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Iraq Approves BP Oil Deal, Rejects Other Bids

A worker checks the valves at the Kirkuk oil field.
BAGHDAD (Reuters) -- Iraq has approved a contract for BP and China's CNPC to develop its massive Rumaila oil field, but rejected other bids for deals it had hoped would revive its struggling oil and natural-gas sector.

The cabinet refused offers for several further fields submitted by other foreign companies, some of which had been revised after a major tender on June 30.

It was unclear if the cabinet decision was the final word on the country's first major energy auction since the U.S.-led invasion in 2003.

BP and the China National Petroleum Corp (CNPC) were the only consortium to walk away with a deal when they won the right to work on Rumaila, Iraq's biggest producing oil field with reserves of 17 billion barrels.

The British oil major and its Chinese partner sealed the deal only after an Exxon Mobil-led group had dropped out of the running. BP and CNPC agreed to a cut-price fee of just $2 for every extra barrel of oil produced from Rumaila.

They had originally sought twice that amount.

"The cabinet approved the bid submitted by the consortium led by British Petroleum to develop Rumaila.... It will boost output from current levels of 950,000 barrels per day (bpd) to 2.85 million bpd in return for $2 for each additional barrel produced," government spokesman Ali al-Dabbagh told Reuters.

"The cabinet rejected the other bids offered by companies because they did not lower the remuneration fee," he said.

The sale of contracts on June 30 to develop six large oil fields and two undeveloped gas fields was a central plank in Iraq's plans to more than double lackluster oil output of around 2.4 million barrels per day.

Dependent on oil for more than 95 percent of state income, Iraq needs money to rebuild after six years of bloodshed. It also needs the capital and expertise that foreign firms can bring to repair damage to its oil infrastructure caused by decades of war, sanctions, and neglect.

The auction largely flopped, however, when international oil firms balked at the low fees Iraq was willing to pay them for boosting crude output. Rumaila was the only field on which an agreement was reached.

Some of the bidders submitted revised bids on late on June 30 that were not made public. Those revised bids were presented to the cabinet on July 1, Oil Ministry officials said.