Oil major BP is close to reaching a contract with Iraq to cut the final production target for the supergiant Rumaila oilfield to between 1.8 million and 2.2 million barrels per day (BPD), oil ministry and industry sources said.
Officials from BP, Iraq’s state-run South Oil Co. (SOC) and its oil ministry have been in talks for the past four months, studying BP proposals to lower the aim of 2.85 million bpd, which they agreed to in 2009.
The negotiations are the latest sign of difficulty in Iraq’s southern oilfields, where logistical bottlenecks and weak infrastructure have eroded investor interest at the same time that the self-governing Kurdistan region in the north attracts oil majors.
Soon after signing multi-billion service deals with foreign oil majors, Iraq had said it aimed for an overall production capability of 12 million bpd, but the OPEC member has reduced that target 8.5-9 million bpd.
BP has submitted three figures to lower down the Rumaila production, Iraq has at first accepted to cut output, and a final contract is expected by year-end, a senior SOC official, who is involved in the discussions said.
BP’s offer included cutting Rumaila production to 1.8 million barrels per day and expanding this final plateau until 2029, the official added.
The final plateau period is the time during which peak production is continued after it is first reached in 2017.
They aim to discuss and agree a full field growth plan in 2013. Any discussions we have with the government are commercially private, a BP spokesman said in response to a request for details.
Rumaila, the workhorse of Iraq’s oil business which BP operates with China’s CNPC, has estimated reserves of 17 billion barrels and recently produces near about 1.35 million bpd – more than a third of Iraq’s total production of 3.4 million bpd.
But crumbling infrastructure, red rape and a lack of clear oil legislation have stunted investor and made it hard for Iraq to achieve its ambitious production plans.
Royal Dutch Shell in March also started talks with Iraq to slash its production target at Majnoon oilfield, the first company to start negotiations with the government in order to decrease unrealistic output goals.
An oil ministry official said that they have to re-negotiate the final output target not only with BP or Shell, but with other companies also. They do not have enough appropriate infrastructures to deal with future mega production.
A lower target suits Baghdad, officials say, because the government worries that adhering to existing contracts will result in large volumes of unused capability and lessen more than half of its proven reserves over the life of the 20-year deals.
Cash is also a concern for the government, which had estimated an investment of some $180 billion would be needed to finance its original countrywide production targets.
Out of BP’s three figures, the 1.8 and 2 million barrels per day have found their way onto the discussion table. Another oil official, who helped draft the Rumaila service deal, also said that they are weighing all economic and technical features and will decide on a single figure at the end of this month.
Iraqi officials said the Rumaila oilfield had shown important signs of fast-track production expansion but also of a lack of sufficient oil pipelines, storage and crude production facilities and that accepting the BP proposals made a target reduction essential.
Production from Rumaila is expected to reach 1.450 million barrels per day production in 2013 from 1.350 million bpd now. For 2013, a development program has been set to drill new 110 oil wells, which includes injection wells to help continue production, an oil business source close to Rumaila activities said.
While negotiating to cut production targets for its southern oilfields, Baghdad has seen majors, including Exxon and Chevron sign contracts with the Kurdistan Regional Government in the north. Those deals have increased tensions with the central government over control of Iraq’s oil reserves.
Exxon has told the Iraqi central government that it wants to pull out of a $50 billion oil project in the south, while it focuses on exploration agreements with the Kurdish region.