Iraq minister, BP CEO visit Kirkuk to win support for oil deal

Iraq's Oil Minister Abdul Kareem Luaibi addresses a news conference during the fourth licensing round for exploration blocks at the Oil Ministry's headquarters in Baghdad May 30, 2012. REUTERS/Saad Shalash

KIRKUK, Iraq (Reuters) - Iraq's oil minister and the chief executive of BP paid a rare visit to the northern Kirkuk oilfield on Wednesday to win over the local government before the UK major starts to revive the field, which straddles the border with autonomous Kurdistan.

Baghdad signed a deal in early September for BP to develop the giant oilfield, allowing the company to negotiate access to significant reserves in the north in return for helping to arrest a huge decline in output.

Kirkuk's oil riches are at the centre of a crisis within the national government of Sunni, Shi'ite and Kurdish parties over how to share power. The KRG rejects BP's Kirkuk pact as illegal, because it has not been consulted.

The project has, however, won crucial support from Kirkuk's governor, Najimeldin Kareem, a Kurd.

"We will provide complete support for BP to develop Kirkuk oilfield because it will generate a significant benefit for the province in relating to petrodollar revenues", Kareem told reporters in Kirkuk.

Oil officials with Iraq's state-run North Oil Co (NOC) said Iraqi Oil Minister Abdul Kareem Luaibi accompanied BP CEO Bob Dudley to the 78-year-old oilfield - where output has slumped to around 280,000 barrels per day (bpd) from 900,000 bpd in 2001.

"BP has ambitious plans to boost production from the Kirkuk oilfield to achieve big benefits for Iraq and the people of Kirkuk," Luaibi told reporters.

The company would work on the Baghdad-administered side of the border on the Baba and Avana geological formations. Kirkuk's third formation, Khurmala, is controlled by the Kurdistan Regional Government (KRG) and being developed by the Iraqi Kurdish KAR group.

The agreement allows the British oil major - which already operates Iraq's biggest oilfield, Rumaila - to boost its exposure in the world's fifth biggest holder of oil reserves.

Baghdad hopes BP will eventually sign a technical service contract at Kirkuk like the one for Rumaila, an Iraqi oil source said. The company expects, however, to negotiate better commercial terms for this contract, industry sources said.

At the start, BP will spend up to $100 million to help stop Kirkuk's decline and carry out surveys to get a clear picture of the field. Iraqi officials have said they would like BP to raise production capacity to around 600,000 bpd in five years.

Iraq's central government and the KRG are locked in a widening dispute over control of oil exports, oilfields and territory that is fraying the country's uneasy federal union.

Baghdad insists it alone has the sole authority to sign deals and export oil, but Kurdistan says the constitution allows it to agree to contracts and ship oil independently of Baghdad.

Exxon, Chevron and Total have infuriated the central government by signing lucrative production sharing agreements with the KRG. BP has no interest in pursuing upstream opportunities in Kurdistan, industry sources said.

"Today's visit succeeded in securing the complete support from the local government of Kirkuk and that's exactly what was needed for BP to start developing the Kirkuk oilfield," a senior oil official told Reuters.

(Reporting by Mustafa Mahmoud in Kirkuk and Ahmed Rasheed in Baghdad; Editing by William Hardy)