(Bloomberg) -- BP Plc finalized an agreement with the government of Iraq to redevelop the giant Kirkuk oil fields, a deal that signals a return to the company’s Middle Eastern roots and should help to bolster production from the OPEC member.
All contractual terms for the project have been agreed, although the accord remains subject to final governmental ratification, according to statements from BP and Iraq’s government on Tuesday. After years of neglect, BP will funnel additional investment into oil and gas production at the Baba and Avanah domes of the Kirkuk field, as well as the adjacent Bai Hassan, Jambur and Khabbaz fields.
A new operating company will be set up for the fields, which are currently controlled by state-run North Oil Co. BP will establish a joint venture to hold its interests in the new operator, which will be set up in collaboration with the government and include personnel from North Oil Co. and North Gas Co, according to the statement.
“BP’s remuneration will be linked to incremental production volumes, price and costs,” according to the statement. “BP will be able to book a share of production and reserves proportionate to the fees it earns for helping to increase production.”
The deal marks a breakthrough for OPEC member Iraq, where the government is keen to bring in investment and boost production in the long term after its most important industry suffered through years of war and internal strife. The redevelopment could unlock an additional 3 billion barrels of oil equivalent of resources in the field, according to the statement.
It is also significant for BP which is expected to announce a pivot back toward oil and gas at a crucial strategy update on Wednesday. It is one of the biggest foreign companies in Iraq, with a presence dating back a century to the original discovery of the Kirkuk field in the 1920s.
The redevelopment will include a drilling program, the rehabilitation of existing wells and facilities, and the construction of new infrastructure, including gas expansion projects. There is also potential for exploration, with a wider resource opportunity across the contract and surrounding area of as much as 20 billion barrels of oil equivalent, BP said.
The deal follows a memorandum of understanding last year – of which technical terms were agreed in December and the majority of commercial terms signed in January. BP initially agreed to help redevelop Kirkuk in 2013, an effort that was stymied by the fall of the northern city of Mosul to Islamic State the following year. The terror group has since been driven out of the region, but the internal politics of Iraq and neighbors such as Syria remain volatile.
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