BP to Cut Rumaila Target

Zacks

British energy giant BP Plc (BP) plans to trim its output target for the enormous Rumaila oilfield in Iraq to between 1.8 million and 2.2 million barrels per day (:MMBPD). For this, the company is expected to ink an agreement with Iraqi officials.

The U.K. major submitted three figures for the region’s production level. Of them, 1.8 MMBPD and 2 MMBPD have been chosen for discussion. The deal is expected to be finalized by the end of this year.

In 2009, a consortium, comprising BP (38%), China's state-owned CNPC (37%) and Iraq's State Oil Marketing Organization (25%) clinched a 20-year development contract for Rumaila and set a target to increase output to 2.85 MMMPD in six years through a $15 billion cash investment. Later, the consortium set up an operating company with Iraq's South Oil Company.

Located in southern Iraq, approximately 32 kilometers from the Kuwaiti border, the Rumaila oil field has an estimated crude reserve of 17 billion barrels. It is one of the world’s largest oil field, currently yielding 1.350 MMBPD that is expected to hit 1.450 MMBPD by next year. A development agenda has also been planned for drilling 110 new oil wells in 2013. The agenda includes injection wells for maintaining production level.

Although Rumaila exhibited fast-track production growth, infrastructure bottlenecks, payment delays and ongoing political issues enforced BP to lower the target in the oilfield.

Again, the U.S. behemoth, ExxonMobil Corporation (XOM) is planning an exit from southern Iraq’s giant oil field − West Qurna-1. It plans to sell its 60% stake in the West Qurna-1 project mainly due to anticipated narrow profits from the planned $50 billion venture. ExxonMobil is interested in exiting the West Qurna field and instead head towards Kurdistan.

These negotiations mark the difficulties that the oil majors are facing in Iraq’s southern oilfields. The political imbroglio in the region has put off the oil majors. The companies are now focusing on expanding their interests in the Kurdistan region in the north.

We retain our long-term Neutral recommendation on the company. BP holds a Zacks #3 Rank (short-term Hold rating).

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