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Iraq oil output, exports hit post-war high

BAGHDAD (Reuters) - Iraq has raised oil exports to a post-war high, earning billions of dollars to fund reconstruction after Baghdad cracked down on sabotage of its strategic pipelines, the oil minister said on Sunday.

Employees work at Najaf's new oil refinery plant, 100 miles south of Baghdad, March 15, 2008. REUTERS/Ali Abu Shish

In an interview with Reuters, Hussein al-Shahristani said he expects oil revenue to reach $70 billion this year if crude prices stay high and output flows remain stable.

“In May, we have exceeded for the first time 2 million barrels-per-day (bpd) as an export rate,” Shahristani said.

“This is mainly because of the improved security along northern pipelines from Kirkuk (oilfields) to the Turkish border and also from increased production from our southern and northern fields.”

Iraqi oilfields are pumping more than 2.5 million bpd, he said, the highest since the 2003 U.S.-led invasion. Iraq will produce up to 2.9 million bpd by the end of 2008, he said.

Shahristani declined to comment on export levels for June, but Iraqi oil officials said last month shipments would run slightly higher because of extra Kirkuk sales from the north.

He was optimistic Iraqi forces would keep security tight at oil facilities and raise the confidence of foreign investors discouraged by sectarian violence, al Qaeda and Shi’ite militants who had a grip on Basra, home to Iraq’s biggest oilfields.

“We are going to make steady progress on security and the reconstruction front,” he said.

OIL PRICE CUSHION

Iraq, whose primary source of revenue comes from oil, needs huge amounts of investment to rebuild after years of sanctions and war battered the OPEC member’s economy.

Sky-high oil prices have raised the prospects of a quicker recovery. Oil is still within sight of a record $135 a barrel hit last month, supported by concern supplies will struggle to match demand in the longer term and a weak U.S. dollar.

Strong prices could also improve Iraq’s chances of meeting goals set out in a 10-year plan to raise production and exports.

The U.S. military says violence in Iraq is at a four-year low following crackdowns by U.S. and Iraqi forces on Shi’ite militias in southern Basra and Baghdad and on al Qaeda in the northern city of Mosul, its last major urban stronghold.

“Iraq has improved the overall security situation in the country through its military operations in the south against the militias and in Mosul area against al Qaeda and in Baghdad itself,” said Shahristani.

“I believe the improvement in the security is real and is going to last. Al Qaeda has basically been defeated in Iraq.”

FOREIGN INVESTMENT

Starved of access to oil and gas prospects by governments who increasingly favor development by their state oil companies, Western oil companies are eager to invest in Iraq, home to the world’s third biggest oil reserves.

However, the security situation and an uncertain legal framework have deterred the majors from making significant investment.

But Baghdad expects to see activity this summer.

Major oil companies have all turned in their proposals for oil service deals and some will be signed this month.

Shahristani had warned that Baghdad might drop the oil service contracts, worth about $500 million a piece, if the majors failed to sign deals by June.

“If we are talking about the Technical Support Contracts, then all the major companies have submitted their proposals and we are studying these proposals and we expect to be able to sign some of them this month,” he told Reuters.

Iraq is negotiating six short-term service contracts with international oil companies, each aimed at boosting production by 100,000 barrels per day.

Five of the deals under discussion are with oil majors Royal Dutch Shell, Shell in partnership with BHP Billiton, BP, Exxon Mobil and Chevron in partnership with Total.

Iraq is also in talks with a consortium of Anadarko< Vitol and Dome for a sixth contract on the Luhais field.

Editing by Michael Georgy and Ibon Villelabeitia

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