Royal Dutch Shell Plc, Europe’s largest oil company, is set to start operations in Iraq after a 35-year absence when it signs an agreement with the Iraqi Oil Ministry to capture gas outside the southern city of Basra.
The Iraqi cabinet approved the venture between Shell and the ministry, Shell spokesman Peter van Boesschoten said today in a telephone interview from The Hague.
“We understand the Iraqi cabinet has approved the heads of agreement that set out the establishment of a joint venture between the Ministry of Oil and Shell,” Boesschoten said. “We are delighted with the government’s decision and look forward to signing the agreement in the near future.”
Iraq, the holder of the world’s third-largest crude oil reserves, has held talks with international oil companies, including Exxon Mobil Corp, Chevron Corp and Total SA as it seeks to increase oil output. The nation wants to increase output to 4.5 million barrels a day and double refining capacity by 2012, according to information on the Oil Ministry Web site.
This will be the first time Shell has operated in Iraq since 1973 when its share in the Basra Petroleum Company, or BPC, was seized by the Iraqi government. All foreign holdings were nationalised by 1975, according to a Shell publication released last year.
Shell officials have been invited to Baghdad next month to sign the deal, which could be worth up to $4 billion and will be run as a joint venture, with Shell taking 49 per cent and the oil ministry 51 per cent, the Financial Times reported, citing Iraq’s Oil Ministry spokesman Asim Jihad.
Reduce Flaring: Shell said last week the venture will help Iraq utilise gas pumped alongside crude for power generation. About 700 million cubic feet a day of gas is currently being flared in the region.
Shell will also become the first Western oil company to sign a deal with the Iraqi government since the US-led invasion in March 2003. Oil majors have refused to invest in the country because of a lack of security and the government's failure to pass a federal energy law. No legislation has been passed because of disagreements over revenue sharing and oil- field development.
As security improves, oil majors have started to eye Iraq as one of the last remaining countries in the world to add reserves to their books. More than 100 US, European and Asian companies submitted pre-qualifying bids to participate in a licensing round.
Service Contracts: Iraq has held talks on technical service contracts with foreign investors, including Shell and BP Plc.
These talks have hit a stumbling block because of differences over the length of the contracts, the FT said. The ministry will focus on longer- term development contracts, the FT said.
Shell was negotiating a contract to provide technical services to develop the Kirkuk oil field in the north, and leading a consortium for the Missan oil field in the south. Total, Europe's third-largest oil company, and Chevron were in talks with Iraq for an agreement to provide technical support for West Qurna.
Iraq pumped 2.31 million barrels of crude a day in August, according to Bloomberg estimates.
