Iraq awards contract for giant field

Second oil licensing auction ends in seven of 10 deals awarded; output to be boosted by millions of barrels a day.

Iraq has awarded a contract for one of the world's biggest oilfields to a partnership of Russia's Lukoil and Norway's StatoilHydro, and struck several other deals to boost its crude output by millions of barrels per day (bpd). The deals, in Iraq's second post-war auction of oil licences, would bring the country US$200 billion (Dh734.59bn) of revenue, while the companies winning contracts would spend about $100bn to develop the fields, said Dr Hussain al Shahristani, the oil minister.

Lukoil and StatoilHydro agreed yesterday to develop the West Qurna 2 oilfield in southern Iraq for just US$1.15 a barrel, beating three rival consortiums for access to the 12.9 billion barrels of reserve. The Russian company had set its sights firmly on the field after failing to convince Baghdad to revive a Saddam-era development contract. The West Qurna deal was among seven of a possible 10 that Iraq's oil ministry struck in the two-day auction, a much better result than from its June licensing round when only one of eight possible contracts was awarded.

The auction was a "major success", Ali al Dabbagh, the Iraqi government spokesman, told Reuters. The new deals, in which companies agreed to add nearly 4.8 million bpd of oil output, would enable Iraq to nearly quintuple its total capacity to pump crude to more than 12 billion bpd by 2015, said Dr al Shahristani, which would rival Saudi Arabia's 12.5 million bpd of capacity. He added that the country would not necessarily produce oil at that rate, and Iraq was open to entering negotiations over an OPEC quota. Iraq is the only country in the 12-member oil exporters' group that is not bound by a quota.

On Friday, Royal Dutch Shell and the Malaysian company Petronas won a contract to develop the 12.6 billion barrel Majnoon field for $1.39 a barrel; and China National Petroleum Corporation (CNPC), Petronas and France's Total agreed to develop the Halfaya field, with reserves of 4.1 billion barrels, for $1.40 a barrel. Both fields are in southern Iraq. Yesterday, the Angolan national oil company Sonangol struck deals to work on the relatively small Qaiyarah and Najmah fields in northern Iraq for remuneration of $5 and $6 a barrel respectively. It was the only company to bid on fields in Iraq's more restive regions.

Security concerns deterred firms from bidding on three other groups of fields in the north and east of the country. Those fears were increased yesterday when three policemen were killed and four others wounded by a roadside bomb in the northern oil centre of Kirkuk. Saboteurs cut oil exports from northern Iraq recently by damaging the pipeline that carries crude to the Turkish Mediterranean port of Ceyhan.

After the West Qurna announcement, Petronas and the Japanese oil firm Japex won a deal to develop the Gharaf oilfield for $1.49 a barrel, and a group led by Russia's Gazprom agreed to develop the Badrah oilfield for $5.50 a barrel. Like Qaiyarah and Najmah, both of those fields hold less than 1 billion barrels of reserves. The contracts must now be ratified by the Iraqi cabinet, but the low fees to be paid to the developers of the big fields should silence politicians who had criticised the oil minister for policies they said would "give away" the country's oil resources to foreign firms. The international oil companies that won contracts on Friday would make profits of less than $1 a barrel, Dr al Shahristani said before the bidding restarted yesterday.

"What is left for the companies is 68 cents." Foreign companies that have agreed to operate in Iraq face large risks, not only from a resurgence of violence in the country but from the possibility that a new government could throw out the contracts, which lack legal standing. A draft national oil law for Iraq has been stalled in parliament for nearly three years. @Email:[e-mail]