U.S. oil services provider Weatherford International Ltd (WFT) has received Iraqi cabinet approval regarding a contract worth $843 million from a group led by Italian energy giant Eni SpA (E). The contract is for oilfield facilities development in the Zubair field, in Basra in southern Iraq.
The pact extends for a period of 18 months and entails Weatherford to build six crude production units, each having a processing capacity of 50,000 barrels per day (bpd). Currently, Zubair yields about 254,000 bpd, which is expected to be augmented by 100,000 bpd by year-end 2012.
The Eni led consortium – consisting of U.S.based Occidental Petroleum Corp. (OXY) and South Korea’s KOGAS – was awarded the field development deal in 2010 through an Iraqi licensing auction held in 2009. Per the agreement, the group was required to enhance yield at Zubair to 1.2 million barrels a day by 2017. The group was further required to sustain output at that level for another seven years.
Eni manages the Zubair project with an interest of 33%, while Iraq’s state-run Missan Oil Co., Occidental and KOGAS hold 25%, 23% and 19%, respectively.
Iraq is determined to increase its oil production to 12 million bpd by 2017. With this view, it has awarded substantial oilfield development contracts to major players like Royal Dutch Shell (RDS.A) and BP Plc (BP). The current need, however, is to upgrade its export infrastructure, which has become obsolete. It lacks the capacity to handle Iraq's future expected output raise. As of now, Iraq exports about 2.4 million bpd and expects to deliver 2.5 million bpd in 2012.
We believe Weatherford’s participation in Iraq’s oil production growth will turn out to be highly beneficial for the company and create a superior growth potential.
Weatherford holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. Longer term we maintain a Neutral recommendation on the stock.
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