Scope Ratings expects IOCs and governments to conclude a growing number of such hybrid deals to make the shift toward a less-carbon intensive economy – and comply with the Paris Agreement on climate change and meet UN sustainable development goals - while capturing the windfall profits from the latest upswing in energy prices. Brent crude is currently trading around USD 72 a barrel, up from around USD 42/barrel on average in 2020.

“The scale of TotalEnergies’ investment in Iraq is impressive, even if capital expenditure of this size isn’t unusual for IOCs, but the more interesting aspect is how and where the French company plans to invest,” says Marlen Shokhitbayev, analyst at Scope.

“IOCs like TotalEnergies will increasingly focus more on developing oil and gas reserves which are relatively low cost and have low greenhouse-gas (GHG) intensity,” says Shokhitbayev. “Oil exploration and production projects in the Middle East usually meet these criteria, particularly when they involve investment to recover the associated gas which would otherwise be flared as is the case here,” he says.

The French IOC has agreed to undertake four projects with the Iraq government: build gas-recovery installations to provide gas-fired electricity generation, pipe seawater to southern Iraqi oilfields to help with oil extraction, increase output from an oilfield near the southern city of Basra, and construct a new 1GW solar energy plant to supply power to the Basra region.

“Notably absent from this deal is any spending on developing completely new oil and gas deposits which typically have very long payback periods,” says Shokhitbayev.

“The solar-energy project will catch peoples’ eye though it is in line with recent TotalEnergies investments in the segment given the company’s goal to have 100GW in renewable-energy capacity by 2030,” he says. “The Iraqi project at a likely capital cost of around USD 1bn is only a small part of the overall contract,” he says.

“Hybrid deals nonetheless help IOCs to gain access to the vast potential of energy transition deals ranging from reducing GHG intensity along the O&G value chain to pure renewable energy projects such as wind or solar power generation,” says Shokhitbayev.  Eni SpA, TotalEnergies’ Italian rival, has recently invested in wind and solar farms in Kazakhstan where it is a big investor in the oil and gas sector.

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