Concession IOC IOC

Joint Venture

Shared Shared

Production Sharing

State Shared

Services Contract

State State

• Iraq model contract– 20 year service

agreement– Government has 25%

stake in operating company, IOCs have remaining 75% stake

– Government pays the operating company a fixed fee of ~$2 per barrel for oil produced.

– IOC not granted exclusive rights to either exploration or production


Iraq oil development contracts

First Round (2009)Field Region IOC PPT

(kb/d)Rumaila South BP, CNPC 1,750

West Quarna

South EM, Shell 600

Zubair South ENI, Occidental, Kogas

400

Misan South CNOOC 275

Second Round (2010)Field Region IOC PPT

(kb/d)Majnoon South Shell,

Petronas1,800

Halfaya South CNPC, Total, Petronas,

535

Qaiyarah North Sonangol 120

West Qurna (II)

South Lukoil, Statoil

1,800

Garraf South Petronas, Japex

230

Badra East Gazprom, Kogas, Petronas, TPAO

170

Najmah North Sonangol 110


Infrastructure expansion

• Pipeline overhaul and construction– Construction of new on-shore pipelines (6,000 km)– Construction of new off-shore pipelines (300 km)

• Oil storage expansion– Final storage capacity of 60 million barrels– Add 20 million barrels to existing facilities– Build new tank farms with 30 million barrels

• Common seawater supply facility (12-15 mb/d)


Pipeline infrastructure


Loading terminal infrastructure

• Loading terminal expansion– Final capacity of 4.8 mb/d– Expand existing loading

terminals with an additional capacity of 1.6 mb/d

– Construct 4 new single point moorings (SPMs) with a total capacity of 3.2 mb/d


Iraq crude oil production• In July 2012, Iraq becomes second largest producer of

oil in OPEC at 3 mb/d• Robust production growth since 2007– Improved security environment since 2007– IOC investments since 2009

• Iraqi government officially projecting 12 mb/d by 2017.– By comparison, Saudi Arabia’s total production capacity is

12 mb/d, with actual production between 8-10 mb/d.– Production targets written into contracts with IOCs total 8.8

mb/d.


Iraq oil production and exports

• Robust production growth• Domestic demand

– Small domestic refining capacity

– No new domestic refining capacity expected until 2019

– Small domestic power generation demand

• Any additional crude production to be exported

Iraq oil production and exports (kb/d)

Sep-

08D

ec-0

8M

ar-0

9Ju

n-09

Sep-

09D

ec-0

9M

ar-1

0Ju

n-10

Sep-

10D

ec-1

0M

ar-1

1Ju

n-11

Sep-

11D

ec-1

1M

ar-1

2

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Consumption Production

Exports

Domestic Use


Internal challenges

• Lack of a comprehensive hydrocarbon law

• Dispute with the Kurdistan Regional Government– KRG has its own hydrocarbon law,

and has negotiated independent contracts with IOCs on that basis

• Baghdad has banned IOCs doing business with the KRG from bidding on any future contracts

KRG territory


External challenges

• OPEC production quotas– Iraq exempt since 1998– Iraq’s production quota has been absorbed by Saudi

Arabia, the UAE, Venezuela, and others– Iraq set to reenter the production quota system in 2014.– Conflicting interests

• Need to maintain prices (total production quota cannot rise significantly). Iraq needs $90 per barrel crude in order to meet budgetary requirements.

• Need to carve out a space for Iraq in the production quota system


External challenges• Historical rivalry with Iran

– Growth in Iraq oil exports has gone to fill the gap left by sanctions on Iran

– Iran is currently the number two country (both in terms of reserves and production quota) in OPEC

– Traditionally, Iran has maintained parity with Iraq in OPEC.– Currently cooperative relationship with Iran may deteriorate rapidly if

Iraqi production and exports grow rapidly– Iran has effective control over the Straight of Hormuz

• Security of pipeline routes to the Mediterranean– Kirkuk-Ceyhan pipeline is frequent target for Kurdish separatists. – Pipeline to Syria will not materialize in the short run– Pipeline through Jordan makes no strategic difference.


External challenges

• Softening demand– Slow growth in European markets– Slowing growth in Asian markets

• Rising supply in North America• Shale oil backing out imported conventional oil• North America moving towards energy independence


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Outlook for Iraqi Crude Oil Production and Exports

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