Following the approval from the Governmental bodies in mid-November, Iraq officially announced its natural gas exploration joint venture with Royal Dutch Shell plc ( RDS.A ) and Japan's Mitsubishi Corporation. The project, worth $17 billion, was inked almost three years after it was announced in 2008.
The joint venture -- Basra Gas Company -- will aim to upgrade and modernize infrastructural facilities of the oil fields at a cost of some $12.8 billion, thereby increasing output. This 25-year deal will work closely to capture more than 700 million cubic feet per day of gas from three of the most fertile southern acreages namely Rumaila, Zubair and West Qurna Phase 1.
As per Iraqi officials, the venture will also set up a liquefied natural gas facility, with a maximum capacity of 600 million cubic feet of gas per day, for approximately $4.4 billion.
Under the present scenario, a large volume of natural gas, estimated at $1.8 billion per annum, is being burnt off due to the lack of a proper processing plant. With this venture, the Iraqi authority targets to boost domestic natural gas production as well as utilize the produce to satisfy the rapidly growing demand for electricity within the country, with any excess amount to be exported.
While the state-controlled South Gas Company controls the majority stake (51%) of Basra Gas, Shell holds a lump sum 44% interest. The remaining 5% interest is with Mitsubishi.
Shell Iraq's vice president and country chairman stated that the company will render advanced project management skills and technological know-how to the venture. With this initiative, Shell will fortify its long-standing business ties in Iraq. The company is also engaged in developing southern Iraq's massive Majnoon oil field and co-partners ExxonMobil Corporation ( XOM ) in exploring the acreage of West Qurna Phase 1.
The Hague-based Royal Dutch Shell owns one of the largest integrated oil and gas business in the world. The group has operations worldwide and is involved in various activities related to oil and natural gas, chemicals, power generation, renewable energy resources, and other energy related businesses.
We are maintaining our long-term Neutral recommendation on the stock. Shell currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.