Iraq could need soft loans from oilfield bidders

By David Sheppard

LONDON, April 30 (Reuters) - Iraq will require soft loans possibly totalling billions of dollars from any firm succesful in its second bidding round for developing new oilfields, unless the oil price recovers to $70, the Iraqi oil minister said on Thursday.

International oil companies have already been requested to pay $2.6 billion in the first bidding round to develop existing fields, which Hussain al-Shahrastani said were required to plug the holes in Iraq's budget created by the sharp drop in the price of crude to around $50.

"These are not signature bonuses but soft loans that we expect the international oil companies to provide, that will be repaid by the oil produced," Shahrastani said.

"The rationale is the difference in the budget for 2009. Iraq is not prepared to scale back its reconstruction programmes. Our main requirement is the $2.6 billion in the first round, but much depends on the price of crude oil towards the end of the year. As it is now, we will require soft loans for the second round too."

The $2.6 billion requested in the latest Iraqi tender document has added to the risk of taking on work in Iraq for big oil firms already concerned the deals offer limited rewards.

Previously, the upfront payment required from large oil firms totalled around $164 million in signature bonuses. Iraq's oil minister was unable to confirm if these would still need to be paid on top of the loans.

Thirty-two of the world's biggest energy companies have qualified for Iraq's first bidding round since the U.S. led invasion in 2003.

The first bid round is scheduled to take place in Iraq on June 29-30.

The second round, to develop new fields, is expected to take place by the end of the year.

Crude oil prices have collapsed from a peak near $150 a barrel in July last year, to around $50 a barrel currently, leaving many producer countries with large budget deficits.

"$70 a barrel is a fair price for oil. Within OPEC we think that price is needed to ensure investment and development of new fields to make sure the world will not face an acute shortage of oil in a few years time," Shahrastani said.

Iraq aims to increase its crude oil production from 2.4 million barrels per day (bpd) to 2.5 million bpd by the end of the year.

Iraq hopes to bring 6 million bpd of production onsteam in 5-6 years time, the minister said.

For more stories on Iraq's drive for foreign investment in its energy sector double click on [ID:nLS790677]

(d.sheppard@thomsonreuters.com +44 20 7542 2637; Reuters Messaging: barbara.lewis.reuters.com@reuters.net))