Will Iraq Deal Be New Model for Megaprojects?

Copyright © 2021 Energy Intelligence Group

Could the multibillion-dollar integrated energy deal that TotalEnergies signed with Iraq this week become a model for future oil megaprojects? While some aspects make it a special fit for Total, the deal’s structure provides medium-term production growth while satisfying environmental demands with gas capture and solar components. Such a model could have broad appeal for international oil companies (IOC) facing investor pressure to deliver strong returns in the near term while shifting greater investment to cleaner energy technologies over the long term. IOCs have long chafed at Iraq's harsh operating environment. And its carbon-intensive oil -- related to the large volumes of gas it flares -- have become a growing source of concern for investors. But Total appears to have found a profitable solution -- combining an expansion of oil production capacity with the capture of gas that was previously flared, and also throwing a big chunk of solar power into the mix. The deal could prove to be a pivotal project for both Iraq’s struggling oil sector and the French major’s energy transition strategy. The project's initial capital expenditure is estimated at $10 billion-$11 billion while total spend, covering both operating expenditure and capex over the next 25 years, is pegged at $27 billion. At a $50 per barrel oil price, total profits over the project's lifetime are projected at $96 billion, Iraq's oil ministry says. Experts say Total has secured better terms than those offered in Iraq's licensing rounds. The deal involves gas capture, covering a 600 million cubic foot per day project at Ratawi; the expansion of oil output at Ratawi from 85,000 barrels per day to 210,000 b/d; a 1 gigawatt solar project; and a 5 million b/d water injection project to provide treated seawater needed to maintain reservoir pressure at key southern oil fields.

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