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BP Signs MoU With Iraq, Eyes Production Increase in Kirkuk

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British energy giant BP plc (BP - Free Report) recently signed a memorandum of understanding (MoU) with the government of Iraq regarding production capacity increase in the northern Kirkuk oilfields, one of the biggest and oldest oilfields in the Middle East.

Per the MoU, BP will be able to boost production by more than twice the existing capacity at Kirkuk to 750,000 barrels per day (bpd). To study and develop the oilfields, BP will conduct seismic survey operations in the area. The company estimates 9 billion barrels of recoverable oil in the region.

We would like to remind investors that BP had projected asset sale worth $4.5-$5.5 billion for 2017. This obviously raised concerns with respect to the company’s production in the coming years. The deal with the Iraqi government is expected to benefit its overseas portfolio.

We note that Iraq is the second largest producing member of the Organization of Petroleum Exporting Countries (OPEC). Although the country's production capacity has almost reached 5 million bpd, it is producing 4.4 million bpd as part of an output cut agreement with fellow oil exporters in an attempt to clear a supply glut.

By the end of January, the Iraqi government wants to ship crudes from the Kirkuk fields to Iran in trucks. The move is expected to restore output-export capacity of the country.

Background

In 1927, BP and France’s TOTAL S.A. (TOT - Free Report) found oil in the Kirkuk region. However, years of conflict and under-investment took a toll on the giant prospect.

In 2013, BP and the government of Iraq inked a deal to stop the decline in Kirkuk's crude production.  BP provided the Iraqi state-run North Oil Company, which was operating in the region, technical assistance.

A year later, Kirkuk was taken over by the semi-autonomous Kurdistan Regional Government when the government was fighting to resist the advances of Islamic State militants. This was followed by an Iraqi military operation that stalled the export of oil from the fields to Turkey.

Iraq Gets Back the Field

Iraqi forces reclaimed the prolific oilfields in October 2017 from Kurdish fighters, which helped BP to sign the papers with the state-run company at the Kirkuk office. The Iraqi government and BP were in talks within days of recovering the oilfields from the Kurdish fighters.  At $59.3 per barrel, the country received $6.5 billion selling crudes in 2017.

Price Performance

BP has gained 16.3% in the last year compared with 14.7% growth of its industry.

 

 

About BP

London-based BP is among the leading integrated energy players in the world. Currently, the company reports mainly through four segments – Upstream, Downstream, Rosneft and Other Businesses and Corporate.

The firm has a portfolio of major upstream projects like Clair Ridge, Juniper and Mad Dog Phase 2 developments that are expected to fetch significant cash flows. The company anticipates the projects to add 800 Mboe/d to net production capacity by 2020, once they are online. It is to be noted that 90% of these upstream developments are either under construction or are completed.

However, the oil spill incident of 2010 in the BP-operated Macondo Prospect is still affecting the company. BP expects to incur additional after-tax charges of $1.7 billion related to the oil spill incident during fourth-quarter 2017. Also, in 2018, the company anticipates cash out flow related to the incident to be $3 billion against the prior projection of slightly more than $2 billion.

Zacks Rank and Stocks to Consider

BP carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the oil and energy sector are Cabot Oil & Gas Corporation (COG - Free Report) and Denbury Resources Inc. (DNR - Free Report) . Both Cabot and Denbury Resources sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX -based Cabot is an independent energy company. Its sales for fourth-quarter 2017 are expected to grow 39% year over year. Earnings for the year 2017 are expected to be up 357.14%.

Plano, TX -based Denbury Resources is an integrated energy company. Its sales for the fourth quarter of 2017 are expected to increase 11.2% year over year. The company delivered a positive average earnings surprise of 125% in the last four quarters.

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