September 18, 2012 / 10:03 AM / 5 years ago

UPDATE 1-Shell says may miss 2012 Majnoon output target

DUBAI, Sept 18 (Reuters) - Royal Dutch Shell’s Majnoon oilfield in Iraq, hampered by pipeline construction delays, may miss a 2012 target of 175,000 barrels per day.

“It would be fair to say the progress has been slower than we originally hoped,” Mark Carne, executive vice president for Middle East and North Africa at Shell Upstream International, said on Tuesday.

“But I am very pleased with how the project is developing.”

Asked if the 2012 target of 175,000 barrels per day could slide into next year, Carne said: “It is certainly plausible”.

Wary of losses, Shell 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 - a contract requirement before costs can be retrieved, according to documents seen by Reuters.

The 12.6 billion barrel Majnoon oilfield is one of the major fields alongside Rumaila, West Qurna Phase One and Zubair that Iraq is developing with foreign companies in the south as it recovers from years of war and sanctions.

In February, production at Majnoon was 54,000 bpd, Shell says, but on average for the first quarter of this year, output was 18,600 bpd, far below the planned year-end target.

“(Production) varied but 54,000 bpd was probably the highest or maybe 60,000 bpd,” Carne told Reuters. “It was around that because the facilities couldn’t handle any more and the pipeline couldn’t any more. This is the reason we’re making the investment.”

Production at the field was around 45,000 bpd when Shell took over in 2010. Shell has since spent around $1 billion, and planned to invest another $1 billion in 2012.

“The new facilities will have a capacity of 100,000 bpd and then the refurbished brownfield facilities will also have a capacity of 100,000 bpd, so when it all comes onstream, we’ll be easily able to meet the 175,000 bpd,” Carne said.

The existing 28-inch Majnoon pipeline cannot cope with the projected increase in crude production.

In May last year, Iraq and its partners Shell and Malaysia’s Petronas awarded Dubai-based Dodsal Group a $106 million contract to build a 79-km (50-mile) pipeline from Majnoon to a crude storage depot near Zubair in southern Iraq.

The oil ministry rejected the deal on costs and handed the project to an oil ministry affiliate. Oil officials say the pipeline is not expected to be finished until March 2013.

Majnoon is just one part of Shell’s Iraq portfolio. Europe’s largest oil company has a significant foothold in Iraq, with a stake in a $17 billion gas joint venture and minority shares in the West Qurna-1 oilfield, led by Exxon Mobil.

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