The US and Iran seem to be have stepped back from the brink of armed conflict, at least for now, but many oil and gas companies nevertheless face serious decisions regarding their short and mid-term plans in neighbouring Iraq, where tensions remain high.
There are still some 5,000 American troops stationed in Iraq, but their continued presence there has become uncertain. (See Rystad Energy press release from January 10, 2020.)
“ExxonMobil spent more than USD 250 million last year on its Iraqi upstream operations, and we have projected that this number would likely be ramped up by an additional USD 150 million over the next 5 years as the company aims to increase production through 2024. However, any spending plans in Iraq are likely to be under review given the current circumstances,” says Matthew Fitzsimmons, VP Oilfield Research at Rystad Energy. He reasons that ExxonMobil could ultimately decide to divert a portion of its Iraqi spending budget to other regions where the company is investing heavily in production growth, such as Guyana’s offshore sector and the US shale industry.
Among the major oil companies in Iraq, BP has emerged as a clear leader. Before the recent flaring of tensions, BP had been expected to allocate about 4% of its annual USD 25.6 billion global oil and gas spending budget towards projects in Iraq. The company has managed an ambitious water injection program that is helping to boost its output and make BP the third largest producer in Iraq, but the fate of this program is now uncertain.
“Continued tensions in the region could see BP slow their water injection program down and limit the high-side of production for the company and for other international players in southern Iraq,” says Fitzsimmons.
After spending nearly USD 1 billion in 2019 on its Rumaila North and South project, BP was expected to raise its capex to USD 1.2 billion by 2024. This would have seen BP’s onshore Iraqi oil production eclipse 725,000 bpd by 2024. “Putting this into context, that tally would be about 70,000 bpd higher than BP is poised to produce from the US shale sector in 2024, and Iraq would emerge as the company’s largest production of one energy resource type in a single country. Only by combining offshore, onshore and shale in the US, could BP’s working interest production in there outweigh its expected interests in Iraq,” states Fitzsimmons.