BP: Iraq Oil Deal is Start of Something Big

The June 30 auction in Baghdad for development rights to oil and gas fields in Iraq has been portrayed as a dud. That’s understandable. After all, the Iraqis managed to award only one of the eight fields up for bid.

But the .125 batting average is somewhat deceptive. The field the Iraqis did award, Rumaila, is a monster, producing 960,000 barrels per day now—nearly half of Iraq’s current output. The winners, BP (BP) and China’s CNPC, plan to bring the field to plateau production of 2.85 million barrels per day within six years. That would make it one of the most prolific fields in the world.
BP thinks the Rumaila deal, which is not yet signed, will give it first-mover advantage that can be parlayed into other Iraqi projects. BP also thinks it understands Rumaila well, having originally discovered the field in the 1950s and having worked on it with the Iraqis during the past five years. BP also thinks Rumaila closely resembles the giant Samatlor field in western Siberia, which it has successfully managed through its TNK-BP Russia subsidiary. Finally, through CNPC the partners will have access to a Chinese supply chain to bring in the low-cost equipment needed, including onshore drilling rigs. An Iraqi state company will have a 25% stake, while BP and CNPC will share a 75-25 split of the rest.

Inglis said BP already has a plan for Rumaila. It will include modernizing, such as drilling new wells, renovating old ones, adjusting the level of pumps, and investing in and optimizing the massive water injection programs needed to maintain pressure and boost production.

Business Week