HJBC/Shutterstock Save for later Print Download Share LinkedIn Twitter TotalEnergies and the Iraqi government have hammered out a deal on partnership terms that should deliver a breakthrough on a long-delayed $10 billion integrated project in southern Iraq.Baghdad has compromised on its demand to have a 40% stake in the multi-component project, which involves upstream oil, gas capture, solar and water injection. New terms should see state-owned Iraq National Oil Co. (Inoc) with 30%, Total with 45%, and QatarEnergy with 25%, according to a well-placed source. Energy Intelligence understands that the agreement cleared its final government approvals today. Initial capex is pegged at around $10 billion-$11 billion, with overall spend over the 25-year lifetime of the project estimated at $27 billion.The initial signing in 2021 sparked hopes of a revival in Iraq’s investment environment, but Iraqi demands for a greater stake in the project triggered some 18 months of wrangling. Total CEO Patrick Pouyanne recently voiced frustration with the process, publicly complaining in the company's most recent results presentation that “Iraq is not the easiest place to do business.” But the new agreement, if it sticks and is implemented in a timely manner, should be both transformational for Iraq’s energy sector and a significant boost to Total's international upstream and renewable strategy.The project involves expansion of oil output at the southern Ratawi field from 85,000 barrels per day to 210,000 b/d; a 600 million cubic feet per day gas capture project at Ratawi; a 1 gigawatt solar project; and a 5 million b/d water injection project to provide treated sea water needed to maintain reservoir pressure at key southern oil fields.While the upstream oil portion is key for commercial terms, in some ways it is the least important component of the project. Iraq ranks among the world’s top gas flarers and has long been the Gulf’s least environmental producer; at the same time the country is one of the most vulnerable globally to the impacts of climate change. With the gas capture and solar projects, Baghdad can go into COP28 in Abu Dhabi later this year and claim it has jump-started its own decarbonization.The water injection, vital to maintain reservoir pressure in Iraq’s ageing southern fields, is perhaps the project’s most significant component. February output was 4.26 million b/d, well under its Opec-plus quota, as it has been for some time. It is highly unlikely Iraq could produce the 4.98 million b/d it did last October on a sustainable basis and certainly not the 4.7 million b/d achieved in Sep. 2019. In short, Iraq is slowly but surely hemorrhaging capacity.Baghdad vitally needs the long-delayed water injection scheme if it is to survive as a major producer. And a realization of just how urgent it is to arrest this capacity slippage could well have been the catalyst prompting Baghdad to compromise on its 40% demands.For Total, this a landmark project. Unlike many of its peers, the firm has long embraced political risk as a price worth paying for low-cost production: It has been the number one major in the Middle East for liquids production since 2017. Majors in Mena ('000 boe/d)202020212022%Chg. 2022 vs. 2021 BP5586076385.0% Chevron381531636.2 Shell4174204251.3 TotalEnergies6246676873.0% Shell’s Pearl GTL production is estimated. Source: Companies But this project is about about more than oil and gas production. Total has worked hard to build up renewable capabilities to future-proof itself in the energy transition, and the project's gas capture and solar components make it a real litmus test of the company's abilities to differentiate itself. Unlike many peers, who have begun to openly question the returns available from renewable electricity projects, Pouyanne has not backed down from pledges to deliver at least a 10% rate of return from such ventures. He attributes his differentiated view to a differentiated approach, including deploying a large team to scour the globe for opportunities and a focus on one-on-one negotiations where the French major can offer its balance sheet and experience building projects in the developing world. "The idea behind it is [we] can leverage our strong relationships with some producing countries, particularly in the Middle East and North Africa, which are blessed with oil and gas but also solar and wind in order to build our own renewable business and leverage that, because there are less competitors there," Pouyanne told the 2022 Energy Intelligence Forum. Total did not wait for the Iraq deal to be ratified to try and replicate it, signing a memorandum of understanding for a 500 MW deal in Libya in November 2021. However, like the Iraq project, that deal has been slow to progress.QatarEnergy has been a partner of choice for Total in upstream internationally for some time, farming into key blocks in Namibia, Brazil, South Africa and Lebanon. These have all been offshore and overwhelmingly gas-prone acreage. The Iraq venture presents a different order of both project and political complexity. But it probably makes good sense for both Doha and Total. Qatar has good relations with Iran, a key power broker in Iraq; and as a gas exporter to Iraq, it potentially stands to lose out from the Total project.