September 18, 2012 / 5:06 PM / 7 years ago

Shell sees Majnoon resuming oil output in Q1

ISTANBUL (Reuters) - Royal Dutch Shell (RDSa.L) expects to resume production at its Majnoon oilfield in Iraq in the first quarter of 2013, a senior company official said on Tuesday, as a pipeline construction delay means it is likely to miss a year-end production target.

A Shell logo is seen at a petrol station in Ankara March 6, 2012. REUTERS/Umit Bektas

Shell then expects to lift output to 175,000 barrels per day (bpd) — the level of production required for it to start recovering costs under its contract with Baghdad — by March or April, Arne de Kock, commercial general manager for Iraq, told Reuters in an interview at an energy conference in Istanbul.

Asked when operations at Majnoon would begin again, de Kock said: “It will be some time next year. Our plans are to have mechanical completion by the end of the year. Then we will enter hydrocarbons into the system sometime in Q1.”

After output reaches 80,000 or 90,000 bpd, Shell expects to meet its service contract target of 175,000 “roughly” in March or April, he said.

Shell, Europe’s largest oil company, has asked Iraq for a waiver to start recovering costs if Majnoon, which shut for maintenance on June 26, does not meet its first commercial production target by year-end, according to documents seen by Reuters.

“The vast majority of Majnoon is greenfield,” de Kock said, meaning a new field development requiring new facilities. “Getting all of that heavy equipment into place is far more cumbersome and is causing some delays.”

The Oil Ministry, concerned about costs, delayed construction of a 79-km (50-mile) pipeline from Majnoon to a crude storage depot, pushing back the Majnoon timetable.

“The pipeline is not progressing as fast as we would like,” de Kock earlier told the conference.

The 12.6 billion barrel Majnoon oilfield is one of the major fields Iraq is developing with foreign companies in the south as it recovers from years of war and sanctions.

Majnoon is part of Shell’s investments in Iraq that are expected to reach between $2.5 billion (1.5 billion pounds) and $3 billion by the middle of next year, de Kock said.

Shell, along with Mitsubishi (8058.T), is also leading a project in Iraq that aims to capture natural gas, to be used primarily for power generation, that is now flared off by oil production.

The $17 billion Basra gas project will handle 2 billion cubic feet per day by 2017. Shell finalised an agreement with Baghdad late last year, but de Kock said two key hurdles — asset transfers and land leases — must be cleared before the company can move forward.

Shell is “optimistic” the government’s Council of Ministers will sign off on the issues, he said, adding: “We want to make sure we have all the commercial legalities in place before we proceed.”

Shell also has minority shares in the West Qurna-1 oilfield, led by Exxon Mobil (XOM.N) and plans to build a plant as part of Iraq’s nascent petrochemicals industry.

Reporting By Ayla Jean Yackley; Editing by Hugh Lawson

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