UPDATE 4-Iraq signs deal with BP, CNPC for Rumaila field

Thu Oct 8, 2009 3:17pm EDT

* CNPC, BP sign contract with Iraq South Oil Company

* Iraq is considering renewed bids for other fields

* BP says Rumaila returns competitive with other projects

(Adds comment from BP CEO)

By Ahmed Rasheed

BAGHDAD, Oct 8 (Reuters) - Iraq's oil ministry said on Thursday it had signed a deal with Britain's BP (BP.L) and China's CNPC to develop its super-giant Rumaila oilfield, a milestone in Iraq's efforts to renew its struggling oil sector.

"The signed contract will be referred to the cabinet for approval, after which the oil ministry will hold a ceremony to announce the beginning of work by the two companies," oil ministry spokesman Asim Jihad said.

Jihad said the agreement was signed by the ministry, represented by the state-run South Oil Company, and CNPC and BP.

Rumaila is the workhorse of Iraq's oil industry today, with a current capacity of 1.1 million barrels per day (bpd), almost half Iraq's total output of 2.4 million bpd.

The field's reserves are estimated at 16.998 billion barrels. For a factbox click on [ID:nL6265378]

The service contract for Rumaila was the only deal which emerged from the ministry's first oilfield auction in June, a centrepiece of its strategy to bring new life to a sector rich in reserves but in desperate need of foreign cash to overhaul dilapidated facilities and outdated practices.

But more first round deals may be in the works.

An oil ministry official, speaking on condition of anonymity, said the government had formed a committee to study new or revised bids for fields that were not awarded in June.

He said that Exxon Mobil (XOM.N) had put forward a new bid for Zubair oilfield, while Chevron (CVX.N) and Total (TOTF.PA) had submitted a new offer for West Qurna field.

The committee, headed by Thamir Ghadhban, a senior energy advisor to Prime Minister Nuri al-Maliki, is studying the proposals and a decision should be made shortly, he said.

West Qurna, phase 1, has reserves of 8.7 million barrels while Zubair's reserves are estimated at 4 million barrels.

Additional first round deals would be a boon for the ministry, criticised by oil insiders in June for its stiff payment terms. BP and CNPC won the Rumaila deal only after they slashed their proposed remuneration fee to $2 per barrel.

BP holds a 38-percent stake in the Rumaila venture, while CNPC has a 37-percent share. Iraq's State Oil Marketing Organisation controls the rest.

Tony Hayward, BP's chief executive, said he hoped the deal would be finalized by the end of the year and promised to disclose more details about its financial terms once completed.

"We believe that this will be an opportunity that yields similar returns to those which we can get from other areas of our portfolio. The number that I have talked about is between 15 and 20 percent," Hayward said at a press conference in Buenos Aires.

The field is likely to require $10 billion to $20 billion in capital spending, Hayward added, cautioning that this estimate was preliminary.

RISKY ENVIRONMENT

BP and CNPC aim to boost output to 2.85 million bpd as a plateau target over the life of the 20-year contract.

Such a dramatic increase in output from Rumaila alone would transform the overall level of Iraqi exports, ministry officials said as they defended the outcome of the June auction.

Oil insiders will be watching closely in December, when the ministry will offer 10 other oilfields in a second global auction, to see if the ministry has changed its approach to brokering deals with foreign firms.

Iraq, which relies on oil exports almost exclusively to fill government coffers, needs to boost production urgently in order to pay for improvements to its woefully poor power and water infrastructure, along with a host of other reconstruction works.

It is also pursuing several other stand-alone energy deals with foreign firms like Royal Dutch Shell (RDSa.L).

Earlier this year, CNPC became the first foreign firm to operate an Iraqi oilfield in decades when it started work on the southeastern Ahdab field.

But the opening of Iraq's oil sector has been overshadowed by ongoing violence, a shadowy legal and regulatory framework and the bitter feud between the central government and minority Kurds in their semi-autonomous enclave in northern Iraq.

Kurd-Arab quarreling in particular has held up passage of national oil and gas legislation that would define the contracting process for foreign firms and set out how Iraqi authorities would share revenues from oil exports.

While the legislative impasse may not have scared off big firms like BP or Shell, it could hinder smaller companies from signing up to develop moderately sized fields. (Additional reporting by Robert Campbell in Buenos Aires; Writing by Missy Ryan; editing by Marguerita Choy)

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