* Majnoon facing large de-mining challenge
* Shell hopes for 175,000 bpd by year-end
By Peg Mackey
MAJNOON, Iraq, Feb 8 (Reuters) - Armoured bulldozers rumble over a small patch of Iraq’s Majnoon oilfield, scraping up thousands of landmines, rockets and bombs that are hampering development of the site’s massive reserves.
Flush against the border with Iran, Majnoon was effectively a battlefield during the 1980s when the two countries were at war. Now it is costing Royal Dutch Shell, the field’s operator, millions of dollars and time to undo the damage.
Shell had a good sense of this world class field’s potential in late 2009 when it was awarded a service contract to ramp it up to 1.8 million barrels per day by 2017. It did not, however, expect the massive ordnance clear-out that lay ahead.
“Majnoon was far more contaminated with mines and explosives than we envisaged,” Ole Myklestad, Shell’s manager at Majnoon, told Reuters. “It clearly took a lot more effort.”
The 12.6 billion barrels Majnoon is one of the major fields alongside Rumaila, West Qurna Phase One and Zubair that the OPEC-member is developing with foreign companies in the south as it recovers from years of war and sanctions.
The series of foreign company contracts officially target production capacity of 12 million bpd by 2017, though half that amount looks more achievable given infrastructure constraints and logistical bottlenecks. Current Iraqi production is around 2.9 million bpd.
At Majnoon, local Iraqi companies are sweeping away the weapons - including a 500 kg bomb - so pipelines can be laid and wells can be drilled.
Around $30 million has been spent to scour more than eight million square metres and another $20 million will be spent this year. Under their service contracts with Baghdad, Iraq must repay firms for the considerable cost.
Shell hopes by the end of 2012, enough production facilities will be in place to boost flows to a 175,000 bpd threshold that triggers cost recovery and service fee payment. Save two de-gassing facilities, the southern field is virtually bare and output is only about 54,000 bpd.
“To reach an end of the year target... will require huge cooperation across all the ministries, with the South Oil Company (SOC),” said Myklestad. “We can make it with the right cooperation in place.”
Since taking over operations with Malaysian partner Petronas in March 2010, Shell has spent $1 billion on the field and is due to invest another $1 billion this year.
But it’s not just the minefields that are a challenge at Majnoon, or “Crazy”, in Arabic. Job creation is also a flash point for many of the 80,000 people who live on the field in the communities of al Nashwa, al Dyer and al Thager.
Expectations are high that Shell, which is likely to spend around $50 billion on the field over the 20-year contract, will provide employment.
“We cannot deny there are some problems and issues regarding jobs,” said Zaher Yassin Ebadi, head of the Majnoon Local Development Committee, which was formed last July.
Shell focused on community relations at an early stage, providing 1,200 unskilled jobs in areas such as catering, security and construction.
Wages are based on the average minimum salary of a worker at Iraq’s South Oil Co (SOC), roughly $600 a month. Now the challenge will be to train people for skilled jobs.
Baghdad is leading a drive to hire local staff, which may help to explain why international oil companies often struggle to secure visas for foreign contractors.
Despite the billions of dollars flowing into the Shi’ite oil hub of Basra, there is little evidence of a boom town in the making.
The narrow, dusty road snaking from Basra up to Majnoon is riddled with potholes and brick, garage-sized dwellings dot the route. Women, head-to-toe in black hijab, tend small children who play by the roadside.
To remove some of the heavy transport load and speed delivery, Shell built a jetty on the Shatt al-Arab river, a waterway formed by the confluence of the Tigris and Euphrates rivers that empties into the Gulf below Basra.
The first barge arrived from Dubai on Sunday, and the equipment went directly to Majnoon’s central processing facility to be used for increasing production.
The facility includes an early production system that will handle about 100,000 bpd of extra oil that will arrive from new producing wells, once the drilling campaign concludes. It targets 15-20 wells in 2012.
Much of the early production system is being built in the United Arab Emirates and will be transported up the Shat al-Arab by barge. To aid the drilling drive, there are two rigs in place on the field: one is stuck in Kuwait.
Majnoon is just a part of Shell’s Iraq portfolio. Europe’s largest oil company has a significant foothold in Iraq, with a stake in a $17 billion gas joint venture and a minority share in the West Qurna-1 oilfield, led by Exxon Mobil.