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Iraq cuts foreign deals for major boost to oil output

BAGHDAD — Foreign energy firms have agreed to Iraq's conditions for investment in two major oilfields in the south of the country, Baghdad announced on Tuesday as it prepares to dramatically ramp up oil output.

Oil Minister Hussein al-Shahristani told a news conference that the aim is for crude production to be increased to between 10 and 12 million barrels per day within six years -- up from the current level of around 2.5 million bpd.

The announcement came two months before a second round of auctions on oilfields that Baghdad hopes will ease a budget crunch and rebuild a moribund economy and dated infrastructure wracked by decades of war and sanctions.

"All the oil revenue we receive will be allocated for the reconstruction and rebuilding of Iraq" following the 2003 US-led invasion which toppled dictator Saddam Hussein, Shahristani told reporters.

"What we expect from the first bid round and what we hope for from the second round is that Iraqi production will be between 10 to 12 million bpd, and this will make Iraq equal to the world's biggest oil producers," he added.

He was referring to an auction in June and another due in early December.

Iraq originally offered eight oil and gas fields to foreign energy companies at the June auction, but only Britain's BP and China's CNPC reached agreement with Baghdad on the giant Rumaila field at the time.

Around 85 percent of Iraqi government revenues are from oil sales, and the country's various rebuilding projects, from defence to infrastructure, are facing a crunch because of limited funds.

Shahristani announced that a consortium led by Italian energy giant ENI had agreed to Baghdad's offer of two dollars for each extra barrel of oil it extracts on top of current production at Zubair oilfield in southern Iraq.

Zubair produces around 227,000 bpd, according to oil ministry figures released earlier this year, and has reserves of around four billion barrels.

Shahristani said he wanted oil production at the field to increase by 1.125 million bpd within six years.

He added that the consortium, which is made up of ENI, China's Sinopec, Occidental Petroleum Corporation of the United States and Korea Gas Corporation of South Korea, will be taxed on its profits.

Meanwhile, competing consortiums led by US energy giant Exxon Mobil and Russia's Lukoil had submitted bids that meet Iraq's conditions for the West Qurna 1 field.

"After a major effort from the oil ministry, our price was accepted, which is 1.9 dollars per additional barrel," Shahristani said.

"Two consortiums accepted the price -- Exxon Mobil, which proposed an additional 2.1 million barrels a day and Lukoil, which offered 1.5 million barrels a day."

The minister said the deal with ENI would be finalised within two weeks, while a decision would be made between the Exxon and Lukoil-led consortiums in the same time frame.

West Qurna 1 produces around 279,000 bpd and has reserves of around 8.5 billion barrels, according to oil ministry figures.

Exxon Mobil's consortium includes Anglo-Dutch energy firm Shell, while Lukoil is in partnership with ConocoPhillips of the United States.

Combined with investment in Rumaila, Shahristani said a total of 100 billion dollars would be ploughed into Iraq's oil industry by foreign firms, and insisted that no Iraqi government funds would be allocated to the industry.

The June auction was the first opportunity for energy companies to plant a foot in Iraq since the now banned Baath party nationalised the Iraq Petroleum Company in 1972.

The foreign firms awarded deals will have to partner with Iraqi government-owned firms and will be paid a fixed fee per barrel, not a share of the profits.

Iraq has the world's third-largest proven reserves of oil, with more than 115 billion barrels, behind only Saudi Arabia and Iran.

Investment in the country's ageing energy infrastructure has been hampered by delays to a key hydrocarbons law which would regulate the oil sector and divide responsibility between the central government and Iraq's provinces.

A senior MP said earlier this month that the law would not be passed until after parliamentary elections in January.

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