Iraq blames Shell for $ 4.6 billion lost income: letter

Blames the energy firm for shortfalls in oil extraction at the giant Majnoon field in south Iraq

Iraq's oil ministry, struggling with sputtering output, has blamed Anglo-Dutch energy giant Shell over $ 4.6 billion in lost revenue due to production delays, in a letter today.

 

The document, dated July 21, 2013, sharply criticises the foreign energy firm for shortfalls in oil extraction at the giant Majnoon field in south Iraq, and comes as oil exports have fallen to their lowest level in 16 months even as Baghdad has looked to cement its role as a key global energy producer.

 

It indicates growing frustration within the government over oil exports, which account for the lion's share of state revenues -- a dispute with the northern Kurdish region has suspended expected sales from there, and sales via a pipeline through to Turkey have markedly dipped compared to previous years.

 

Two separate sources with knowledge of the letter's contents confirmed its authenticity to AFP, but declined to be identified discussing the matter.

 

The letter was addressed to Shell's Iraq Vice President Hans Nijkamp and bore the letterhead of the oil ministry's Petroleum Contracts and Licensing Directorate.

 

According to parts of the letter seen by AFP, it stated that "production from Majnoon Oilfield ... Has been stopped for an unacceptably long time" and added that "aggregated losses of production" at Majnoon amounted to 44 million barrels of oil.

 

"As a result, Iraq has suffered heavy direct losses, which we have determined conservatively at more than (4.6) billion US dollars," the letter, which was written in English, read.

 

"Of course, Iraq continues to suffer losses each day as a result of Shell's failure to perform its contractual obligations."

 

It said that "the field has been shut down and the production stopped since 1st July 2012 based upon Shell's request to perform the rehabilitation of the existing surface facilities."

 

"This rehabilitation was to have been completed in four to six months with production resuming no later than 1st January 2013."

 

It continued: "So far, Shell has neither resumed the previous production ... Nor achieved the First Commercial Production."

 

The ministry also alleged that the company has "not taken any serious measures to handle the associated gas produced from the field."

 

"The flaring of this gas has had a negative impact on Iraq both economically (i.E. Revenue losses) and on the environment as well as it's in violation with the Iraqi laws."

 

A consortium of Shell and Malaysia's Petronas signed a contract with Baghdad in January 2010 to develop Majnoon, a giant oil field in southern Iraq.

 

Shell holds a 45 % stake in the project, while Petronas has 30 %, with the remainder held by a state-owned Iraqi firm.