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BP Inks Kirkuk Revival Deal

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U.K. supermajor BP plc (BP - Free Report) has formally inked a letter of intent with Iraq’s government relating to the revival of Iraq’s northern controversial Kirkuk oilfield.

Though the deal inked in early September was confirmed by both the parties, no further details were revealed. BP is believed to invest $100 million over a period of 18 months to assist Iraq in preventing further decline in output at the field.

Any deal with BP relating to the field would be termed as illegal by the Kurdistan Regional Government (KRG) as its opinion was not considered in the process. BP’s participation at Kirkuk has been under discussion for over a year.

The latest 18-month deal relating to the Kirkuk is not a technical service contract similar to the ones BP has at Iraq’s giant Rumaila oilfield in the south.

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 the Baba and Avana geological formations controlled by Baghdad. The third formation of Kirkuk, Khurmala, is administered by the KRG 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 rapid 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 - Free Report) and ExxonMobil Corporation (XOM - Free Report) .

BP carries a Zacks Rank #3 (Hold). However, Zacks Ranked #1 (Strong Buy) stock SM Energy Company (SM - Free Report) appears attractive for the short term.

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