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U.K. supermajor BP plc (BP - Analyst Report) intends to ink an initial agreement in early September relating to the revival of Iraq’s northern Kirkuk oilfield.

The deal could spark off regional politics as the field overlaps the border with the autonomous Kurdish region. BP, which is already working at Iraq’s largest producing field, Rumaila, is expected to gain access to considerable reserves in the north through the Kirkuk deal.

The deal would give Baghdad an experienced partner and facilitate it in making up for the huge fall in output from Kirkuk. The British giant is likely to work on – Baba and Avana geological formations – controlled by Baghdad. The third formation of Kirkuk, Khurmala, is administered by the Kurdistan Regional Government and is being developed by the Iraqi Kurdish KAR group.

The yield at the 78-year old field has come down to 280,000 barrels per day (bpd) from 900,000 bpd in 2001. The main reason behind the decline is years of water injection and dumping of discarded crude and products into the field.

The Iraq government has asked BP to increase production capacity to about 600,000 bpd within five years. However, the rate of development at Kirkuk will not be as rapidly as the giant southern fields of Rumaila, Zubair and West Qurna-1.

The yield at these southern fields has been enhanced by 600,000 bpd in just two years by BP, Eni SpA (E - Analyst Report) and ExxonMobil Corporation (XOM - Analyst Report).

BP’s Kirkuk field contract, which has been under discussions for over a year, is only for 18 months. But it is likely to provide an opportunity to the company to negotiate a longer-term development contract.

BP carries a Zacks Rank #3 (Hold). However, Zacks Ranked #1 (Strong Buy) sector stock, Range Resources Corp. (RRC - Analyst Report), appears attractive for the short term.
 

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