BP Signs MoU With Iraq, Eyes Production Increase In Kirkuk

British energy giant BP plc (LON:BP) (NYSE:BP) 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. (NYSE:TOT) 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 Zacks Investment Research

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Written By: Zacks Investment Research