| DOHA, April 7
DOHA, April 7 BP Plc (BP.L) hopes to sign within
a few months a service contract designed to boost output in Iraq
by 100,000 barrels per day (bpd), a senior BP executive told
Reuters on Monday.
The deal is one of five that Iraq is negotiating with oil
majors to boost output by 500,000 bpd, or nearly a quarter, from
its largest oil fields. Iraqi officials had hoped to sign the
deals by early April.
"I'd say we might sign around the middle of the year," said
Steve Peacock, president of BP's Middle East and South Asia
exploration and production unit. "These are active discussions
with serious intent, there is no sense that they've stalled or
reconsidered, it's just taking longer than anticipated."
Payment terms for the service contracts were yet to be
concluded, Peacock said. Iraq has said each contract could be
worth up to $500 million.
Iraq wants to sign two-year technical service contracts with
oil majors as part of stopgap measures to boost oil production
in the absence of a vital oil law. Legislation to set the terms
and extent of foreign investment in the country has been stalled
in parliament for more than a year.
"In this politically sensitive and difficult situation
service contacts are a pragmatic step forward for Iraq," Peacock
Majors would prefer contracts that offer long-term
involvement in Iraq and were looking for a link in the service
contracts to future development of Iraq's giant oil fields.
"Whether it gets linked into the contract or not -- it's a
natural question that's on the table. These contracts are valid
for a couple of years; how does that link with what comes
afterwards?" Peacock said.
The longer-term link would help ensure that work undertaken
under the two-year service contracts would be in line with
future field development plans, he added.
Peacock said he was confident that the majors and Iraqi
negotiators would come up with a contract that gave an incentive
for firms to use all their skills and expertise, while at the
same time respecting political opposition in Iraq to deals that
gave companies a share in production.
The terms of the contracts could set the pace of oil field
development for years to come, he said.
"I think it's important acknowledging the political
sensitivity of using barrels as a form of reward," Peacock
"That shouldn't be confused with giving up national
sovereignty over the ownership -- that's never in question. The
question is, do you want to use barrels or cash as a form of
reward? Whichever it is, I think, is going to be key for the
long term. It will determine how fast production can be realised
and how fast new developments can be brought on stream."
The service contract Iraq is negotiating with is for the
giant Rumaila oil field in the country's south. The target to
boost output by 100,000 bpd from the field was possible,
although to do so in two years would require an aggressive
development plan, Peacock said.
The contracts call for larger project management roles in
the fields than the majors previously had. Aside from boosting
production and long-term planning, the oil firms would be
required to bring in supplies to Iraq. Majors will supervise the
work from outside of the country as security concerns will
prevent them from sending in ground staff, at least initially.
The companies have studied the same fields and for years
provided training and technical assistance as they look to
position themselves for any future contracts.
"We've studied the whole of the rest of the country, so
we're waiting for what comes next after the service agreements.
And we have an opinion on which bits we'd be more interested
in," Peacock said.
BP was in similar discussions in Kuwait for a service
contract there, Peacock said.
Kuwait aims to include a performance-related clause in its
service contracts that would increase the attraction for signing
up for international oil companies.
Discussions currently revolved around the details of that
clause, Peacock said.
"If Kuwait were to pay more for that expertise, how could
that be justified? One way to justify it is to link it for
achievement of output. The devil is in the details -- how
aggressive are the targets and how much do you get paid if
targets are met?" Peacock said.
The contracts would likely be concluded over a period of
months rather than years, he added.
In Oman, drilling would start on BP's project to develop
tight gas reserves by the end of the fourth quarter, Peacock
The company is evaluating different ways of commercialising
gas output from early appraisal wells, he added.
BP won a contract to develop tight gas reserves in Oman in
early 2007. The reserves are in complex formations from which it
is difficult to extract the gas.
(Reporting by Simon Webb, editing by Matthew Lewis)