BP Plc (BP) and its partner China National Petroleum Corp. (“CNPC”) are on track to meet their preliminary target of a 10% rise in output from the Rumaila oilfield by the end of this month. The growth in production was driven by continued focus on increasing oil production from existing wells, new wells coming on stream and an unperturbed flowline.
In 2009, BP and its Chinese partner CNPC clinched a 20-year development contract for Rumaila and set a target to increase output to 2.85 million barrels per day (bpd) in six years.
The Rumaila oil field, with an estimated crude reserve of 17 billion barrels, is a giant oil field located in southern Iraq, approximately 32 kilometers from the Kuwaiti border. It is the world’s fourth largest oil field with a current capacity of 1 million bpd, almost half of Iraq’s total output of 2.5 million bpd.
Another consortium led by Italian energy giant Eni SpA (E) also signed a 20-year contract with Iraq earlier this year for the development of the giant Zubair oil field. Eni, along with its U.S.-based partner Occidental Petroleum Corporation (OXY) and Korea Gas Corporation had set an output target of 1.2 million bpd on a baseline production level of 183,000 bpd.
The Iraqi government signed several developmental contracts with the oil companies that included Rumaila as well as Zubair oil field agreements. If successful, Iraq is expected to meet Saudi levels of 12 million bpd.
The alliances will be paid $2 for each extra barrel of oil the companies extract on top of the current production at both fields. Additionally, Iraq intends to revamp its infrastructure and export pipelines to cope with the growing production volumes. BP, CNPC, ExxonMobil Corporation (XOM) and Russia group Lukoil were among the companies interested in partly funding the export projects.
The Gulf of Mexico spill ruptured the basic fundamentals of BP. The distressed UK major is currently searching several alternatives to raise funds to meet the spill cost. We believe that keeping pace with the previous target in Iraq, in such a critical environment, is a positive direction toward the turnaround.
Recently, BP posted impressive third quarter results mainly on the back of higher realized oil prices, lower depreciation and lower-than-usual tax rates. The Gulf of Mexico oil spill tragedy has definitely ruptured the basic fundamentals of BP but its constant endeavor to fight the aftermath is appreciable.
We continue to see near-term headwinds with respect to weak U.S. refining margins and competitive disadvantages versus its European peers. Consequently, we retain our long-term Neutral recommendation on the company. BP holds a Zacks #3 Rank (short-term Hold rating).
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