Iraq Lowers Production Targets

[dan_s]

Iraq cut its long-term oil production forecasts last week,
pushing back the time to boost its crude output. Previously, oil
company contracts had collectively targeted raising production
to 12 mbd by 2017. Now, Iraq’s Oil minister Abdul Kareem
Luaiby has indicated a production target of 8 mbd over the next
10-14 years – or about twice the time for two-thirds of the
original targeted output. Iraq is now in the process of
renegotiating oil company contracts, which were based on the
original production targets.

This is in line with our expectations for 4.2 mbd by 2016 (for
details, see our 10/14/2010 report “The Iraq Oil Market Primer:
Production Ramp May Drive $50B in Services Spending”). We
viewed a number of factors as potentially limiting Iraq’s near
and medium term production ramp capabilities, such as
logistical and security challenges of moving so much
equipment and people into the right places and lack of
infrastructure, including export infrastructure. Furthermore, we
believed a 12mbd production rate would lead to high reserve
depletion and negatively impact long term recovery rates. The
revised production targets seem to us a more realistic appraisal
of the production Iraq can achieve over the next several years.

However, we note that lower production targets are not due to
lower investment activity. We continue to expect drilling and
development programs to move full steam ahead and tighten
the Mid East oil services market; we are already hearing of
equipment and skilled personnel shortages in the region. We
continue to recommend Big 4 services (SLB, HAL, BHI and
WFT) plus TS (OCTG leader) as top picks to benefit from
Iraq oil production ramp specifically and int’l cycle broadly.