BP signs development deal with Iraq

The memorandum of understanding (MoU) was signed in Kirkuk on Thursday by BP’s Head of Middle East Operations, Michael Townsend.

Production from Kirkuk, the biggest oilfield in the world when it was discovered in the 1920s, has been badly hit in recent years due to regional conflict and consequent neglect and under-investment. The Iraqi oil ministry hopes to increase output to 750 000 bpd.

Alan Mohtadi, Head of T&S Consulting Energy and Security, which advises companies with interests in the Kurdish oil and gas sector, said: “The fields in Kirkuk have a [current] capacity of about 450 000 bpd at the moment but are only producing around 150 000 bpd.”

The Iraqi government first approached BP in October, following the recapture of the region from Kurdish forces. BP said on Thursday that it would be providing the government-controlled North Oil Company with modern technology and expertise that would allow for the long-term redevelopment of the field.

BP and Baghdad signed a previous deal for Kirkuk in 2013, but the work never started and was opposed by the Kurdistan Regional Government (KRG). In 2014 the KRG captured the oilfield after it was abandoned by Iraqi government forces following the capture of the city of Mosul by Isis. However, after the KRG’s independence referendum in October, which was fiercely opposed by the Iraqi government, Baghdad’s forces pushed Kurdish forces back to the pre-2014 borders.

Exports have fallen since then due to Baghdad’s reluctance to send crude via the KRG-controlled export pipeline to Turkey – the only major operational line out of the territory. The KRG continues to control the northernmost section of the Kirkuk field.

Mr Mohtadi said the relationship between BP and the Russian state-backed oil company, Rosneft, could be critical to Kirkuk’s future viability. Rosneft, which is 20% owned by BP, has invested heavily in the Kurdistan region over the past year, and intends to increase the KRG’s oil pipeline capacity to 1 million bpd as well as develop other oilfields in Iraqi Kurdistan. The Iraq government wants to rebuild its own pipeline from the north of the country, which was destroyed by militants in 2014, yet to do so without passing through Kurdish-controlled territory would be a difficult and lengthy process, according to commentators.

“My feeling is that Baghdad and Erbil [the KRG capital] will have to make a deal to upgrade and transport the crude via Kurdish areas. I think Rosneft can play a mediating role here,” Mr Mohtadi said.

For the FT’s report, click here.

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