FUTURE OF IRAQI OIL ENERGY POLICY AND RELATED TOPICS

FUTURE OF IRAQI OIL ENERGY POLICY AND RELATED TOPICS

Postby salsinawi » Fri Aug 18, 2006 10:58 pm

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http://www.geotimes.org/current/feature_oil.html

AGI GEOTIMES OCTOBER 2003 ARTICLES ON IRAQ GEOLOGY

Assessing Iraq’s Oil Potential
Mohammad Al-Gailani
[http://www.geotimes.org/current/feature_oil.html
]http://www.geotimes.org/current/feature_oil.html

Iraq is one of the most hydrocarbon-rich countries in the Middle East, and in the future, it could become one of the primary oil producers in the world. A thick sedimentary succession (from Cambrian to Recent), robust structures, high individual well productivity and extensive oil reserves are some of the main characteristics of Iraqi oil fields.

The latest estimates put Iraq’s potential reserves at around 150 to 200 billion barrels of oil and 106 trillion cubic feet of gas. These figures put Iraq in the forefront of oil-producing countries: Iraqi oil reserves are considered to be the second largest in the world, after Saudi Arabia’s.

The super-giant fields of southeastern Iraq are the largest concentration of super-giants to be found anywhere in the world. Part of the upper Jurassic-aged Gotnia reflector, based on 1980s 2-D seismic data, they are, from left to right and top to bottom, as follows: Ratawi; Rachi; West Qurna; North and South Rumaila (measuring over 117 kilometers long); Tuba; Zubair; Majnoon; and Nahr Umr Fields. All images courtesy of Mohammad Al-Gailani.

Unfortunately, unlike neighbor Saudi Arabia, Iraq has been unable to deploy the latest technology, such as 3-D seismic, to find its reserves. Present reserve estimates of Iraq’s oil are based on 2-D seismic technology from the 1980s.

Still, the estimated success rate in Iraq ranges from one in two in the Mesopotamian Basin to one in four in the western and northwestern stable platform, with the overall success rate exceeding 72 percent — perhaps the highest success rate achievable anywhere in the world. Oil exploration costs are among the cheapest globally, with the current cost estimated at around 50 cents per barrel.

We now know that Iraq’s past governmental practices of nationalization and central planning are incompatible with the fast-track approach now required to meet future potential reserves requirements for the new millennium — especially in the light of the huge national debt accumulated as a result of three Gulf wars and prolonged sanctions. Work must start immediately to regain the prewar production capacity of 3.5 million barrels of oil per day. Then Iraq can slowly move up to its planned future production target of 6 million barrels of oil per day.

Past success

Oil and gas exploration drilling in Iraq began in 1902, with a well sunk on an anticlinal structure at Chia Surkh, located in the Zagros region in central northeast Iraq, near the Iranian border. In 1919, appraisal drilling started in the Naft Khana area, resulting in the discovery of the first oil field in 1923. Then four years later, a turning point for exploration drilling occurred in Iraq: In 1927, the Iraq Petroleum Company (IPC) drilled the first well, on the Kirkuk structure (specifically on the Baba Dome, the southernmost culmination on the Kirkuk structure). The well, Baba Gurgur No. 1, struck oil in dramatic fashion: An uncontrolled gusher, which reached 50 feet above the derrick, drenched the surrounding countryside and threatened nearby villages and the town of Kirkuk. After nearly nine days, the well workers finally brought it under control. Before capped, however, it had flowed at 95,000 barrels per day.

Despite its success at Kirkuk, IPC focused its primary exploratory efforts prior to World War II in the region farther southeast, in the Iranian Zagros Foldbelt. When exploration resumed after World War II, IPC discovered the Zubair Field in 1948 and the Rumaila Field in 1953. Renewed exploration in the foldbelt led to the discovery of oil at Bai Hassan (1953) and Jambur (1954) — leading to the discoveries of many other oil fields in Iraq prior to the suspension of IPC’s exploration activities in 1961.

After the passing of Law No. 80 in 1960, the Iraqi National Oil Company (INOC) initiated its own drilling plans for developing the discovered fields. Their extensive exploration and drilling was sufficient to cover the entire country. By 1988, the number of exploratory wells drilled totaled 125.

