Iraq 2017 – United We Stand, Divided We Fall

By Samar Rassam

I think you might all agree that 2016 has been a challenging year in general as well as in the oil and gas Industry. May I take this opportunity to wish you all Season’s Greetings and a very prosperous 2017.

There’s no doubt that oil and gas will continue to have an important role to play, let’s take a look at what has been happening this year.

New Minister of Oil

On 15th August, after months of wrangling, Jabar Ali al-Luaibi, former head of the state-owned South Oil Company, Iraq’s biggest crude producer, was announced as the new Minister of Oil. He takes over from Mr Adil Abdul Mahdi.

This appointment bodes well for the Prime Minister’s reform programme as the new Minister is very focused on increasing refinery capacity and investment.

Dispute with Baghdad

Although the new Minister of Oil is trying hard to resolve this issue, there is still conflict between the Federal Government and Kurdistan. The KRG Prime Minister and President recently visited Baghdad in order to initiate dialogue on outstanding issues and are working on solving the disputes with Baghdad

Both Baghdad and KRG appear to be open to negotiations and are working towards improving their relationship and sorting out the budgetary issues. I hope that agreements will soon be reached and the Iraqi people will benefit from them.

Security Situation

The security situation remains an issue both for the oil and gas sector and the country as a whole.

There is also the added problem of the huge numbers of Iraqi Displaced People (IDP) which adds to the strain on the economy and society as a whole. Iraq has made massive strides in its battle against the Islamic State (IS) over the past months, which hasn’t been easy considering the economic challenges and the constant inflow of displaced people.

The political climate is a real obstacle primarily due to ethnic divisions, the chaotic security arena, broken policies and the operation to retake Mosul. This makes it nigh on impossible for projects to be delivered on time as progress is difficult to implement. Iraq won’t be able to get back on its feet again until these obstacles have been eradicated.

The Iraqis themselves are doing their best to overcome both political and economic obstacles and on one issue they are as one – they are united in the wish to liberate all provinces from ISIS control.

ADIPEC 2016 in Abu Dhabi

I enjoyed walking around this event, seeing the companies involved and watching the presentations. To my knowledge, it is the largest conference in the world and was full to the brim of energy leaders, government officials, decision makers and more than 100,000 oil and gas professionals from 125 countries.

The main purpose was to address the imminent challenges and opportunities facing the petroleum sector, including the vital need to drive operational efficiency in a rapidly changing energy landscape.

It was also good to meet up with a lot of Iraqi managers as I believe it is important for Iraq to participate in these events worldwide in order to update themselves on subjects such as process surveillance technologies, data analysis engines and applications, workflow optimisation techniques and to be familiar with up to date technologies in general.

Basra Oil, Gas & Infrastructure Conference 2016

I attended this conference which was held in October in Beirut.   It was well attended by high level officials in the government as well as industry leaders and highlighted business opportunities in all sections of the Energy market.

It was an opportunity to exchange, negotiate, challenge, decide and expand knowledge. The need for investment was one of the main topics of conversation, especially related to infrastructure, downstream and refineries.

Not forgetting Iraq’s gas reserves which are equally as important as oil. The Natural Gas and future gas utilisation in Basra was another popular subject under discussion.

OPEC Meeting (30th November)

The speculation about what OPEC was going to decide is now over.

This conference was held in Vienna and followed on from the conference in Algeria in September. It has been decided to implement a new production target of 32.5 mbd “in order to bring the oil market rebalancing forward”.

Delegates agreed to cut output from October levels by 1.2mn barrel/day to 32.5mn b/d for an initial six months from 1st January, subject to non-OPEC producers agreeing to cut by 600,000 barrel/day. Saudi Arabia has secured promises of cuts from two more potent threats to its market share — Iraq and non-OPEC Russia.

OPEC and non-OPEC Ministerial Meeting (10th December)

Following on from the OPEC meeting, this meeting accentuated the need for cooperation between the OPEC and non-OPEC countries in order to better adapt and react to future industry cycles. It was recommended that regular, structured and sustainable consultations would help to strengthen this cooperation.

The current market conditions were taken into account and short to medium term prospects were considered. It was agreed that joint cooperation between all the oil exporting countries was the only way to achieve lasting stability in the oil market in the interest of both oil producers and consumers.

The agreement between OPEC and non-OPEC producers was to reduce oil output by 1.8mn b/d in order to increase prices. Oil prices increased sharply by about $5 a barrel in one day as the market reacted to the agreement. Most analysts expect 2017 prices to average from between $55 to $60 a barrel.

The CWC of Kurdistan (11th December)

I attended this event in London – it had many sessions and covered a variety of topics, such as:

  • Kurdistan wishing to strengthen relations with Baghdad, despite the ongoing dispute. KRG officials said that they are open to negotiating a workable budget deal with Baghdad
  • Delay in paying International Oil Companies (IOCs) along with lack of financing and the cutting of salaries, which also can be delayed.
  • The improvement of security measures
  • A fascinating discussion on financial regulations, transparency and auditing
  • Identifying and eliminating ghost employees, of which it was assumed there were many

The Kurdistan government aims to increase transparency by holding an external audit that includes IOCs costs and recovery. The Ministry of Natural Resources (MNR) is seriously committed to enhancing transparency in the petroleum management sector and this was also discussed.

Two reputable accountancy firms are being employed for this audit – Deloitte and Ernst & Young.

The audits will cover oil exports, IOCs and domestic company operations (local sales of crude and refined products).

KRG is seeking investors in petrochemical plants and also in technologies that can use partially processed gas. It is believed that when security improves investors will look at Kurdistan and be prepared to work in Iraq.

The Minister stated that oil income should go towards developing other sectors such as agriculture, tourism and industry. He also added that payments to IOCs were being honoured despite the halt in Kirkuk oil and IS attacks, but there will be an impact of 2 months.

Some of the key side discussions at the event were regular payments, new blocks, relinquished blocks and the latest buzz about gas.

The Kurdistan Production Sharing Contracts (PSCs) will remain unchanged and the general terms of PSCs will remain. The bids may be simplified as we want a win-win. New oil blocks are available for bidding in Kurdistan and contract terms will continue to be advantageous.

Even with low oil prices Kurdistan is attractive due to its low cost environment which makes the fiscal terms tempting. CAPEX is reasonable and operating costs are very low at $2 per barrel produced.

KRG must ensure rule of law, provide security and service infrastructure, but the real engine of growth is the private sector and that applies to the whole of Iraq. The private sector is vital and of extreme importance in order to revive the economy. Maybe we can globalise the role of the private sector for both Iraq and Kurdistan.

The event was very informative, though sometimes the speeches were conflicting.

Conclusion

Iraq’s current oil and gas market requires more access to data for improved decision making which will ultimately result in enhanced productivity. Technology and automation can help with a number of areas of production including artificial lifts, chemical injection systems, power control, measurement, as well as pump controls and other technologies used by producers.

Training and capacity building is the best way forward. IOCs field development plans must include a local employment plan, keeping in mind that achieving workforce competency is vital.

It is imperative to strengthen the labour market and the way forward is to accelerate private sector job creation.

Once the security situation is improved Iraq will be a good place to do business and the work will be very interesting and challenging.

 

 

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