BP is reported to be close to reaching a deal with Iraq to cut the final production target for the giant Rumaila oilfield to between 1.8 million and 2.2 million barrels per day.
Officials from the UK supermajor, Iraq's state-run South Oil Company and the country's Oil Ministry have been in talks for the past four months, studying BP proposals to lower the target of 2.85 million bpd, which they agreed to in 2009.
"BP has submitted three figures to lower Rumaila production. Iraq has initially accepted to cut output, and a final deal is expected by year-end," a senior South Oil official who is involved in the discussions was reported as saying by Reuters.
"BP's offer included cutting Rumaila production to 1.8 million barrels per day and extending this final plateau until 2029," the official added.
The final plateau period is the time during which peak production is sustained after it is first reached in 2017.
Another oil official who helped draft the Rumaila service contract said: "Out of BP's three figures, the 1.8 million and 2 million bpd have found their way onto the discussion table. We are weighing all economic and technical aspects and will decide on a single figure at the end of this month.”
A BP spokesman said: "We aim to discuss and agree a full field development plan in 2013. Any discussions we have with the government are commercially confidential.”
Rumaila, operated by BP with China National Petroleum Corporation as partner, has estimated reserves of 17 billion barrels and currently produces around 1.35 million bpd - more than a third of Iraq's total output of 3.4 million bpd.
Iraqi officials said the Rumaila oilfield had shown significant signs of fast-track production growth but also of a lack of adequate oil pipelines, storage and crude production facilities, and that accepting the BP proposals made a target reduction necessary.
Production from Rumaila is expected to hit 1.450 million bpd in 2013 from 1.350 million bpd at present.
For 2013, a development programme has been set to drill new 110 oil wells, including injection wells to help sustain production, an oil industry source close to Rumaila activities said.
The negotiations are the latest sign of trouble in Iraq's southern oilfields, where logistical bottlenecks, weak infrastructure and a lack of clear oil legislation have eroded investor interest at the same time that the semi-autonomous Kurdistan region in the north attracts oil majors.
Shell in March also started talks with Iraq to slash its production target at the Majnoon oilfield, the first company to begin negotiations with the government to reduce unrealistic output goals.
"We have to re-negotiate the final production target not only with BP or Shell, but with other companies also," an Oil Ministry official said. "We don't have suitable infrastructure to deal with future mega production."
A lower target suits Baghdad, officials said, because the government worries that adhering to existing agreements will result in large volumes of unused capacity and deplete more than half of its proven reserves over the life of the 20-year agreements.
Cash is also a concern for the government, which had estimated an investment of some $180 billion would be needed to finance its original countrywide production targets.