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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Iraq’s Deal With Oil Majors Could Crush OPEC’s Output Freeze Plans

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Iraq and oil majors BP (NYSE:BP), Shell (NYSE:RDS.A) and Lukoil have agreed to resume investments in oil fields the foreign groups are developing, which is expected to raise the country’s crude output by 250,000-350,000 barrels per day in 2017, Reuters reported on Thursday, quoting Iraqi officials—a move that has the potential to aggravate the supply glut and muddy the waters of the additional OPEC meeting in September, which some were glass-half-fulling might end with a production cap of some sort.

The recently reached accords actually push projects that the companies had originally planned for the first half of 2016 to the second half. The projects had been previously put on hold due to the low crude prices.

BP, Shell and Lukoil have agreed to spend in the second half this year around half the budgets they had planned for 2015, Reuters said, citing documents it has seen. BP will be spending US$1.8 billion at the Rumaila field, Shell will spend US$742 million, and Lukoil - US$1.08 billion.

“Many vital projects that foreign firms were forced to halt due to lower oil prices will be brought online after the recent budget cuts agreements,” Basim Abdul Kareem, the deputy chairman of South Oil Co, told Reuters.

Iraq approves every year the investments of foreign companies to develop its oilfields, and repays the companies with the proceeds from exporting crude from existing fields. Since the oil prices crashed, however, the country has seen its coffers depleting, and it is struggling to pay, especially after big spends on fighting ISIS in the north.

In early 2016, oil majors started scrapping investments for this year at some of Iraq’s fields in the south. Most of Iraq’s largest oilfields are located in the south.

Iraq—OPEC's second biggest producer after Saudi Arabia—is trying to keep its total output at some 4.8 million bpd until the end of the year, Iraqi Deputy Oil Minister Fayyad Al-Nima said last month.

With Iraq expected to pump more crude and Iran seeking to regain market share that it lost due to sanctions, it will be increasingly difficult to have consensus within OPEC on how to act or whether production should be capped.

By Tsvetana Paraskova for Oilprice.com

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