Malaysia’s Petronas told the Oil Ministry it wants to sell its share in the Gharraf oil field in Dhi Qar. Petronas won the contract for Gharraf in a December 2009 auction. The company has been unhappy with the business conditions in Iraq and is the latest energy firm to try to leave as a result.
On July 2 it was reported that Petronas wanted out of the Gharraf field. It said it intends to sell its share to Indonesia’s Pertamina.
Petronas has not been happy with its experience in Iraq from the start. For instance, shortly after it won a bid for Gharraf local sheikhs demanded extortion payments. (1) Something must have been worked out but then in October 2020 Petronas threatened to leave because of threats by tribes. Foreign companies routinely have to put up with a number of demands by locals for payoffs and to hire people in order to work in the country. It is part of the cost to do business.
More importantly Baghdad owes Petronas money and it thinks it can do much better in other markets. When COVID hit the Oil Ministry asked energy corporations to cut back on production and said it would delay payments as the petroleum market collapse with a severe drop in demand. The ministry must still be paying off its debts.
Several other petroleum businesses have already departed or asked to do so. In 2018 Shell withdrew and in 2021 ExxonMobile asked to do the same but was rejected by the Oil Ministry. They had the same complaints as Petronas.
In 2009 when Iraq auctioned off its major oil fields it awarded contracts based upon who would accept the lowest payments. Major energy corporations were willing to accept this because they wanted to get into the country after it had been cut off by U.N. sanctions for the invasion of Kuwait and believed they could renegotiate their deals and get better terms later on. They found the oil fields hugely neglected, a complete lack of modern infrastructure, constant delays in promised projects to boost production, late payments, and rampant corruption. The huge profits never materialized which led companies like Petronas to finally throw in the towel. This is a major hit to Baghdad which is the most oil dependent country in the world. Other companies will still move in to fill the place of those that are tired of Iraq but it means overall the Oil Ministry will never meet its lofty goals of becoming the dominant oil producer in the world.
FOOTNOTES
1. Gentile, Carmen, “Tribal demands, alleged extortion stall oil development,” Iraq Oil Report, 6/2/10
SOURCES
Gentile, Carmen, “Tribal demands, alleged extortion stall oil development,” Iraq Oil Report, 6/2/10
Hoyos, Carola, “Shell and Petronas with Iraq oilfield contract,” Financial Times, 12/11/09
Iraq Oil Report, “Petronas signals Gharraf oil field in exit,” 7/4/23
Salem, Amr, “Malaysia’s Petronas to sell its share in Gharraf oilfield to Indonesia’s Pertamina,” Iraqi News, 7/2/23
Zidane, Salam, “Demands for payment from tribes, militias stalling investment in Iraq,” Al Monitor, 10/31/20
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