Iraq, BP advance in Kirkuk contract talks

KIRKUK - Iraq is making progress in negotiations with BP to develop several oil fields in Kirkuk, according to four senior Iraqi oil officials, who said they are aiming to finalize profit-sharing contracts as soon as this month.

Prime Minister Mohammed Shia al-Sudani is expected to travel to England next week, two of the officials said. That visit could create an occasion to sign an initial agreement on contract terms, assuming commercial details can be agreed upon in time.

“There are currently intensive meetings,” said one senior Iraqi oil official. “Even on Jan. 6, which was an official holiday, there was a meeting between the ministry and BP, as there is a desire from both parties to reach an agreement.”

Talks continued on Jan. 9, according to an Oil Ministry statement, with a meeting in Baghdad between Oil Minister Hayyan Abdulghani, multiple deputy ministers, and senior Iraq-focused BP executives.

“The ministry is proceeding with negotiations with BP regarding the operation of four fields in Kirkuk… which are Bai Hassan, Kirkuk with its two domes — Baba and Avana — the Jambur field, and the Khabbaz field,” the statement said. “The aim [is] developing them and increasing production… [with] the main goal of investing in associated gas in light of the need to provide feedstock for electricity generation.”

One senior Iraqi official familiar with the talks said he believed a contract could be initialed during Sudani’s upcoming visit to the UK.

“The contract will be initialed, which signifies the approval of both parties,” the official said. “Then the contract will be submitted to the [Iraqi Cabinet’s] Ministerial Energy Committee, and then submitted to the Council of Ministers, and after the approval of the Council of Ministers, it will be signed in a final manner.”

Another senior official said a signing ceremony had been tentatively scheduled for Jan. 13 in the UK, without specifying what exactly is going to be signed.

BP's experience with the Kirkuk field goes back almost a century. The company's predecessor, the Anglo-Persian Oil Company, was co-owner of the Turkish Petroleum Company when it discovered Kirkuk's Baba Gurgur well in 1927, which was Iraq's first commercially viable discovery and the world's largest find at the time.

Since 2010, BP has been an operating partner in Rumaila, which is currently Iraq's most prolific oil field. And for more than a decade, BP has been looking for a way to return to Kirkuk.

In 2013, it signed a consulting deal to help evaluate and plan for the future of Kirkuk fields. That deal was frozen in 2014, when the Islamic State (IS) militant group seized control of much of northern Iraq, including repeated attacks on oil infrastructure in Kirkuk.

In January 2018, BP signed a new Letter of Intent with the Oil Ministry that revived the reservoir study and expanded its scope, from just the Avana Dome and Baba Dome structures of the Kirkuk field to several other fields, including Bai Hassan, Jambour, and Khabbaz. The study was further expanded in May 2018 to include the Khurmala Dome formation of the Kirkuk field, which has been under the authority of the Kurdistan Regional Government (KRG) since 2008.

When the study was delivered, in December 2019, officials familiar with the project cited political complications as one major factor that was likely to make BP hesitate in pursuing a development deal. A few months later, oil prices crashed as the pandemic decimated global oil demand, further reducing the momentum.

Negotiations came back to life in 2024 with the Aug. 1 signing of a memorandum of understanding, for which BP CEO Murray Auchincloss traveled to Baghdad. That prompted the formation of a technical committee to neogtiate the scope and commercial terms of a potential contract.

One official at the state-run North Oil Company (NOC), which currently operates all of the federal government's Kirkuk-area fields, said the negotiations were in their "final stages" and that the current plan involves an initial phase of drilling 16 wells and raising production by about 70,000 bpd. In 2024, Kirkuk-area fields averaged about 220,000 bpd, according to data gathered monthly by Iraq Oil Report from Oil Ministry officials familiar with the fields.

An Oil Ministry official said the deal could increase Kirkuk production to about 450,000 bpd, but also said the specifics of any development plan would depend on the completion of a new reservoir study.

"The reservoir study might need a period of at least six months, after which the drilling of wells can begin," the official said. "The reservoir study will determine how many wells are drilled."

Two officials familiar with the talks said the deal being negotiated was based on a profit-sharing contract model.

Some of the political complications that previously contributed to BP's reluctance to invest in Kirkuk are still at play, including unresolved disputes over internal territorial boundaries and competing visions for the ethnic identity of Kirkuk.

One significant change in the political landscape has been a paradigm shift in the relationship between Iraq's federal government and the KRG. Following a 2023 arbitration ruling that effectively ended the KRG's ability to export oil independently, the Kurdistan region has grown increasingly dependent on Baghdad, both financially and politically.

It seems likely that the federal government's rising ability to assert its authority in disputes with the KRG could provide some reassurance to BP in Kirkuk, especially for a deal that might involve developing Bai Hassan and Avana — two assets that were under the KRG's control, and adopted into its oil portfolio, from 2014 to 2017.

There is no indication that BP's latest talks with the Oil Ministry include any assets currently managed by the KRG, such as Khurmala and Ismail.

Another historical sticking point that posed a challenge in past negotiations, according to one senior NOC official, was misalignment over the scope of BP's potential engagement, with Iraq pushing for a contract focused on Baba and BP wanting to develop multiple fields to take advantage of subsurface connections and other synergies. The current deal structure appears to answer that concern for BP.

As of 2010, the Kirkuk field had nearly 9 billion barrels remaining of its original 22.7 billion barrels of commercially viable reserves, according to a report published that year by the Oil Ministry's Reservoirs Directorate, while nearby fields, including Bai Hassan, hold another 6 billion barrels. But production is just a fraction of what it could be: after decades of war, sanctions, and mismanagement under Saddam Hussein, reservoirs have been damaged and above-ground infrastructure is outdated.

"BP will reverse the production decline at Kirkuk fields that is happening because of decreasing reservoir pressure, by injecting water or gas," the senior Iraqi oil official said. "BP is a global company with modern technology. If the ministry agrees, BP will finance the cost of that technology — and the Kirkuk fields deserve this modern technology."

Iraqi staff reporting from Kirkuk and Nassiriya are anonymous for their security. Rawaz Tahir reported from Erbil. Ben Van Heuvelen contributed from the United States.