Outlook dims for $2.5bn BP project in Iraq

17 January 2016

Industry source says the 2016 budget for the Rumaila oilfield development is yet to be approved

The future of BP’s $2.5bn Rumaila oilfield development is looking increasingly uncertain as the UK-based oil company continues to wait for key government approvals.

According to an industry source BP still hasn’t received the green light from Baghdad for the project’s proposed 2016 budget.

“Negotiations over the project’s budget started in September. Baghdad’s position is very difficult due to the country’s ongoing budget crisis,” the source said.

In an emailed statement sent to MEED on 14 January 2016 BP spokesperson David Nicholas declined comment on whether the Rumaila project’s 2016 budget has received approval from Baghdad.

The unresolved budget problems are likely to have a negative impact on the megaproject’s progress.

On 2 November 2015 Zaid Elyaseri, BP’s Iraq country manager, told MEED that two of the project’s packages, worth an estimated total of $1.37bn, were on hold pending the approval of the 2016 budget.

These include a $500m package to build four cluster pump stations and an $865m package to build three central processing facilities (CPFs), a gas processing plant and associated facilities.

The Rumaila project has already seen extensive budget cuts due to fiscal problems in Iraq.

In May 2015 BP agreed with Baghdad to cut spending on the Rumaila project by $1bn after the government warned the collapse in oil prices and the war with the Islamic State of Iraq and Syria (Isis) was making it difficult to pay oil companies.

The agreement saw the budget cut from $3.5bn to $2.5bn.

On 6 September, a letter from the Oil Ministry warned foreign companies developing the country’s southern oil fields, including BP, that Baghdad had “sharply reduced the funds available to the ministry” due to the drop in government revenues from crude sales.

The Rumaila project is owned by a partnership between BP, China National Petroleum Corporation (CNPC), and Iraq’s state-owned South Oil Company (SOC).

The field has estimated reserves of 15.5 billion barrels and was producing 1.4 million barrels a day in May 2015.

The West Qurna-2 Mishrif Full Field Development, another upstream megaproject that is estimated to be worth $2.5bn, is also facing budget problems.

On 14 January Lukoil, the Russian company that operates the field, told MEED that it is yet to reach a final agreement on the 2016 budget for the project and negotiations were continuing with Baghdad

Lukoil says uncertainty about the project’s budget has not affected production from the field, which stands at between 400,000 and 450,000 barrels a day (b/d).

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