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Iraq Offers Up Giant Oil Fields To Foreign Firms


BAGHDAD (Reuters) -- Iraq has opened up some of its most prized oil and gas fields to international firms that have been excluded for decades, part of new deals that could more than double its output within a few years.

In a second bid round, following on from one earlier this year, Iraq has put forward 11 fields.

Two of the oil fields -- Majnoon and West Qurna Phase II -- are classed as super giants and between them could produce 1.2 million barrels per day (bpd) when fully developed.

"Under service contracts prepared by the Oil Ministry, 11 oil and gas fields will undergo complete development," Oil Minister Hussain al-Shahristani told a Baghdad news conference on December 31.

Shahristani named the other fields as Halfaya, East Baghdad, Gharrafa, Qayara, Najmah, Badrah, Kifil/West Kifil/Mirjan, and a group in Diyala province, as well as Al-Basrah's Siba gas field.

He said the 11 fields could increase production by up to 2.5 million bpd within three to four years of the contracts being completed at the end of 2009. That increase is roughly equivalent to what Iraq produces today.

Three of the fields are jointly owned with neighbors Iran and Kuwait. Developing them would require bilateral deals with those states, which were not opposed, al-Shahristani said.

In June, Iraq announced a first bidding round for long-term contracts for eight big oil and gas fields, which could add a total of 1.5 million barrels per day to the country's output.

The Oil Ministry is expected to announce the results of that round by the middle of 2009. When all the new fields are fully operational, in theory within six years' time, Iraq's output could be more than 6 million bpd.

Iraq has the world's third-largest oil reserves, but its infrastructure has been shattered by decades of war and sanctions and it is in need of massive investment.

Some foreign firms tried to gain access to Iraqi fields in the late days of Saddam Hussein but never began work. A Russian consortium headed by LUKoil signed a deal to develop West Qurna, but Iraq canceled it in 2002. France's Total initialed a deal for Majnoon.

By now allowing foreign firms into its key fields, the Iraqi government is breaking with the policy of neighbors like Saudi Arabia and Kuwait, where state firms keep tight control of oil.

However, the proposed Iraqi deals take the form of service contracts, in which Iraq owns the oil and foreign firms are paid for their work, rather than the production-sharing deals foreign firms prefer because they confer rights to a share of output.

"There has been a strong resistance in Iraq to sharing contracts," said Mustafa al-Ani, an analyst with the Dubai Gulf Research Center. "How attractive would that be to the companies? if they believe there is no other alternative they have to bid."

He added that the timing was not good with oil prices so low, but that "you cannot ignore Iraq's oil."

In September, Iraq's cabinet approved a $3 billion oil-service contract with the Chinese National Petroleum Company (CNPC), restoring a deal originally signed in 1997.

Royal Dutch Shell is finalizing details of a multibillion-dollar joint venture with an Iraqi state-run firm to capture gas produced as a by-product of oil production in southern Iraq, for export and domestic power generation.

Officials at Shell did not wish to comment on the latest round. A spokesman at BP said the British oil major "remains interested in assessing opportunities in Iraq."

Oil is Iraq's main source of income and boosting output is vital to earning the cash needed for reconstruction, especially as plummeting oil prices have shrunk existing revenues.
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