Amman (Platts)--9Feb2009

A high-level committee set up by Iraq's oil ministry to look into the
causes of a sharp fall in southern oil production has presented a $200 million
accelerated action plan to try to reverse the trend amid expectations of a
more than 100,000 b/d fall in production capacity from the south in 2009.

A copy of the Accelerated Plan presented to oil minister Hussein
al-Shahristani was obtained by Platts. It designates the fields where capacity
can be boosted by using internal resources.

The committee was established in December 2008 and is headed by deputy
prime minister Barham Saleh and includes two former post-war oil ministers,
Thamer Ghadban and Ibrahim Bahr al-Uloum.

The decline in southern production, according to Iraqi oil ministry
official figures obtained monthly by Platts, occurred during the second half
of 2008 and coincided with the steep decline in oil prices.

The figures showed that production fell from an average 1.93 million b/d
during the period May to August to an average of 1.8 million b/d during the
last quarter of the year.

Government sources said this put the oil ministry under pressure,
particularly from the finance ministry, to take action and find ways to
increase production since the country relies on oil revenues to finance 95% of
the federal budget. The committee was formed in response to that pressure.

Data submitted in the plan puts committed average production for 2009
from the southern fields, managed by the South Oil Company (SOC) and the newly
created Meissan Oil Company, at 1.75 million b/d. This is 114,000 b/d lower
than the 1.864 million b/d average for 2008 calculated by Platts using the
ministry's official figures.

The action plan also reveals that the committee's calculations point to
the possibility of average declines of 100,000-150,000 b/d from southern
fields in coming years if no action is taken.

The target of the accelerated plan is to add 380,000-400,000 b/d of crude
oil production capacity in the period 2009-2010 by using available surface
facilities and drilling 100-110 new oil wells with the work to be done mainly
by the Iraqi Drilling Company (IDC), which is committed to drilling 97 of the
wells.

The estimated cost of the plan was put at $200 million.

Seven oil fields were selected to achieve the increase in production
because of the presence within the structures of some redundancies in existing
production facilities, so that the main task would be the drilling of new oil
wells and workovers of already drilled wells.

The plan sets incremental production targets from each of these fields as
follows: 80,000 b/d from the giant Majnoon field; 70,000 b/d from the Nahr
Umar field; 40,000 b/d from Ratawi; 40,000 b/d from Luhais; 40,000 b/d from
Halfaya; 65,000 b/d from Nassiriya; and 25,000 b/d from the border field of
Safwan on the Iraq-Kuwait border.

SOC had previously installed surface production facilities and drilled
some wells as part of the state-owned company's partial development plans for
these fields but the work was sporadic and was never completed.

The oil fields of Majnoon and Halfaya were included in the second bidding
round announced by Shahristani on December 31 to be developed under long-term
service contracts by international oil companies with contracts expected to be
awarded by the end of 2009.

The Nassiriya oil field was exclusively tendered to Eni of Italy, Nippon
Oil of Japan and Repsol of Spain in the fourth quarter of 2008 to be developed
by the winner on an engineering, procurement and construction (EPC) basis.

Oil sources told Platts that the plan has not yet been circulated by
Shahristani to senior executives at the ministry, an indication that he may
not be happy with the recommendations.

The sources told Platts that the plan reflects the long-held views of the
management of SOC that it is able to undertake the work without external help.

Iraqi oil experts also raised some serious doubts as to the ability of
the IDC to undertake such an ambitious task within such a tight schedule.

They pointed out that between 2007 and 2008 the drilling company drilled
15 oil wells/year on average, hardly enough to maintain production from
existing producing fields. They believe that asking IDC to drill some 80 wells
in a 15-month period under the accelerated plan would not be feasible even
though the company is supposed to take delivery of 15 new drilling rigs this
year.

Southern oil production accounts for three-quarters of the country's
overall production, estimated officially at 2.386 million b/d in December.

But the country's energy infrastructure is suffering from decades of war
damage and the impact of UN sanctions, which curbed investment. Iraq's
sustainable production capacity is 2.5 million b/d although the OPEC oil
producing state managed to raise production to 3 million b/d for a brief
period just before the US-led invasion of March 2003.

Iraqi oil production has been below 2.5 million b/d since August last
year, when production averaged 2.538 million b/d.

Iraqi oil sources told Platts that the main reason for the decline in
output has been a fall in production from southern fields, where some wells
have been shut because of high water content, as well as the shortage of water
for injection in the Rumaila oil fields and the absence of a water injection
scheme for the West Qurna oilfields.
--Faleh al-Khayat, newsdesk@platts.com