BP Plc (BP) and its partner China National Petroleum Corp. (“CNPC”) have surpassed their initial production rate of 1.066 million barrels per day (MMbpd) by more than 10% on a rise in output from the Rumaila oilfield in Iraq. The growth was driven by continued focus on increasing oil production from existing wells, new wells that came on stream and an unperturbed flowline.
In 2009, a consortium, comprising BP (38%), China’s state-owned CNPC (37%) and Iraq’s State Oil Marketing Organization (25%) clinched a 20-year development contract for Rumaila and set a target to increase output to 2.85 MMbpd in six years through a $15 billion investment in cash. Later, the consortium set up an operating company with Iraq’s South Oil Company.
BP, the oil giant of UK, highlighted that activity on Rumaila had steadily increased over the past year with 41 new wells being drilled, 103 workovers completed and 122 kilometers of flowlines laid. Employment has more than doubled to 10,000 workers on the project.
Located in southern Iraq, approximately 32 kilometers from the Kuwaiti border, the Rumaila oil field has an estimated crude reserve of 17 billion barrels. It is the world’s fourth largest oil field with the current capacity of 1 million bpd, almost half of Iraq’s current total output of 2.5 MMbpd.
The Iraqi government signed several developmental contracts, including Rumaila and Zubair deals, in order to meet Saudi levels of 12 MMbpd within six to seven years. These deals were signed with several oil companies for a remuneration fee of $2 per barrel.
A separate consortium, lead by Italy’s oil-giant Eni SpA (E), also increased its production level at Zubair oil field by more than 10% from the initial production rate in 2009. Eni said the consortium touched the breakeven production level of about 201,000 barrels per day.
BP’s endeavor to overcome the oil spill related losses appears on track. We believe that keeping pace with the previous target in Iraq is a positive direction toward the turnaround. The Gulf of Mexico incident might hinder access to its acreages around the U.S. However, BP’s reserve replacement ratio of 129% in 2009 reaffirms its 17-year industry-leading track record.
We retain our long-term Neutral recommendation on the company. BP holds a Zacks #3 Rank (short-term Hold rating).
BP PLC (BP): Free Stock Analysis Report
ENI SPA-ADR (E): Free Stock Analysis Report
Zacks Investment Research
