Royal Dutch Shell (AMS:RDSA) Agrees on a Petrochemical Deal in Iraq

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By Daniel Craine on January 29, 2015 Company

Nasser al-Esawi, who is the industry Minister in Iraq revealed on Wednesday that Royal Dutch Shell (AMS:RDSA) plc (NYSERDS.A) has given its consent to a deal with Iraq for the development of a large-scale petrochemical plant in the country.

The petrochemical plant is planned to be built in the southern oil center of Basra. The estimated cost that will be spent on the projects is said to be $11 billion. According to Reuters’ the plan was sanctioned by the Iraq’s cabinet on 13^th of January. The project is anticipated to be completed in five to six years and its completion will make Iraq the largest petrochemical producing country in the whole of Middle East.

As per Mr. al-Esawi, the company Shell (AMS:RDSA) has been having discussions with different ministries of Iraq which include the ministry of industry as well as of oil and transport. The multinational oil company has been making efforts to negotiate the advancement of a joint investment model which was designed to build a large-scale petrochemical society in the southern part of Iraq.

The society will be called as Nibras Complex. An agreement was signed in 2012 between Shell (AMS:RDSA) and the ministry of Iraq regarding the petrochemical plant project. Shell (AMS:RDSA) is amongst the largest oil companies and it is already operating in the southern part of Iraq. The European oil company was rewarded a 20-year contract in January 2010 to offer technical help in the establishment of Majnoon field by the Iraq-based Ministry of oil.

The Majnoon oilfield is estimated to have reserves of oil worth 38 billion barrels. The oilfield’s has the daily capacity of producing 200,000 barrels. Shell (AMS:RDSA) is currently undergoing a deprivation plan and therefore, the time is somewhat crucial for the announcement of the deal. A few weeks earlier the oil production company decided to take off a petrochemical plant project in Qatar which is worth $6.5 billion.

On January 14^th, Shell (AMS:RDSA) released a statement according to which the project required high capital which made it impractical from a commercial point of view because of the drop in oil prices. In just 6 months, the crude oil futures have lost more than 60%. For March delivery, the West Texas intermediate crude oil futures are currently selling at $46.23 per barrel and Brent crude futures are selling at $49.60 per barrel.

In the Qatar project known as Al-Karaana, which is valued at $6.5 billion, Shell (AMS:RDSA) merely had to contribute a 20% share. However, the firm is trying to take steps towards cutting costs and maintain cash flow so it eventually took out money from the Al-Karaana project.

In the last 12 months, the company has made several disinvestments. Last January, it was reported that Shell (AMS:RDSA) was contemplating on selling its possessions in the North Sea. Later in August 2014, another disinvestment was reported when Shell (AMS:RDSA) ended up selling two of its natural gas resources for $2.1 billion. The company sold its natural gas assets located in Louisiana and Wyoming. Shell (AMS:RDSA) also sold some additional assets in Utica as well as Marcellus fields of Pennsylvania.