Iraq signs initial deal to develop Akkas gas field

June 1, 2011 - 10:12 AM

BAGHDAD (AP) — Iraq on Wednedsday signed a long-delayed deal with South Korea's KOGAS to develop a promising western gas field, as Baghdad announced that its oil exports have reached their highest level since the 2003 U.S.-led invasion.

The deal with KOGAS, which must still be ratified by the Cabinet, caps a seven-month wait that ensued after the Korean firm won the right to develop the 5.6 trillion-cubic foot Akkas field during an energy bidding round last October. KOGAS won the right to develop the field in conjunction with Kazakhstan's KazMunaiGas EP JSC, but that company pulled out last month, forcing the Korean firm to double its share in the project.

Abdul-Mahdi al-Ameedi, who heads the Oil Ministry's Licensing and Contracts department, said the deal was signed Wednesday. KOGAS will get $5.50 per barrel of oil equivalent it produces, with peak production targeted at 400 million cubic feet per day.

The gas will be used for domestic needs, including fueling two yet-to-be constructed power plants, said Sabah al-Saidi, deputy head of the Licensing and Petroleum Contracts department. But until facilities to process to gas for use are built at the site, Iraq will export the gas to neighboring Syria.

Officials in western Anbar province, once a hotbed of insurgent activity, initially resisted the deal, worried that they would gain little directly from the field's development and that the exports to Syria would mean that the gas will not be used to meet local needs. They signed off on it after government reassurances that the exports were only temporary.

The gas processing plants at the field "will not be completed in less than two to three years, so it's better to export the gas than to flare" (waste) it," said al-Saidi.

Akkas was one of three fields offered in the October licensing round — Iraq's third international oil and gas field auction. Iraqi officials have said that production from the fields will boost the country's overall output to as much as 12 million barrels per day by 2017. Analysts say that level is unrealistic.

The other two fields awarded during the third licensing round included the 4.6 trillion-cubic foot Mansouriya field in eastern Iraq, which Turkey's TPAO, Kuwait Energy and KOGAS will develop jointly, and the 1.1 trillion-cubic foot Siba field in the south to be developed by Kuwait Energy and TPAO.

Both of those deals also have received Cabinet approval and will be finalized next Sunday, al-Ameedi said. All three deals will run for 20 years.

Slowly, the country's production has been climbing as the international firms begin their work on the fields.

The country's oil exports averaged 2.225 million barrels per day in May, Iraq's State Oil Marketing Organization said Wednesday, up from 2.14 million barrels per day in April. The oil sales are pivotal for Iraq, which relies on oil money for the overwhelming majority of its budget. In the years before the 2003 invasion, Iraq exported about 2.5 million barrels per day.

SOMO chief Falah al-Amiri said Iraq generated around $7.45 billion from oil sales in May at prices at around $108 per barrel.

Since 2003, Iraq has struggled to develop its oil and gas industry. The sector, which had been ravaged by years of sanctions-induced neglect and damage, saw development efforts move fitfully as looting and sabotage supplemented the damage it sustained during the U.S.-led effort to oust President Saddam Hussein.

Iraq has awarded 15 oil and gas deals since 2008 to international energy companies in the first major investments in the country's energy industry in more than three decades.

The country, which sits atop the world's fourth largest proven reserves of crude, also holds 126.7 trillion cubic feet of undeveloped gas reserves. For years, Iraq flared — or burned off — the gas largely because it lacked adequate facilities to process it.