Iraq Oil Production Scales Up
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Iraq produced more than 3 million barrels per day of crude oil in July 2012, the highest level of oil production for that country since the Gulf War began in 1990, according to the Energy Information Administration (EIA). This production increase is being generated through the slow rebuilding of the company’s oil and gas fields by various energy companies over the last few years.
Iraq’s Oil Strategy
Iraq has set ambitious oil production goals over the next decade and has solicited bids from foreign oil companies in several auctions since 2009. Iraq’s original production goal involved increasing total production to 12 million barrels of oil per day by 2017, a target that was considered unrealistic by many investors and industry experts.
One of Iraq’s largest oil fields is the Rumaila field located in southern Iraq, which had oil production of one million barrels per day in 2009, according to the EIA. Iraq awarded a concession at this field to BP (NYSE: BP) and PetroChina (NYSE: PTR), a subsidiary of China National Petroleum Corp.
BP is the operator of the Rumaila field and is charged with increasing oil production here to 2.85 million barrels per day. The company has already started to make progress here, with Iraq reporting average production of 1.35 million barrels of oil per day from Rumaila in August 2012.
West Qurna Field
Another oil field where Iraq sought to boost output was the West Qurna field, also located in southern Iraq. ExxonMobil (NYSE: XOM) and Royal Dutch Shell (NYSE: RDS-B) were awarded the concession to this field in 2009, when production totaled 270,000 barrels of oil per day, according to the EIA. ExxonMobil and its partners are targeting oil production of 2.325 million barrels per day at the West Qurna One field.
The West Qurna One field produced 450,000 barrels of oil per day in August 2012 and is expected to add an additional 50,000 barrels per day by the end of 2012, according to the Iraqi state-owned oil company.
Lukoil and Statoil (NYSE: STO) were awarded a concession during the second bidding round in 2009 at the West Qurna Two Field. This award was for a new development that targeted oil production of 1.8 million barrels per day. Statoil has since sold its interest in the West Qurna Two Field to Lukoil.
Lukoil began development here in April 2012 and expects oil production to reach 150,000 barrels per day by the end of 2013 and 500,000 barrels per day in 2014.
Eni (NYSE: E) and Occidental Petroleum (NYSE: OXY) were given the concession at the Zubair oil field in southern Iraq during the first bidding round. Oil production at Zubair in 2009 averaged 205,000 barrels per day, according to the EIA, and Eni is targeting 1.2 million barrels per day from Zubair.
Eni has made some progress at the Zubair Field and production totaled 270,000 barrels of oil per day in August 2012, according to the Iraq state-owned oil company.
The rejuvenation and new developments in Iraq have benefited the oil services industry with various operators receiving contracts to provide oil services in Iraq. Cameron International (NYSE: CAM) received a three-year $100 million contract from BP to provide equipment and after-market services at the Rumaila field.
The feasibility of Iraq’s oil production targets has strong implications for the future price of crude oil and investors need to decide whether supply growth from here and other areas will outstrip demand and lead to the beginning of the end of the golden age for the energy industry.
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