June 30, 2009 / 10:01 AM / 10 years ago

UPDATE 2-BP-led consortium takes on Iraq's Rumaila oilfield

* Rumaila oilfield capacity now 1.1 million bpd

* Consortium aims to raise capacity to 2.85 mln bpd

* Fee of $2 a barrel accepted vs $3.99 proposed by companies

* Contract offers “foothold” in Iraq, analysts say

(Updates with detail, comment)

BAGHDAD, June 30 (Reuters) - A consortium led by BP (BP.L) and including China National Petroleum Corp [CNPET.UL] (CNPC) on Tuesday accepted a contract to develop Iraq’s biggest oilfield, the 17-billion barrel southern Rumaila field.

The original winner of the bidding for the field, an Exxon Mobil-led (XOM.N) alliance, had rejected the Iraqi Oil Ministry’s maximum proposed per barrel fee for the contract, giving the BP group an opening to take it on.

The BP/CNPC alliance had to accept a fee of $2 for every barrel of additional oil produced, compared with a fee of $3.99 included in their initial offer.

“We asked each of the companies to accept and BP and CNPC accepted the ministry’s figure and for that reason their bid is accepted,” said Oil Minister Hussain al-Shahristani.

Rumaila is the workhorse of Iraq’s oil sector, with a current capacity of 1.1 million barrels per day (bpd) out of Iraq’s total national output of 2.4 million bpd.

It was one of six already producing oilfields and two undeveloped gas fields offered up on Tuesday in Iraq’s first auction of major oil contracts since the 2003 U.S.-led invasion.

“FOOTHOLD”

Analysts said BP had probably been willing to accept the less favourable terms offered by the ministry because the upstream Iraqi oil industry offered a unique opportunity to tap onshore oil reserves.

Iraq has the world’s third-largest proven oil reserves, estimated at 115 billion barrels, but its petroleum industry has been devastated by years of war and international sanctions.

“Iraq has immense potential,” said Amrita Sen, oil analyst at Barclays Capital in London. “Many oil companies consider Iraq’s upstream industry an unprecedented opportunity. The contract gives a foothold to potentially extremely lucrative operations.”

The BP offer included a proposal to raise Rumaila’s production to 2.85 million bpd. The government had set its production target at 1.75 million bpd.

Many oil analysts consider BP’s target very ambitious and have said raising Iraqi oil output may take much longer than the government hopes. It plans to increase production by 3.5 million bpd to 6 million bpd by 2017.

The International Energy Agency (IEA) on Monday described these targets as over optimistic and said oil capacity could fall over the next two years to as low as 2.23 million bpd.

The IEA forecast Iraqi oil production capacity would dip before rising gradually to 2.7 million bpd by 2014.

BP made no comment on the terms of the deal but said it and its partner were pleased to have participated in what it described as a “transparent and efficient process.”

“We are looking forward to the next step towards finalising the service contract to increase production of the Rumaila field,” it said in a statement. (Reporting by Missy Ryan in Baghdad and Christopher Johnson in London; editing by James Jukwey)

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