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Big Bidders Nab Contracts At Iraq Oil Auction

With 12.6 billion barrels of reserves, Majnoon in relatively stable southern Iraq is one of the largest untapped oil fields left on Earth.
Two contracts have been awarded to major oil consortiums so far on the first day of bidding in what's being described as the biggest Iraqi oil auction in decades.

A successful bid from a consortium of Royal Dutch Shell and Malaysia's Petronas for the giant Majnoon oil field in southern Iraq kicked off the bid round, the second such sale since the 2003 U.S. invasion.

Although Majnoon is a huge oil field with reserves of more than 12.5 billion barrels of oil, it currently produces just 46,000 barrels per day.

Another group of oil majors was awarded a contract for the Halfaya field, also in southern Iraq near the border with Iran and a much smaller field, with estimated reserves of 4.1 billion barrels.

China's CNPC has a 50 percent stake in that consortium, while Total of France and Malaysia's Petronas hold 25 percent each.

"It should be pointed out that the contracts offered by Iraq are service contracts -- that is, the oil companies that invest in Iraqi fields are paid a fee for every barrel produced," Iraqi Oil Minister Hussein al-Shahristani explained to potential bidders. "This barrel remains Iraq's exclusive property which it sells at the going international rates."

Majnoon and Halfaya are two of 10 fields on offer in the two-day round.

New Start

An auction round held in June was widely regarded as a failure, with a deal struck on only one of the eight fields on offer because of the perceived low return on investment being offered by the Iraqi government.

Since then, however, two other foreign consortiums have signed agreements with Baghdad.

But today, there were no bidders for four eastern Iraqi fields in Diyala province, where security is a major concern, or for fields in Baghdad and the Salah Al-Din provinces, where some deposits lie in residential zones.

Iraqi officials see the two-day auction as key to the country's postwar reconstruction efforts, as the government relies on oil for about 85 percent of its revenues.

As he opened the auction, Prime Minister Nuri al-Maliki said the second round represents "a new era in the history of the Iraqi oil industry."

Maliki hailed the transparent fashion in which the bid round was being conducted, saying 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.

"We are pleased that the companies have confidence in Iraq's guarantees against any potential vicissitudes because Iraq no longer deals with matters by political whims as before," he added. "It deals by commitment, guarantee and total protection in a democratic, constitutional and responsible system."

Tripling Output?

Maliki urged international oil company executives to look beyond their security fears, and said he hoped the auction would help improve the lives of ordinary people.

"What was achieved in the first round of bidding might well raise Iraq's oil output to 6 million barrels per day," he said. "We hope the second round will further boost Iraq's oil exports to provide needed funds for sustaining public and other vital services".

A total of 44 companies from Western majors to Chinese and Indian state-owned giants were involved in the bidding.

The auction at the offices of the Oil Ministry, which comes just days after a series of coordinated bombings killed more than 100 people in Baghdad, is taking place amid tight security.

At 115 billion barrels, Iraq has the world's third-largest proven oil reserves, behind Saudi Arabia and Iran.

The country has a daily output of about 2.4 million barrels, but aims to triple that over the next six years.

The Majnoon project will be split 60 percent for Shell and 40 percent for Petronas. The Anglo-Dutch and Malaysian consortium requested fees of $1.39 per barrel of oil and projected that they would produce 1.8 million barrels per day.

The Halfaya winners requested fees of $1.40 per barrel of oil extracted from the field, and projected that it would produce 535,000 barrels per day from a current 3,000 barrels per day.

compiled by RFE/RL correspondent Antoine Blua from wire reports