Accessibility links

Breaking News

Iraq, Eni-Led Group Sign Initial Zubair Oil Deal

Iraqi Oil Minister Hussain al-Shahristani
BAGHDAD (Reuters) -- Iraq's Oil Ministry has signed an initial agreement with a consortium led by Italian oil major Eni to develop Zubair oil field and said it also expected to ink a pact on Nassiriya in the coming days.

Iraq, emerging from years of violence triggered by the 2003 U.S. invasion, is seeking investment to help its energy sector overcome decades of war, sanctions, and underinvestment and turn itself into the world's third-largest crude producer.

Investors face considerable political risk. An election is due in January and there is no guarantee the next Iraqi government will honor any deals being struck now.

"Iraq is taking an important step to develop its oil industry by signing the many contracts we are about to sign," Oil Minister Hussain al-Shahristani said.

Eni has said it and its partners Occidental Petroleum Corp and South Korea's KOGAS expect to invest $10 billion in the field to ramp up production to 1.125 million barrels per day (bpd) from 195,000 bpd within seven years.

But Shahristani said he expected the Eni-led group to invest $35 billion over six years in the 4 billion-barrel oil field -- $20 billion in capital and $15 billion in operating expenses.

Depending on how quickly the agreement is approved by the Iraqi cabinet and a final deal worked out, Zubair is likely to become Iraq's second major new contract with an international oil firm since the invasion.

The Oil Ministry has already reached a final agreement with BP and China's CNPC to develop the Rumaila oil field, a 17 billion-barrel supergiant that accounts for around half of Iraq's current crude output.

The final contract for Rumaila will be signed on November 3.

Oil Superpower

The multibillion-dollar Zubair and Rumaila deals are part of a plan by Iraq as it emerges from the sectarian carnage to almost triple current oil output of 2.5 million barrels per day within six to seven years.

Iraq has the world's third-largest oil reserves but it only ranks 11th among global oil producers. In a June auction of prize oil fields, only the Rumaila field was successfully bid on.

Since then, firms and the Oil Ministry have negotiated for the unawarded fields behind closed doors.

Zubair is one of those, as is the 8.7 billion-barrel West Qurna oil field.

Shahristani said three of four consortiums competing for West Qurna have accepted the government's terms and a decision on the winning bid would be made by the Iraqi cabinet "in days."

Iraq expects to hold another auction of largely untapped fields on December 11-12.

Separately, Shahristani said that the ministry hoped to sign an initial contract in a few days with Japan's Nippon Oil Corp and partners Inpex Corp and JGC Corp over Nassiriya, which has 5 billion barrels in reserves.

Nippon officials would be in Baghdad this week, he said.

"The negotiation will last for a few days in Baghdad," Shahristani said. "We hope to finish the talks very soon and sign the contract in the coming few days."

The $10 billion Nassiriya deal is different to the contracts being offered in the auctions. It is an engineering, procurement and construction contract that Nippon and its partners initially competed for with Eni and Spanish company Repsol.

Iraqi officials have said Nassiriya could produce 100,000 bpd within 18 months and Eni has previously said the field could eventually produce 1 million bpd.