As part of its payment for oil field development, Iraq has allowed UK oil major BP to lift a cargo of approximately 2 million barrels of Basra Light crude oil worth approximately $200m from the Rumaila oil field in the south of Iraq, according to Reuters news agency.

Under its technical service contract, after increasing production at the field by more than 10 per cent in January, BP is eligible to receive a remuneration fee of $2 a barrel, as well as recovering capital expenditure investments from the government. The partners are owed some $1bn from the Iraqi Treasury, which they are expected to receive in kind, in the form of crude.

In January, BP and China National Petroleum Corporation (CNPC) announced that they had increased production to 1.275 million barrels a day (b/d), 20 per cent above the baseline production of 1.066 million b/d. However, this has since dropped to 1.2 million b/d confirming the fears of Ahmed Mousa Jiyad, a former senior economist with the Oil Ministry.

Jiyad argues that oil companies have increased production to invoke cost and fees recovery without ensuring the sustainability of the increase, applying short-term techniques instead of the advanced enhanced recovery methods. The reduced production should disqualify them from recovering costs, says Jiyad.

Nonetheless, this is just Iraq’s first payment. It will be followed by a similar cargo from BP’s partner at the field, CNPC. Another BP cargo has been allocated for late May or early June.

Two other consortiums are also due to receive payments. Italy’s Eni, along with the US’ Occidental and South Korea’s Kogas at the West Qurna-1 field is one. The other is led by the US’ ExxonMobil and UK-Dutch Shell at the Zubair field.

With 11 oil fields currently under almost simultaneous development by IOCs, these payments will now start to eat into Iraq’s oil export revenue and state budget (MEED 22:2:11).

“Cutting Iraq’s [oil] output growth targets to more realistic levels is probably the easiest way to handle this problem, although it will require partial renegotiations of the oil contracts”, says Samuel Ciszuk, Middle East analyst at London-based consultancy IHS Global Insight in a research note.

However, renegotiating the contracts remains a politically sensitive issue.