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October 10, 2009

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Iraq inks oil deal with CNPC and BP

Iraq's Oil Ministry has signed a deal with China National Petroleum Corp and Britain's BP to develop its super-giant Rumaila oilfield, a milestone in Iraq's efforts to renew its struggling oil sector.

"The signed contract will be referred to the Cabinet for approval, after which the Oil Ministry will hold a ceremony to announce the beginning of work by the two companies," the ministry spokesman Asim Jihad said on Thursday.

Jihad said the agreement was signed by the ministry, represented by the state-run South Oil Co, and CNPC and BP.

The service contract for Rumaila was the only deal which emerged from the ministry's first oilfield auction in June, a core in its strategy to bring new life to a sector rich in reserves but in desperate need of foreign cash to overhaul dilapidated facilities and outdated practices.

But more first round deals may be in the pipeline.

A ministry official, speaking on condition of anonymity, said the government had formed a committee to study new or revised bids for fields that were not awarded in June.

He said that Exxon Mobil had put forward a new bid for the Zubair oilfield, while Chevron and Total had submitted a new offer for the West Qurna field.

The committee, headed by Thamir Ghadhban, a senior energy advisor to Prime Minister Nuri al-Maliki, is studying the proposals and a decision should be made shortly, he said.

West Qurna, phase 1, has reserves of 8.7 million barrels while Zubair's reserves are estimated at 4 million barrels.

Additional first round deals would be a boon for the ministry, criticized by oil insiders in June for its stiff payment terms. CNPC and BP won the Rumaila deal only after they slashed their proposed remuneration fee to US$2 per barrel.

BP holds a 38-percent stake in the Rumaila venture, while CNPC has a 37-percent share. Iraq's State Oil Marketing Organization controls the rest.

Rumaila is the workhorse of Iraq's oil industry, with a current capacity of 1.1 million barrels per day, almost half Iraq's total output of 2.4 million bpd.

CNPC and BP aim to boost output to 2.85 million bpd as a plateau target over the life of the 20-year contract.

Such a dramatic increase in output from Rumaila alone would transform the overall level of Iraqi exports, ministry officials said as they defended the outcome of the June auction.

Insiders will be watching closely in December, when the ministry will offer 10 other oilfields in a second global auction, to see if it has changed its approach to continue to broker deals with foreign companies.


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