BP, PetroChina Spin Out Iraq’s Rumaila Field to New Company

(Bloomberg) --

BP Plc and PetroChina Co. formed a joint venture to manage the giant Rumaila field in Iraq, an operating structure the British oil major has adopted in other parts of the world as it focuses on the energy transition. 

BP is at the beginning of a transformation to slash emissions and hydrocarbon output, while ramping clean-energy production. That strategy sits uncomfortably with its presence in Iraq, which is one of the world’s biggest emitters of methane -- a greenhouse gas more potent than carbon dioxide.

The new Basra Energy Co. will run Rumaila with Iraq’s state-owned Basra Oil Co. and, as a standalone company, it will have access to external financing, BP said in a statement. While formation of the venture is unlikely to change BP’s emissions levels, it will help free up capital as the company seeks to increase spending on low-carbon projects.

The model has been used elsewhere. BP formed Aker BP ASA in 2016 by joining its Norwegian assets with Det Norske Oljeselskap. More recently, BP and Italy’s Eni SpA said they were considering merging their Angolan oil, gas and liquefied natural gas assets in a bid to revive output.

Cabinet Approval

Iraq’s cabinet approved the restructuring and said Basra Energy will be responsible for financing and developing the field, Oil Minister Ihsan Abdul Jabbar said in a separate statement. The Iraqi venture is subject to other approvals.

“This is about capital risk management and financing costs as BP pivots to a low-carbon investment strategy,” said Iraq expert Ahmed Mehdi, a visiting fellow at the Oxford Institute for Energy Studies. Rumaila is Iraq’s most capital-intensive field, with annual costs of around $1.7 billion, he said.

BP won the right to develop Rumaila in 2010, and the new joint venture is expected to operate until the contract is due to expire in 2034. The field is one of world’s biggest, pumping 1.4 million barrels a day in 2020.

Jabbar said in July that BP wanted to pull out of Rumaila, though he later added the government was working to improve operating conditions for foreign oil companies and stop them from exiting.

Read: Iraq Says Aims to Improve Conditions for Oil Firms BP and Lukoil

Iraq pumps about 4 million barrels a day of crude, more than any other member of the Organization of Petroleum Exporting Countries apart from Saudi Arabia. Yet international energy companies have been put off in recent years by political instability and tough contractual terms. Exxon Mobil Corp. is trying to sell a stake in the West Qurna-1 field, while TotalEnergies SE and Lukoil PJSC also want to divest some assets.

BP’s presence in Iraq dates back to the 1920s, when its forebears helped discover the Kirkuk field in the north of the country. The company pulled out of the field last year.

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