UPDATE 3-Iraq auctions fields to move up oil's big league

Fri Dec 11, 2009 8:24am EST

Related Topics

* Shell, Petronas win supergiant Majnoon

* CNPC, Total group get smaller Halfaya

* No bids for supergiant East Baghdad

* Security tight at oil ministry after Tuesday's bombings

(Recasts, updates with oil minister)

By Missy Ryan and Ahmed Rasheed

BAGHDAD, Dec 11 (Reuters) - Iraq could challenge Russia's number two spot among world oil producers after auctioning two prized oilfields on Friday, although it failed to attract companies to bid for deals in its most dangerous areas.

Royal Dutch Shell (RDSa.L) and Malaysia's Petronas [PETR.UL] won the deal for Majnoon, one of the world's largest untapped oilfields, on the first day of Iraq's second oil contract auction since the 2003 U.S. invasion, a heavily protected event.

French oil major Total (TOTF.PA), partnered with China's CNPC and Petronas, won the smaller Halfaya oilfield.

But no successful bids were made for more dangerous fields, including East Baghdad, which lies in part under the capital's Sadr City slum and would be difficult to protect from attack.

The world's largest energy companies also steered clear of fields in northern areas where Arabs and Kurds are at odds and Sunni insurgents like al Qaeda are still on the prowl.

"The new Iraq -- after all it has suffered from wars and misadventures that led to destruction and upheaval --... is in grave need of developing its oil industry," Shi'ite Prime Minister Nuri al-Maliki said as he opened the tender.

One of the choicest prizes, West Qurna Phase Two, with 12.9 billion barrels of reserves, will be offered on Saturday morning. Fierce competition was expected for the last of the supergiant fields on offer. Supergiants have reserves of 5 billion barrels or more.

Only two of five fields on offer on Friday were awarded.

But the projected boost in capacity, combined with other deals signed or in the pipeline, have put Iraq on track to quadruple production potential to 10 million barrels per day in six to seven years, Oil Minister Hussain al-Shahristani said.

That would match Russia and leave only Saudi Arabia ahead on 12.5 million bpd.

"Iraq will be at the forefront of producing and exporting countries," he said.

Baghdad desperately needs the billions of dollars of revenue that more oil output would generate to rebuild after decades of war and sanctions and years of neglect and sabotage.

VIOLENCE CONTINUES

The country is beginning to emerge from the sectarian bloodshed unleashed by the U.S. invasion but violence has continued to keep investors at bay.

A series of car bombs killed 112 people in the capital on Tuesday, the third major assault on government buildings in Baghdad in four months and a bloody reminder of the fragile security as Iraq heads into a general election in March.

Iraqi army helicopters buzzed overhead while convoys of armoured SUVs, carrying the oil executives hidden behind tinted windows, raced through town to and from the auction.

Iraqi police trucks and squads of police dressed in commando gear lined the streets to the Oil Ministry where the auction took place. The event, held in an auditorium called the "Nationalization Room", started late as officials waited for Prime Minister Maliki to finish a meeting with visiting U.S. Defence Secretary Robert Gates.

Executives from around 30 top oil companies braved security threats to compete for the 10 fields on offer over two days. Collectively, the fields contain about as much oil as that held by OPEC-member Libya. Forty-four firms were able to bid including Exxon Mobil (XOM.N), BP (BP.L) and Chevron (CVX.N).

SHELL OUTBIDS TOTAL

With 12.6 billion barrels of reserves, Majnoon in relatively stable southern Iraq is one of the largest untapped oilfields left on earth.

Shell and Petronas proposed a fee of $1.39 per barrel and pledged to increase output to 1.8 million bpd, more than double what Iraq had expected. They outbid Total, a favourite to take the field which it had sought to develop under ousted dictator Saddam Hussein.

Halfaya, with 4.1 billion barrels of reserves, was some consolation. CNPC, Total and Petronas won it with a fee of $1.40 per barrel and a plateau production target of 535,000 bpd.

(For a graphic on output targets at the fields, see here)

In contrast to the first auction in June, when only one deal was awarded and most firms balked at stiff terms, the fee bid by companies this time was below what Iraq was willing to pay.

"In the first round, there was a big misunderstanding between what the ministry had intended and how the industry understood the contract, and you ended up with a big gap," said Mounir Bouaziz, vice president for Shell Gas & Power. "This time... they got extremely competitive offers."

BP and CNPC won a deal in the first round to develop Iraq's biggest oilfield, Rumaila. Since then, Iraq has initialled deals on two other huge fields, West Qurna Phase One and Zubair. Together, those three deals could add 4.5 million bpd to Iraqi crude production.

For further stories on the auction, including FACTBOXES, please see [ID:nGEE5B71WH] (Additional reporting by Baghdad bureau; Writing by Simon Webb and Michael Christie; Editing by Anthony Barker)

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