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Iraq strikes deals with Big Oil on southern fields

AFP graphic/Larence Saubadu

Map of Iraq showing gas/oil pipelines, and oil fields covered by a second round of contracts. Iraq was poised Friday to begin taking bids from major international energy companies for 10 oil fields as it seeks to ramp up output and become one of the world's biggest crude producers

BAGHDAD,  Dec 11, 2009

Iraq struck deals with consortiums led by energy giants Shell and CNPC over massive southern oil fields Friday, part of a two-day auction that seeks to dramatically boost the country's crude output.

The successful bids from the Anglo-Dutch and Chinese giants kicked off the sale, which aims to catapult Iraq towards the top of the list of the world's oil producers and bring in much-needed revenue to rebuild the country.

Iraqi Prime Minister Nuri al-Maliki highlighted the transparency with which the auction was being conducted, contrasting it with the "darkened rooms" in which now-executed dictator Saddam Hussein made deals over oil.

The contract for the enormous Majnoon field was jointly won Shell and its Malaysian partner Petronas, while CNPC led a group comprised of Petronas and France's Total to capture Halfaya.

"The second round represents a new era in the history of the Iraqi oil industry," Maliki said as he opened the auction.

Referring to the transparency of the auction, he said it was "very important because many international companies are participating, in public and on television."

"The old way was in darkened rooms, behind closed doors. But today, it is clear to everyone," Maliki said.

Shell and Petronas requested fees of 1.39 dollars per barrel of oil extracted from Majnoon, and projected that they would produce 1.8 million barrels per day.

The project will be split 60 percent for Shell and 40 percent for Petronas.

Majnoon, a giant oilfield near the Iranian border, currently produces 45,900 barrels of oil per day (bpd) and has proven reserves of 12.58 billion barrels.

For Halfaya, CNPC, Petronas and Total requested 1.40 dollars per barrel and projected production of 535,000 bpd. The field, which has known reserves of 4.1 billion barrels, is situated just north of Majnoon.

No bids were received, however, to work on either the East Baghdad field, or the cluster of fields referred to jointly as Eastern Fields, Oil Minister Hussein al-Shahristani said.

Iraq relies massively on oil sales for its economic growth and government income. It will be hoping the auction, the second since June, generates positive headlines ahead of a parliamentary election scheduled for March 7.

The biggest oil fields on offer in the bid round are Majnoon and West Qurna-2, the latter of which has proven reserves of 12.9 billion barrels of oil.

Among the 44 companies involved are energy giants BP, ExxonMobil, Chevron, Total and Shell, along with an array of Chinese and Indian firms, a sign of the Asian giants' growing hunger for natural resources.

Successful companies will be paid a fixed fee per barrel, not a share of the profits, and it will only be paid once an agreed production threshold has been reached.

The auction was being conducted in a large hall at the oil ministry, with separate areas marked out for bidding firms, government officials and other guests.

A tight security perimeter surrounded the ministry offices, with some attendees having to abandon their cars around two kilometres (1.25 miles) away and walk the remaining distance.

All participants were subjected to multiple checks before being allowed to enter.

The auction was dealing with one field at a time -- five on Friday and five on Saturday.

Bidders submitted their offers which were then assigned a score, depending on the fee per barrel each firm sought and the output it said it could produce from the field.

The firm with the highest score then had its fee compared to the maximum fee the ministry is willing to pay. If the bid is above the ceiling, the firm has 30 minutes to decide whether or not to lower its offer.

The auction came just three days after five co-ordinated bombings struck Baghdad, mostly targeting government ministries, the third such attack since August.

Bombers have also repeatedly hit Iraq's oil infrastructure, most recently sabotaging the main export pipeline from northern Iraq to the Turkish Mediterranean port of Ceyhan in November.

In the first bid round in June, only one deal was reached -- with Britain's BP and China's CNPC -- because of the perceived low return on investment being offered by the Iraqi government.

Since then, however, two other foreign consortiums have agreed to the tough terms and signed agreements with Baghdad, which wants to boost its oil production to seven million barrels per day (bpd) within six years, from the current level of 2.5 million.

In the longer term, the country is targeting 10 to 12 million bpd, which would rival Saudi Arabia in terms of overall output.

At 115 billion barrels, Iraq has the world's third-largest proven oil reserves, behind only Saudi Arabia and Iran. Oil sales provide 85 percent of government revenues.

Story by Prashant Rao from AFP
AFP 12/11/2009 09:23


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