Although IPC estimated in 1968 that the total recoverable reserves of oil in Iraq was about 36 billion barrels, experts now consider those early figures very much an underestimate. Even at that time, Iraq put the reserves at 60 billion barrels, based on the primary producing fields of Rumaila, Kirkuk and some other smaller fields. However, because both these figures exclude many minor producing horizons, experts consider reserve assessments for the country on the conservative side; there is probably much more oil in place than has been declared. Even relatively small oil fields like Butmah and Ain Zalah easily qualify as giant oil fields, but these are dwarfed by Iraq’s super-giants, the Kirkuk, Rumaila, East Baghdad and Majnoon Fields.

Underlying geology

Over the past few decades, geologists have studied the sedimentary history of Iraq, achieving a reasonably good understanding. Two features dominate the sedimentary record of the area: the Arabian Shield to the west and the Tethyan passive margin/Zagros collision zone to the east.

The sedimentary history of Iraq also exhibits a variety of ages in different areas as a result of a series of epeirogenic (tectonic) cycles, especially in the western and central parts of Iraq. Orogenic movements are more characteristic of the northern and northeastern parts of Iraq.

The first well was drilled in Iraq in 1927 at the Kirkuk structure. Since then, geologists have discovered 73 major fields, nine of which are super-giants and 22 of which are giants.

Virtually all of the 440,000 square kilometers of Iraq lie within the North Arabian Basin. This vast sedimentary basin extends from the Arabian-Nubian Platform in the west to the alpine-folded Zagros Mountains in the east. It dates from the Precambrian and contains more than 15 kilometers of Infra-Cambrian to Recent sediments.

Prolific source rock, reservoir and seal rock combinations occur throughout the geologic column. A lack of source rocks is not expected to be a problem in Iraq because of numerous and rich hydrocarbon indications present at exploratory drilling sites. The differences in oil accumulations between the various tectonic areas of Iraq mainly relate to size and closure of structures, and also to reservoir development/facies distribution, but not to the absence of source rocks or seals.

To date, petroleum geologists have delineated and mapped over 526 prospects — drilling 131 prospects to discover 73 major fields. They have identified some 239 as having a high degree of certainty, but those prospects remain undrilled. Thirty fields have been partially developed and only 12 fields are actually onstream. Undrilled structures and undeveloped fields could represent the largest untapped hydrocarbon resource anywhere in the world.

About 30 to 40 percent of discovered Iraqi oil reserves lie within a few thousand feet of the surface, while more than 60 percent of the discovered reserves lie within 10,000 feet. Most of Iraq’s proven oil reserves are distributed over 73 fields, nine of which are super-giants and 22 of which are giants. The remainder are considered large by world standards.

Most of the developed reservoirs are of Cretaceous age. These account for approximately 76 percent of total production, while Tertiary production represents around 23.9 percent. The remaining 0.1 percent of production comes from the Jurassic, Triassic and Ordovician.

Looking to the future

The removal of the sanctions on Iraq will present exciting exploration opportunities. Geologists expect the exploration effort to concentrate on areas with high potential, relying on collaboration between the Iraqi authority and international oil companies, on a production sharing risk contract basis — in which contracted companies would give technical and financial services for exploration and development operations in exchange for a stipulated share of the oil produced (a reward for the risk taken and services rendered).

One area being promoted now for this new collaborative strategy is the western desert, an area well-advertised for its availability of exploration blocks. The initial investment required per block is estimated at around $50 million, to cover several thousand line kilometers of seismic exploration and the drilling of a minimum of five exploration wells per block. Other production sharing agreements would include additional geophysical, geological and exploration drilling activities for the development of the giant fields carried out by international oil companies.

Oil experts and specialists on the Iraqi scene believe that a gradual buildup of exploration work will take place immediately after the establishment of a legitimate Iraqi authority. This will likely include the deployment of up to 10 2-D and 3-D seismic survey parties and up to 10 exploratory rigs per year, in order to achieve the production target of up to 6 million barrels of oil per day.

