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Iraq optimism on $50 billion development deal

Heads of agreement 'agreed overall' with ExxonMobil and PetroChina for delivery of seawater injection scheme

Iraq said it is poised to sign a heads of agreement with ExxonMobil and PetroChina to implement a $50 billion-plus upstream development and infrastructure project.

The deal involves delivering a long-delayed seawater injection scheme crucial to maintaining flows from giant oilfields in the country's Basra region.

Oil Minister Thamir Ghadhban said the two sides are still trying to solve differences over commercial terms, including the rate of return sought by the US supermajor.

"There is only one minor, technical point. We have agreed overall and are working on the final draft of the HoA. Hopefully we will solve the single point soon and move forward with the process.

"The point has to do with pricing, inflation and deflation, related to cash flow, how to look at the price and returns. It’s purely a technical point, not political,” Ghadhban said on the sidelines of the CWC Iraq Petroleum Conference in London last week.

However, it is unclear how willing ExxonMobil will be to commit fully to the project in view of security fears arising from rising regional tensions between the US and Iran.

The estimated $53 billion Southern Iraq Integrated Project (SIIP) will run for 30 years.

It involves bringing seawater for injection into giant Basra oilfields, building the infrastructure needed to raise export capacity through the Persian Gulf, developing two major fields as well as building gas processing facilities to reduce flaring.

Prime Minister Adel Abdul Mahdi said recently Iraq expects to earn $400 billion over the life of the project.

ExxonMobil and PetroChina will be repaid from the proceeds of developing the Nahr Bin Umar and Artawi oilfields and raising their output to 500,000 barrels per day from the current 125,000 bpd.

The fields are currently operated by the state-owned Basra Oil Company.

The SIIP project also aims to process 100 million cubic feet a day of associated gas from the twin fields to supply the growing needs of the domestic market for cleaner energy.

The key feature of the SIPP is to supply seawater from the Persian Gulf for injection into more than six Basra oilfields, including ExxonMobil’s West Qurna 1, BP-operated Rumaila and Eni-operated Zubair.

The fields need water injection to further increase capacity under a project that was initially planned to be completed in 2013 but has been repeatedly delayed amid political wrangling and bureaucracy.

Iraq first picked ExxonMobil to co-ordinate the initial studies of the project in 2010 when the Oil Ministry in Baghdad had drawn up plans to raise its oil output capacity to 12 million bpd by 2018.

That target has been now scaled back to 6.5 million bpd by 2022 from around 5 million bpd now.

ExxonMobil recently evacuated its expatriate staff from Basra following a missile attack targeting facilities used by international oil companies.

The strike came amid surging tension between Iran and the US, which accuses Tehran of being responsible for attacks on oil tankers in the Persian Gulf in May and June.

"They (ExxonMobil) are outside Iraq now. Of course we are not happy with that and we’ve taken all possible measures to protect (international oil companies') staff," Ghadhban said.

"Security is good. Of course we were concerned when that single shot was fired but it did not really hit their camp, it hit our camp."

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