Shell pressing ahead with Majnoon oil field

Updated 19 May 2012
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Shell pressing ahead with Majnoon oil field

LONDON: Shell is pressing ahead with talks over final development of Iraq's Majnoon oil field, a senior executive told Reuters, and a lower, more realistic oil production target is a core part of discussions.
Majnoon is one of four southern super giant fields that are vital to Iraq's ambition to at least double its oil output and put it firmly back among the world's top producers.
But crunch time is approaching.
Iraq awarded service contracts in 2009 to foreign firms who vowed to boost its capacity beyond 12 million barrels per day (bpd) by 2017, but this target has proved too aggressive due to infrastructure bottlenecks and logistical shortcomings.
With that in mind, companies are now drafting final development plans due by the start of next year.
"We're having ongoing exploratory discussions with the Iraqi government, to determine the optimum field development plan for Majnoon," said Hans Nijkamp, Royal Dutch Shell vice president and country chairman for Iraq.
"But you have to look at it in the bigger context of the optimum aggregate production level for Iraq."
Iraq's top oil officials acknowledge the need for a more prudent output target and have suggested a level of around 8.5 to 9 million bpd.
Other experts see 6 to 7 million bpd by the end of the decade as the most realistic outcome for the war-damaged country. That would imply an output target of around 1 million bpd for Majnoon, industry sources say.
Shell, with junior partner Petronas of Malaysia, won the Majnoon contract by promising to boost the largely undeveloped field to 1.8 million bpd for a fee of $1.39 a barrel. Production capacity is now 65,000 bpd.
Oil Ministry documents show that Shell has opened discussions on a target of around 1 million bpd for Majnoon, as part of its full field development plan.
The company, the first to open talks with the ministry of oil, also proposed to extend the field's plateau period — the time period for which its peak production can be sustained and which is to begin in 2017 — to more than 20 years from seven years now.
Those figures are not set in stone.
"It depends on what Iraq wants out of Majnoon. You can develop this field in different ways with different plateau levels and durations," Nijkamp said on the sidelines of an Iraq Britain Business Council event on Thursday.
"The 1.8 million barrels a day that we bid for was a realistic plateau level that we can responsibly develop and produce — but obviously for a shorter period of time than a plateau level below 1.8 million."
The Shell executive said Baghdad is doing its best to overcome myriad infrastructure hurdles, but bottlenecks in the export system are choking production gains.
"That will really determine the production capacity — because the production capacity is there from the license round 1 fields," he said, referring to the southern fields of Rumaila, Zubair and West Qurna-1 that are already up and running.
Recovering from decades of wars and crippling sanctions, Iraq is unique among producing nations seeking to boost oil flows. But the level of red tape and logistical sluggishness beats regional rivals.
"Things do take time in Iraq — whether it's entry visas or customs clearance," said Nijkamp. "Customs clearance in most ports in the region is a matter of days to a week. We have some equipment that's been stuck for months."
Around $50 billion will be needed to ramp up Majnoon, which straddles the border with Iran.
"These are early days. We're sticking our toe in the water and learning how to effectively operate in Iraq," said Nijkamp.
"But to be confident that Iraq is a good place to invest, we need to ensure timely payment. That will really determine ongoing investor confidence."
Majnoon has yet to reach cost recovery mode, but the ExxonMobil-operated West Qurna-1 project — where Shell is a minority partner — has been in the money for some time.
A prolonged contractual dispute, however, delayed timely payment of installments totaling some $900 million.
That has finally been sorted out, said Iraqi oil officials, and the companies have now received payment in full. And going forward, Exxon and Baghdad have signed a final agreement for the companies to be able to be paid in oil for work on West Qurna-1.
Shell's southern gas joint venture, the $17 billion Basra Gas Co (BGC) is also going well, said Nijkamp. The company mobilized a sizable technical team and has seconded technical experts to get compressor units up and running quickly to increase gas throughput.
Shell has meanwhile yet to decide whether it will take part in Iraq's exploration round at the end of this month.
"We'll decide very soon whether we'll put in a bid," said Nijkamp.
Although the company has its hands full for now on three mega-projects with estimated investment of around $100 billion, future opportunities are not ruled out.
"We are in Iraq to stay for the long term — it might be more upstream, maybe gas," said Nijkamp.
"There is more we can do to add value to Iraq and run a good business that contributes to the reconstruction of the country, including substantial job generation."


Crisis at India's Jet worsens as it grounds planes, faces strike

The debt-laden carrier has delayed payments to banks, suppliers, pilots and lessors. (Reuters)
Updated 27 min 30 sec ago
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Crisis at India's Jet worsens as it grounds planes, faces strike

  • More than 20,000 people are employed in the company
  • The company had to stop more than 50% of their aircraft due to insufficient funds

MUMBAI: India's Jet Airways was fighting multiple crises Wednesday after grounding six planes, leaving it with only a third of its fleet flying, while pilots have threatened to walk out and a major shareholder is reportedly looking to offload its huge stake.

The problems at India's number-two carrier come as other airlines struggle to turn a profit despite the sector rapidly expanding in the country over recent years.

Jet, which employs more than 20,000 people, is gasping under debts of more than $1 billion and has now been forced to ground a total of 78 of its 119 aircraft after failing to pay lenders and aircraft lessors.

In a statement late Tuesday announcing its latest grounding, the firm it said it was "actively engaging" with lenders to secure fresh liquidity and wanted to "minimise disruption".

But with hundreds of customers left stranded, Jet's social media accounts have been flooded with often suddenly stranded passengers demanding information, new flight tickets and refunds.

"@jetairways We book our flights in advance so that we save on travel cost and you are sending cancellation (message) now?", read one irate tweet on Wednesday.

"I have sent a DM (direct message) regarding my ticket details. Please respond!", said Sachin Deshpande, according to his Twitter profile a design engineer.

Another, Ankit Maloo, wrote: "Received an email for all together cancellation of flight days before departure without any prior intimation or communication over phone!"

The firm is also facing pressure from its many pilots who have not been paid on time, with unions threatening they will walk off the job if salaries do not arrive soon.

"Pilots will stop flying jet planes from 1st April 2019 if the company does not disburse due salaries and take concrete decisions," a spokesperson for the National Aviator's Guild, a pilots union, told AFP.

India's aviation regulator on Tuesday warned Jet Airways to ensure that staffers facing stress are not forced to operate flights.

Meanwhile, Bloomberg reported that Etihad Airways of the United Arab Emirates has offered to sell its 24 percent stake in Jet to State Bank of India (SBI).

A collapse would deal a blow to Prime Minister Narendra Modi's pragmatic pro-business reputation ahead of elections starting on April 11.

India's passenger numbers have rocketed six-fold over the past decade with its middle-class taking advantage of better connectivity and cheaper flights.

The country's aviation sector is projected to become the world's third-largest by 2025.

But like other carries, Mumbai-based Jet has been badly hit by fluctuating global crude prices, a weak rupee and fierce competition from budget rivals.

Alarm bells for Jet first rang in August when it failed to report its quarterly earnings or pay its staff, including pilots, on time. It then later reported a loss of $85 million.

In February, it secured a $1.19 billion bailout from lenders including SBI to bridge a funding gap, but the crisis has since deepened.

"Jet Airways is rapidly reaching a point of no return and running out of assets to keep itself afloat," Devesh Agarwal, editor of the Bangalore Aviation website, told AFP.

"The only solution is equity expansion by diluting its stakes but Jet is just trying to cut losses and running out of options," Agarwal said.

Shares in Jet Airways were down more than five percent on Wednesday.