Remember Iraq's 12 million b/d oil production target? The country undoubtedly has the large-scale oil resources needed to reach this number, and the low costs required to attract companies actively repositioning lower down the cost curve. But harsh technical service contract terms and a myriad of technical, political and security factors have all conspired to subdue growth.
We have identified 10 commercial, technical, political and security constraints on Iraq's production growth, and discuss five of them here. For full analysis of these constraints, read our Insight report.
1. Technical Service Contract
The Technical Service Contract (TSC) promised quick cost recovery with a low per barrel fee, which should result in an acceptable IRR and a long-term steady income stream to offset the low net present value.
However, after several years a number of shortcomings are apparent. Oil makes up 90% of Iraq's government revenue, and following the oil price decline there were late payments to operators — which eroded project returns and demands to reduce capital expenditure — disrupting the schedule for investment projects.
2. Oil transportation
The TSCs gave responsibility to upstream operators for field development, but capacity for transporting oil to the offshore loading terminal has been constrained and largely remains the responsibility of Iraqi state enterprises. This has resulted in upstream growth outpacing midstream capacity.
3. Water supply for reservoir injection
Iraqi oil fields require large-scale water injection to achieve the expected recovery rates. For example, the Rumaila field is currently injecting close to one million b/d of water sourced from the Shatt al-Arab river to support a 60% recovery factor in the Main Pay. Other fields have more limited access to water supply, which could be problematic when long-term sustained production requires pressure support from water injection.