International oil companies have submitted proposals to Iraq to change their contracts in the face of constraints on growth in the country’s output next year after the Iraqi Oil Ministry asked for spending cuts amid low crude prices.
"The companies have submitted proposals to the government about how the country could change their contracts from service agreements to a model closer to production sharing agreements," Michael Townshend, the company’s regional president for the Middle East, told reporters in Abu Dhabi, the UAE, on Tuesday.
Companies are now paid a fee, either in cash or with oil barrels, based on meeting output targets, while production sharing agreements give companies a direct stake in crude pumped, Bloomberg reported.
BP operates Rumaila, Iraq’s largest deposit. Production from the southern field will average between 1.3 million and 1.35 million barrels a day this year, while output next year depends on spending approved by the government, which has asked foreign companies to decrease their 2016 budgets due to the drop in crude prices.
Townshend said total capital expenditure on the field will be about $2.5 billion this year, with BP responsible for about half of that.
“It’s difficult to see a massive ramp up next year” in Iraqi crude production, Townshend said. Talks about a budget for next year at the Rumaila oilfield are “a work in progress”.
The slump in global crude prices by more than 40% in the past year has cut the Iraqi government’s income 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 production with the help of international companies.
"The government sees opportunity to reach agreement with foreign oil companies on plans to decrease their 2016 budgets," Oil Minister Adel Abdul Mahdi said on Oct. 28 in Amarah, Iraq.
Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, pumped 4.3 million barrels a day in October, according to data compiled by Bloomberg.
The country pumped about 2.4 million barrels daily by the end of 2010 and plans to boost capacity to 6 million barrels in 2018.
