BP Hits Oil Production Milestone in Iraq: It's a Start

Last Updated Jan 12, 2011 12:01 PM EST

BP has raised production more than 10 percent at Iraq's Rumaila field, meaning it can finally start to cash in on a deal that required a major upfront investment into workers, infrastructure and technology.

The upshot? The production milestone is important -- helping lift Iraq's production to the highest level in two decades -- and props up ambitions to more than quadruple output capacity in the country. And BP will benefit financially, although once costs are considered it's not as big a windfall as it appears.

The production milestone
BP confirmed Tuesday that it increased production more than 10 percent above the 1.066 million barrels a day initial production rate agreed to back in December 2009. BP, along with partner PetroChina, an arm of China National Petroleum Co., were among the first foreign firms in nearly 40 years to secure a contract with the Iraqi government aimed at resurrecting damaged oil fields and boosting production. BP has a 38 percent interest in the project, PetroChina 37 percent and Iraq's state oil marketing company 25 percent.

What BP will get now that's met the production milestone

Two bucks for every additional barrel of oil produced above the 10 percent milestone. That means $2 for every barrel above 1.172 million barrels a day. One Iraqi official reportedly said the Rumaila field is now producing almost 20 percent more oil than before, or 1.275 million barrels a day. If that's correct, BP would be paid about $206,000 a day (at that 20 percent above target level).

BP CEO Bob Dudley said in prepared comments that the company "looks forward to working with our partners to make Rumaila the world's second-largest oil field." That would mean production at Rumaila would have to hit 2.85 million barrels a day. Or nearly $3.4 million a day.
What BP and partners had to do to meet the goal

  • Double the number of workers to 10,000 (most from the Iraq's South Oil Co.)
  • Add 20 new rigs
  • Drill 41 new wells
  • Rehab 103 older rigs
  • Lay 122 kilometers of flowlines
  • BP and its partners also are building a new headquarters and an accommodation complex in south Rumaila.
The work isn't over. International oil companies like BP have boosted oil production in Iraq quickly and stand to benefit financially as a result. But, as the WSJ recently noted, costly challenges like transporting necessary equipment to oil fields and water remain.

Photo from Flickr user Brooks Elliott, CC 2.0