TotalEnergies strikes deal with Iraq to revive $27bn energy projects

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Financial Times

5/4/2023

French oil major TotalEnergies and the Iraqi government have struck a deal to salvage a $27bn series of energy projects that are considered key tests of Baghdad’s ability to attract hesitant foreign investors. The contracts, including gas, oil and solar projects, had become bogged down in political negotiations at a time when other oil groups had been scaling back operations in Iraq. A stand-off over the ownership structure looked at one point to be heading towards a breakdown. But Total said on Wednesday that Iraq would take a 30 per cent stake in the Gas Growth Integration Project (GGIP), aimed at developing resources in the country, less than the 40 per cent Baghdad had been pushing for and slightly more than the 25 per cent initially envisaged by the oil group. Total will have a 45 per cent stake, while QatarEnergy was confirmed as the new third party in the deals, with 25 per cent. Emad Al-Alaq, the energy adviser to Iraq Prime Minister Mohammed al-Sudani, confirmed the agreed size of the stakes. The developments under the GGIP are big infrastructure projects, including one to recover flared gas, in effect wasted power, at several oilfields and supply electricity generation plants, in a country often blighted by blackouts. Iraq has the second-highest level of gas flaring in the world, as it lacks facilities to process it into fuel for local consumption or exports. The contracts, which also cover a site to treat seawater for injection into oil reservoirs and a big 1 gigawatt solar power plant, were originally signed in September 2021, just before an election in Iraq that led to a year-long political deadlock and clashes on the streets. At the time, Total envisaged the GGIP would be a $10bn investment — an amount confirmed again on Wednesday, although the Iraqi authorities say this will reach $27bn once operating spending is included. In talks with the new Iraqi government formed in October, however, wrangling over the size of Baghdad’s stake in the GGIP delayed a deal. Iraq’s oil ministry was also not keen on the project’s renewables components, people familiar with the negotiations told the Financial Times at the time. The deal relies on a profit-sharing structure between the partners, with revenues from the expansion of the Ratawi oilfield near Basra raising output to help finance other projects. The stand-off reached a peak in February when Total began to order some staff to leave Iraq, where it already had operations, although that decision was soon reversed and negotiations continued. In March, Total chief executive Patrick Pouyanné indicated that the company could also lose its desire to pursue the project after several Iraqi officials gave mixed signals about whether it would see the light of day. Pouyanné told an investor presentation he needed guarantees there would not be constant renegotiations. “For the time being, we did not get it. If we don’t get it, to be honest, I cannot expose the company to a mix of risks because we know there is a security situation, we know the geopolitical situation,” Pouyanné told investors on March 21. Recommended News in-depthIraq Crippling dollar shortage underscores vulnerability of Iraq’s oil-based economy Pouyanné was invited back to Baghdad last Sunday by the prime minister to finalise the talks, according to Total and a person familiar with the negotiations. Although Iraq is the world’s fifth-biggest oil producer, it has lost major investors in recent years, with Shell leaving one oil development, while ExxonMobil and BP are looking to exit others. Poor returns on some contracts and years of instability, including during unrest last year, have added to problems for foreign investors. In a cabinet statement on Tuesday, the Iraqi government confirmed the deal to take a 30 per cent stake in the GGIP, “due to the importance of resolving the issue . . . and proceeding with concluding related agreements”.

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