Iraq oil output growth seen slow by BP, Lukoil on low prices

ANTHONY DIPAOLA

ABU DHABI (Bloomberg) -- Growth in Iraq’s oil production capacity may slow as lower crude prices hurt the ability of OPEC’s number two producer to pay international oil companies for work there, officials from BP Plc and OAO Lukoil said.

Lukoil sees a “significant reduction” in the growth rate of Iraqi output capacity in 2016 and 2017 due to the decline in crude price, Gati Al-Jebouri, senior V.P. at Lukoil Overseas, said in Abu Dhabi on Tuesday. BP’s ability to meet its production targets depends on the government approving the company’s proposed investment plans, said Michael Townshend, the company’s regional president for the Middle East.

The slump in global crude prices over the past year has cut the Iraqi government’s income even as it battles Islamic extremists that have seized parts of the country. That risks sidetracking Iraq’s efforts, after decades of conflict and sanctions that choked investment, to boost crude production with the help of international companies.

Brent crude, a global benchmark, dropped about 50% last year. It was trading at $61.63/bbl on Wednesday.

Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, pumped 3.34 MMbopd in March, state-run Oil Marketing Co. said April 16. The country, which pumped about 2.4 MMbopd by the end of 2010, plans to boost capacity to 6 MMbopd in 2018.

Oil Payments

The international companies working toward that goal are in talks with the Iraqi government about their field development plans, Townshend said at the Middle East Petroleum & Gas Conference in Abu Dhabi on Monday. The companies are reviewing their plans to ensure they will be paid by the government, Al-Jebouri said at the same event.

“That will lead to postponement in production growth,” Al-Jebouri said.

Iraq owes the companies about $9 billion for work done in 2014 and about $18 billion this year, the International Energy Agency said in its monthly report released April 15.

Iraq’s payments to BP for work it’s done in the country have been “picking up over the last couple of months,” Townshend said. Companies producing oil in Iraq have the choice of being paid in cash or by receiving barrels of crude, he said. BP has been taking greater amounts of oil from both Iraq’s southern and northern fields, Townshend said.

BP is the operator of Rumaila field, Iraq’s largest deposit. Lukoil, the operator at the West Qurna-2 oil field, will invest $42 billion in developing the field, which has 35 Bbbl of oil in place, Al-Jebouri said.