Iraq cabinet ratifies oil deals

Iraq's cabinet has ratified a deal with two foreign energy companies
to develop the giant southern oilfield in Rumaila. The contract with
Britain's BP and CNPC of China is the first major deal with foreign
firms to be signed since an international auction in June. The
project aims to almost triple output at the 17 bn barrel field -
increasing it by 2 m barrels a day. Iraq has the world's third
largest oil reserves, but production lags behind potential due to a
lack of investment. The country's total daily output of 2.4 m barrels
is lower than it should be due to problems stemming from sanctions
against former Iraqi governments, lack of investment and insurgent
attacks, analysts say. Bidders withdraw Thirty two companies -
including Shell, Exxon, BP and Total - bid for contracts to develop
six oil fields and two gas fields in June's televised auction, Iraq's
first big oil tender since the invasion of 2003. But most of the
bidders withdrew at the last moment, saying the terms on offer were
unfavourable. BP and CNPC agreed to run the Rumaila field - near the
southern city of Basra - after US giant Exxon Mobil turned it down.
Iraq's oil ministry offered 20- year service contracts on the field,
stipulating that companies would not be paid anything until a
minimum level of production - close to the amount currently being
produced - was reached. Above that point, the companies would be
paid a certain amount per barrel up to a maximum level stipulated by
the ministry. The maximum amount being offered by the ministry in the
case of the Rumaila field was significantly less than the oil
companies were asking for. Exxon Mobil declined to accept the maximum
payment, but BP and CNPC, which had originally asked for $4 a
barrel, agreed to do the work for $2 a barrel. They will also be
able to charge the ministry for the costs of the work they have to do
on the production facilities. Questions over approval Iraq's oil laws
are still vague and many foreign companies remain wary of investing
in Iraq's energy sector, says the BBC's Gabriel Gatehouse in Baghdad.
The Iraqi government has urged the companies involved in June's
auction to resubmit their bids. But questions remain over who exactly
has the authority to approve such contracts, our correspondent says.
Many companies fear politics could get in the way of business,
especially with parliamentary elections looming in January. BP was
thrown out of Iraq in 1972 when Saddam Hussein nationalized the oil
industry. The British company will hold a 38 % stake in the venture,
compared to CNPC's 37 % share, while Iraq's State Oil Marketing
Organization will control the remaining 25 %, the Associated Press
reported. The fields up for auction in June contained about 43 bn
barrels of Iraq's proven oil reserves of 115 bn barrels.