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„ Iraq targets 10Mb/d incremental capacity by the end of next decade
Iraq completed its 2nd round of licensing over the weekend awarding a further 7
fields for development in addition to 3 fields that were awarded earlier this year.
Between these 10 fields, 10Mb/d of oil capacity could be added by the middle to
end of next decade (Table 1). We currently forecast c.+2.5Mb/d 2009-15 (Chart 2).
„ Risk s around developments and development timing
Clearly there is risk around this target given security and political issues (there are
Iraqi elections next year) and there may well be technical and infrastructure issues
in developing such a massive amount of volume in such a relatively small area.
The target is to reach plateau within 7 years of the start of the contract which may
prove aggressive in terms of timing, but highlights Iraq’s potential.
„ Giant fields and cheap oil, a reason to be cautious on oil price
Five of the proposed 10 fields have the potential to produce more than 1Mb/d.
More importantly the cost of development is very low, with development costs in
the single digit $/bbl range. With expectations of medium term demand coming
down this new supply could have a profound effect on expectations on where the
cost of the incremental barrel of new supply lies and also alter the dynamics within
OPEC.
„ Risks for the companies
While modelling these contracts shows that IRRs are attractive, NPVs are quite
low, especially as fees have come tumbling down through the auction process and
the projects are quite large. We fear a significant drain on operator resources for
not a large amount of incremental value for a number of the projects.
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