Iraq must fix falling oil output

Oil majors feel they do not know the full picture of the prospects on offer

After years of violence that has hindered its development, Iraq’s energy sector has started to make genuine progress over the past six months, with two licensing rounds already launched.

But while the Oil Ministry has done well to attract the interest of energy majors to what must still be regarded as risky exploration projects, a sense of unease is growing among officials in the south about the performance of its existing oil fields. Production at some of the country’s largest fields has declined over the past year and production is forecast to drop further over the next two years.

In the past, much of the blame for falling output was attributed to ageing infrastructure, oil smuggling and attacks by insurgent groups on pipelines, restricting the flow of oil from the south.

A short-term solution has been to issue a flurry of tenders in an effort to boost drilling activity in the south. Associated production platforms are also being tendered to cater for ambitious increases in oil production over the next few years.

The fact that several of the same southern fields are also included in the first bid round further clouds the picture.

Oil majors’ expertise and technological firepower may yet allow Baghdad to turn the situation around using expensive techniques such as enhanced oil recovery, but it will not be an easy fix.

The draft minimum work programme, which forms an essential plank of the first bid round, was issued to international oil companies in March this year, but managed to raise more questions than it answered.

International oil companies are being trumpeted by the Oil Ministry as the saviours of the country’s energy industry.

But the latest revelations about the health of the reservoirs will cause more unease among industry executives who already feel they do not have a full picture of the prospects on offer.