In a deal described as possibly "one of the most important transactions BP has done in 20 years" by CEO Murray Auchincloss, the company has agreed contractual terms with the Iraqi government to invest in drilling and infrastructure to rehabilitate and boost production at the Kirkuk oil field and three adjacent fields in the northeastern part of the country starting this year.
He added, during an investor call on 26 February, that the field's "huge resource base, low lifting cost, low development cost" offers "a tremendous opportunity for us to use our big field management skills.
"I feel this is a magnificently aligned structure and I think in 10 years' time we'll look back on this as one of the most important transactions BP has done in 20 years," Auchincloss said.
Finalized on 25 February, the deal obligates BP and Baghdad to form an unincorporated organization to function as a new operator with personnel drawn mostly from the North Oil Company (NOC) and North Gas Company (NGC), along with secondees from BP.
BP will create a separate standalone incorporated joint venture to hold its interests in the new operator which will take over Kirkuk operations from NOC, according to a BP press release.
A Deal Months in the Making
The agreement, which now goes to Iraq’s Council of Ministers for approval, concludes months of negotiations that started with the signing of a memorandum of understanding between BP and Iraq in July 2024.
Technical terms were agreed in December and most commercial terms were sorted in January taking into consideration BP’s previous work in Kirkuk from 2013 to 2019.
The agreement aims to raise oil and gas production by more than 3 billion BOE at the Baba and Avanah domes of the Kirkuk oil field and three adjacent fields – Bai Hassan, Jambur, and Khabbaz, all currently operated by NOC.
The deal spans oil, gas, power, and water and opens potential opportunities to invest in exploration given that the wider resource opportunity across the contract and surrounding area is believed to include up to 20 billion BOE, according to BP.
BP executive vice president William Lin noted that the agreement “builds on our longstanding and strategic relationship with the Government of Iraq” and aligns fully “with our priority of pursuing new growth opportunities” to strengthen BP’s global portfolio.
Under the agreement, BP will develop a drilling program together with NOC, NGC and the new operator, rehabilitate existing wells and facilities, and build new infrastructure, including gas expansion projects.
Income Starts With Fees
BP’s renumeration will be linked to incremental production volumes, prices, and costs with BP allowed to book a share of production and reserves proportionate to the fees it earns for helping to increase production, the company said in a news release.
BP was a member of the consortium of oil companies that discovered oil in Kirkuk in the 1920s. From 2013 to 2019 BP worked with the Ministry of Oil and NOC on technical studies exploring the potential for redevelopment at Kirkuk.
Media reports have estimated the value of BP’s investment at $25 billion; BP has not confirmed that number.
Kurdistan Left Out of Negotiations
Leaders in Iraq’s semiautonomous Kurdistan region denounced the agreement, arguing that they had a right to join the negotiations. However, Iraq did agree on 23 February to allow Kurdistan to export its existing oil production through the Iraq-Turkey pipeline, thus partially addressing the financial issue.
A year ago, Iraqi’s Oil Minister Hayan Abdul-Ghani set a target to boost Iraq’s oil reserves to160 billion bbl. Growth in production capacity is targeted at 6 million B/D by 2028, Arabian Gulf Business Insight reported in September, citing government sources.
In late January, Iraq announced the discovery of a new oil field in the southern East Baghdad group of fields in central Iraq that may add 2 billion bbl of medium and light crude to the country’s oil reserves.
In Basrah, Iraq’s southernmost oil producing region, TotalEnergies awarded engineering firm Wood a 3-year, $46 million front-end engineering and design contract in July covering the initial phase of the Gas Growth Integrated Project to recover flare gas.
