Total signs deal worth $27 billion in Iraq; to develop oil fields, natural gas

French energy giant Total signed mega contracts with Iraq worth $27 billion to develop oil fields, natural gas and a crucial water project that officials said Monday will be key for the oil-rich country to maintain crude output.

The deals were inked Sunday with Prime Minister Mustafa al-Kadhimi in attendance, according to an Oil Ministry statement.

Total signed contracts with the ministry to develop the Ratawi oil field in southern Iraq, a gas processing hub to capture natural gas from five southern oil fields, and a much needed project to treat Gulf seawater and inject it into reservoirs to maintain oil production levels.

A fourth project was signed with the Electricity Ministry to build a 1,000 megawatt solar power plant.

It is the most lucrative and ambitious deal to be signed by an oil giant in Iraq in years and comes as other international oil companies have taken steps to exit from Iraq’s oil sector.

There was no immediate statement from Total.

Iraq urgently needs to develop local gas resources to meet electricity demands, especially during the peak summer months. The country is heavily reliant on Iranian gas and electricity imports, which have been irregular in recent months due to outstanding payments and high demand inside Iran.

In a June interview, Oil Minister Ihsan Abdul-Jabbar Ismail said he was aiming to increase Iraq’s gas capacity by 3 billion cubic standard feet by 2025. The development of the gas processing hub would bring Iraq a step closer to that goal. Iraq currently imports 2 billion cubic standard feet to meet domestic needs.

The project entails building a gas complex capable of separating and processing the natural gas associated with petroleum that is extracted from the Ratawi, West Qurna 2, Majnoon, Tuba and Luhais oil fields. Iraq currently lacks the means to capture this gas and it is burned off in the atmosphere. Experts complain that by not effectively capturing this natural gas, Iraq is wasting millions in revenue. Once processed, the gas can be fed to power plants to meet domestic electricity needs.

Iraq has said it plans to eliminate gas flaring in the next two to three years. The World Bank estimates Iraq flares around 16 billion cubic meters of gas per day.

But industry officials and technocrats inside the Oil Ministry said far more urgent for the well being of Iraq’s oil industry was the seawater development component of the package of deals.

Oil is Iraq’s main industry and accounts for 90% of state revenues. To keep current production rates and meet future targets, water is reinjected into the field to maintain well pressure.

Officials say the signing of the deal was pushed ahead by Prime Minister Mustafa al-Kadhimi ahead of national elections next month despite reservations from ministry technocrats who harbor doubts that Total is serious about executing the seawater element.

“The Oil Ministry and the (state-owned) Basra Oil Company have doubts that Total is serious about the seawater project. They think they will push for the oil field and gas hub projects and delay the rest,” said an industry official with knowledge of the contract negotiations. An official with BOC expressed the same concern. They spoke on condition of anonymity because they were not authorized to brief the press.

Industry and ministry officials have warned that adequate water supplies for reinjection is not guaranteed amid shortages and there is no other alternative in place.

The contracts with Total mirrors another multi-project deal that had been under negotiation for years with U.S. oil giant ExxonMobil. But following years of painstaking talks the deal fell through.

The Total deal also comes as other oil companies plan their exit from Iraq. Exxon announced this year it would be selling its shares from West Qurna 1 oil field. The oil minister has also said that British Petroleum will spin off development of the Rumaila oil field, the country’s largest.