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Iraq’s oil minister resigned in midst of instability crisis for country’s oil industry

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Oilfield Technology,

The resignation of Iraqi Oil Minister Abdul-Mahdi last month came at a tough time for upstream development in Iraq, which has been losing pace over recent months due to dropping oil prices. Indeed, one of the most significant global oil production growth drivers has been derailed, according to an analyst with research and consulting firm GlobalData.

Despite the country’s wealth of resource, budgetary constraints caused by low oil prices, political disputes, and a prolonged conflict with ISIS have impacted the Iraqi government’s ability to maintain the tremendous levels of capital investment required to realise targeted production levels. This has resulted in the Iraqi Oil Ministry revising its production targets from 9 million bpd to 6 million bpd by 2020.

Ali Al-Killidar, GlobalData’s Analyst covering Oil and Gas, says that current production is around 4.3 million bpd, and GlobalData forecasts closer to 5 million bpd by 2020, primarily due to budget cuts faced by consortiums across the whole of Iraq.

Al-Killidar explains: “Generally, revenues from Iraq’s southern fields, which account for 95% of the state’s budget, are not enough to cover all the state’s budgetary expenses and repay oil companies for their investments in the upstream sector, and Abdul-Mahdi warned operators about this. According to Iraqi officials, the potential for a low price environment was overlooked when the contracts were initially drawn up.

“In May 2015, BP agreed to cut its budget for the Rumaila field by US$1 billion from the initially-planned US$3.5 billion, leaving production steady at the current rate of 1.4 million. Although the 2016 budget for the field has not been reported, a similar cut in investment is expected, with the primary focus of the operator shifting to offset the natural decline, at 17%.”

Despite the numerous adverse events the Iraqi oil industry has experienced of late, Iraqi authorities have retaken oil fields from ISIS with international support, opening up the possibility of redevelopment.

Al-Killidar adds: “As a consequence of the conflict, field infrastructure sustained extensive damage during fighting and the Iraqi government has lost up to 400 000 barrels per day of production during the conflict.

“Redevelopment to salvage the fields has yet to be planned, partially due to the lingering threat of ISIS. However, should the group be eliminated, the government is likely to reinvest in the restoration of these fields over the long term.”

Adapted from a press release by David Bizley

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