The aim of any future exploration strategy will be to maintain reserve replacement of around 2 billion barrels per year. This could be achieved by implementing the following strategy:

* carrying out extensive 2-D and 3-D seismic explorations on all the green fields as well as on the untested prospects;
* drilling the nearly 400 remaining untested structural anomalies;
* expanding the deep drilling programs and utilizing proven oil reserves in deep horizons;
* targeting the new Palaeozoic plays in the western desert, especially in light of the recent discovery at Salah Aldin (Akkas);
* and targeting potential stratigraphic traps within the Cenozoic, Mesozoic and Palaeozoic sections that have proven potential.

Iraq has the capability to reach a production plateau of 5 to 6 million barrels of oil per day within a relatively short period of time — by expanding the number of producing oil fields and by developing the promising central sector fields, such as East Baghdad, Balad and Ahdeb, as well as the newly appraised fields in the north, such as Hamrin, Saddam, West Tikrit and Khurmala. Presently, Iraq’s production comes from only 15 developed fields out of a potential 73 discovered fields.

Petroleum geologists have delineated and mapped more than 526 prospects, drilling 131 prospects to discover 73 major fields. Some 239 undrilled prospects have a high degree of certainty. Thirty fields have been partially developed and 12 fields are actually onstream.

Iraq needs to develop the remaining 58 fields; the other 15 developed fields may require further investment to enhance their potential. This strategy would require the drilling of thousands of new wells over a span of five to 10 years, as well as the installation of new surface facilities (gathering centers, tank farms, pipelines, etc.).

The 15 developed fields present an immediate target for further enhancement and expansion to increase present production levels by at least 1 million barrels of oil per day. New project management schemes and reservoir simulation studies (with the help of international oil companies supplying and installing new equipment and providing oil field services) are necessary to increase present production levels. An estimate of the initial capital cost required is about $4,000 per barrel of daily production (i.e. $400 million initial costs for a field that can produce 100,000 barrels per day), or perhaps less, if the facilities and the infrastructure needed for storage and transportation of the crude already exist.

The development of major new reservoirs within existing fields is an attractive prospect for foreign investment because the infrastructure and facilities are already in place. The most obvious targets for development are the middle Cretaceous Mishrif reservoir and the lower Cretaceous Yamama reservoir in the southern fields, the Jurassic Najmah reservoir in the Rumaila and West Qurna Fields, and the Cretaceous reservoirs in the northern fields.

The 58 undeveloped fields, including giant fields such as Majnoon, Nahr Umr, Halfaya and West Qurna, are available for immediate development under production sharing agreement terms. Roughly $10 billion is necessary to develop 2 million barrels of oil per day over an eight to 10 year period, with the possibility of initial revenue being generated within two years using existing facilities.

A further 20 large- to medium-sized fields, with a production capacity of 1.5 million barrels of oil per day, can be developed relatively easily since they are located near existing production centers at Kirkuk, Baghdad and Basra.

High prospects

Clearly, large parts of Iraq are still virgin — its large hydrocarbon reserves are still waiting to be developed to their full potential, while most other Middle East countries are fully exploiting their reserves.

The main challenges facing the new Iraqi authority are to establish law and order as well as security. Once these issues are resolved, Iraq will perhaps be the most exciting place on Earth with regard to oil development and exploration. Despite the reported loss and destruction of rock core and seismic data in the aftermath of the recent conflict, several private companies have such data archived. And much of what was lost was old data in need of replacement — additional incentive to deploy the latest 3-D seismic technology to add to and rebuild the national exploration archives.

International oil companies are looking forward with great anticipation to the opening of Iraq, as they have been waiting for the past 40 years. Hopefully, Iraq will soon be able to offer them acreage, thereby allowing proper development of its huge potential. Open and fair competition will enable

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FUTURE OF IRAQI OIL ENERGY POLICY AND RELATED TOPICS

AGU/GEOTIMES APRIL 2003 http://www.geotimes.org/Iraq.html

Energy policy
A future for Iraq's oil
As the United States plans for a possible war in Iraq, an important question has become: What should U.S. policy be toward Iraq the day after the last shot is fired? An integral part of that question is deciding how to approach Iraq’s tremendous reserves of oil. The reserves are huge, second only to Saudi Arabia, but annual oil production is low, due to years of sanctions and war. Increased oil production could pay for a portion of the country’s reconstruction costs, as well as affect world oil supply and prices.

