BP, Iraq in talks over fate of Rumaila's oil output capacity boost to 2.1 mil b/d

BP is in talks with Iraq's oil ministry over the fate of boosting the crude production capacity of Rumaila, the country's biggest oil field, to the plateau of 2.1 million b/d, given the OPEC+ cuts that the country has to adhere to and the low oil price environment, the company's country head, Zaid Elyaseri, told S&P Global Platts.

BP, which is a lead contractor for the field with state-owned Basra Oil Co., PetroChina and state marketer SOMO as partners, is currently producing 1.4 million b/d from Rumaila, Elyaseri said.

"There is an ongoing discussion with the ministry of oil and Basra Oil Co. on how to proceed, given the low oil price environment and the reduction in the activity set that the ministry has requested all IOCs to do this year as a result of low oil prices," said Elyaseri. "There is a discussion on the timing and all other details. We are working to increase production gradually."

Iraq's oil ministry couldn't be immediately reached for comment.

Basra Oil Co., which oversees the country's biggest fields south of the country, had asked international oil companies, or IOCs, to cut their capex by 30% this year due to low oil prices impacting production plans for the fields.

Despite the capex cuts, OPEC's second largest producer has failed for most of this year to adhere to its OPEC+ quota, although compliance improved in August and September.

Technical service agreements

Rumaila, which is estimated to have 17 billion barrels of recoverable oil remaining, pumped a maximum of around 1.5 million b/d over the past few years under the 20-year technical service agreement that expires in 2034.

The government program released in May had mentioned plans to hold discussions with IOCs over their technical service agreements, but Elyaseri said he is not "aware of any discussions taking place around the terms of the technical service contract."

Besides Iraq's request to trim its capex, BP has slashed its 2020 global spending plan by 25% to $12 billion this year as the COVID-19 pandemic crimped oil prices.

"Rumaila Operating Organization (ROO) and BP have responded to the ministry's request to reduce capex by 30%, coupled obviously with the OPEC cuts and the low oil price and this impacts activity sets," Elyaseri said. "Aside from the reduction in capex, some activities have been postponed (for example the produced water re-injection project), while restricted access to the field and global travel due to COVID-19 have impacted the movement of people and materials."

Water re-injection

The water project was approved last year but was postponed to 2021 due to the pandemic.

Around 1.4 million b/d of water gets injected every day into Rumaila to maintain reservoir pressure and around 500,000 b/d of water is produced that is removed from the oil when it is cleaned.

"Water injection is a key part of ROO's strategy to increase production, in both the current and long-term," said Elyaseri.

BP also expects its global oil and gas production to fall by at least 1 million b/d of oil equivalent, or 40%, over the next decade, as it has ambitious new targets of becoming a "net-zero" carbon emitter by 2050 or sooner.

However, Rumaila may survive this cull. Its production costs averaged $3.5/b in 2019 and could go lower with technology, Elyaseri said.

Carbon Intensity

The field, however, is yet to produce low-carbon intensity oil. Rumaila's carbon intensity is 15.02 grams CO2 equivalents per megajoule, compared with a country average of 13.717 grams CO2 equivalents per megajoule, according to data from the Stanford University.

"BP is committed to working with our partners at Rumaila, the government of Iraq and Basra Gas Co., to help facilitate the reduction of flaring and emissions, including methane," Elyaseri said. "Gas not used for operations including power generation is delivered to BOC and Basra Gas Co. is responsible for gas."

Basra Gas Co, a joint venture with Shell, state-owned South Gas Company and Mitsubishi, captures gas from Rumaila, Zubair and West Qurna 1 south of Iraq.

However, some gas is still flared at Rumaila, where gas production is forecast to increase as oil output is ramped up. Elyaseri declined to say how much gas is flared at Rumaila.

Gas flaring

Iraq is the world's second worst flaring nation after Russia, burning some 18 billion cubic meters (632 billion standard cubic feet) in 2019, according a World Bank study published July 21.

Besides Rumaila, BP had signed in 2013 a letter of intent with Iraq's oil ministry to study the Kirkuk oil field, the oldest in the country and with an estimated potential of up to 9 billion additional resources. The LOI, which expired in 2019, included studies to help boost oil production capacity of the field to 750,000 b/d from around 450,000 b/d.

"BP completed its commitment and delivered a technical study for Kirkuk's future development on the reservoir, facilities and model to the government," Elyaseri said. "We look forward to their response and discussing it further."