The James Baker Institute at Rice University and The Council on Foreign Relations, two nongovernmental think tanks, have teamed up to craft a vision for Iraq in the event of a U.S.-led ouster of Iraq’s president Saddam Hussein. The hallmarks of the vision, described in a report published Dec. 18, include that Iraq should retain complete control of its own oil sector and that, immediately following Hussein’s fall, revenues from oil sales should be reinvested in oil infrastructure in order to boost production.

The ideas in the report, written by 23 policy experts and energy analysts, have resonated in recent comments by the Bush administration. However, concern that Hussein may intentionally destroy Iraq’s oil fields in the first few days of a war has led some public officials to hint at the possibility of a quick, if temporary, U.S. takeover of the fields. Secretary of State Colin Powell, speaking on Dec. 29, said: “If coalition forces go into those oil fields, we would want to protect those fields and make sure that they are used to benefit the people of Iraq, and not destroyed or damaged by a failing regime on the way out the door.”

“We started talking about this report in August,” says project co-director Rachel Bronson, head of Middle East Studies at the Council on Foreign Relations. “At that time we felt, and we continue to feel, that not enough attention was being given to the day-after issues, which could be harder to manage than the actual fighting itself.”

In Iraq, the maturing of oil fields and the deterioration of oil infrastructure have outpaced new investments in technology and exploration. Over the past several years, average daily oil production has dropped by 100,000 barrels each year. The report estimates that returning to pre-1990 production levels of 3.5 million barrels per day will cost billions of dollars and take months, if not years.

Despite these difficulties, oil production in Iraq remains the number one source of revenue for the country. And, the report says, reinvesting revenues from oil sales back into oil infrastructure is the only sure-fire way to significantly boost the country’s income. “If there is ever going to be an economically independent Iraq, oil is the most immediate short-term way to get revenue back in the country,” Bronson says. However, the report cautions, short-term increases in oil production will necessarily be modest and will not produce the windfall needed to pay all the costs of reconstructing the country after war.

Whatever the immediate fate of Iraq’s oil production, control of Iraq’s oil sector should remain in the hands of the Iraqi people, the report says. The goal of a possible war is to disarm Iraq, dismantling its weapons of mass destruction. The report adds that if the United States takes control of the oil fields, it will only lend credence to critics who argue that the United States is going to war for oil. “A heavy American hand will only convince [Iraqis], and the rest of the world, that the operation against Iraq was undertaken for imperialist, rather than disarmament reasons,” the report says.

Iraq will be able to maintain its own oil sector because it has a cadre of oil experts who know how to manage the reserves well, Bronson says. A few of the top oil industrialists are part of Hussein’s inner circle of friends and relatives, and they will likely be removed and tried for war crimes. However, 85 percent or more of the oil experts are not part of this circle, comprising a skilled work force large enough to efficiently and fully run the oil program.

“Iraq certainly has some expertise because it has been able to, over all these years of sanctions and wars, maintain some oil production without foreign investment or expertise,” says Lowell Feld, an economist at the Department of Energy’s Energy Information Administration.

Iraqi control of its own oil sector does not, however, negate the importance of international investment in developing Iraq’s oil fields, according to the report. It will take between $30 and $40 billion to rehabilitate active wells and to develop new fields, and the Iraqi government may want to enlist international companies to meet this investment cost. The report advocates that, at least in the short-term, the U.N. oversees an Iraqi-led bidding process to ensure that oil contracts are awarded fairly and openly.

Says Stephen Walt, professor of international affairs at Harvard’s Kennedy School: “If this war happens, it is an American production: conceived, written, produced and starring the U.S.A. One way to minimize the repercussions is to try to represent that what the U.S. is doing is on behalf of the worldwide community. … In a post-Saddam Iraq, if the U.S. ended up with all the [oil] contracts, it would look really bad.”

Greg Peterson

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