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Iraq Negotiates Fields With Eni, Exxon, Bypassing Bid Rounds

By Ayesha Daya and Grant Smith

Oct. 21 (Bloomberg) -- Iraq is recovering from the failure of its first oil licensing round in June by negotiating directly to get foreign investment for its war-torn energy industry.

Eni SpA, which asked for more than double Iraq’s $2 a barrel maximum payment in June, may sign a contract to develop the Zubair field in days, Chief Executive Officer Paolo Scaroni said yesterday. Exxon Mobil Corp. and OAO Lukoil have agreed on a new fee for the West Qurna-1 oilfield, and Nippon Oil Corp. will get a contract for the Nasiriyah field next month.

Iraq, home to the world’s third-largest oil reserves, aims to increase oil production to 3.5 million barrels a day by revamping existing fields and drilling new wells. The first licensing round awarded just one license after companies refused to accept the per-barrel fees offered by the Oil Ministry. Now, Iraq is renegotiating some of those projects and a second round, offering different fields, is planned for December.

“These negotiations are proving to the outside world and domestically that Iraq can’t boost its oil sector alone -- it needs investment, technology and help with its workforce,” Samuel Ciszuk, an analyst at IHS Global Insight analyst, said by phone from London. “These fields are crucial as they are the main producing fields today and could be ramped up quite quickly, immediately making a big difference for Iraq.”

Iraqi oil production has averaged 2.4 million barrels a day this year, the same as in 2008, according to Bloomberg estimates. It collapsed to near zero during the 2003 invasion. Unrestrained by OPEC quotas, it needs to increase crude revenue to help rebuild its economy.

Oil Minister

Oil Minister Hussain al-Shahristani has come under attack from parliament for failing to raise oil production faster. Lawmakers have yet to approve an oil and gas law governing contracts with international companies and exports from the autonomous Kurdish region in north Iraq.

More than 20 companies, including The Hague-based Royal Dutch Shell Plc and ConocoPhillips in Houston, submitted bids for $16 billion worth of technical service contracts for six producing oil fields and two gas fields offered in the first oil licensing round since the 2003 U.S.-led invasion.

Only London-based BP Plc, Europe’s second-largest oil company, and China National Petroleum Corp. won a contract out of eight offered, after they agreed to cut their fees for the Rumaila field to $2 a barrel, from $3.99. The fees are paid after development costs are recouped. They plan to boost production by 1.9 million barrels a day to 2.85 million barrels.

All of the contracts on offer pay a per-barrel fee, excluding costs, for the oil produced rather than a share of the oil itself.

Zubair Stake

Eni, whose remuneration request for $4.80 a barrel was rejected by the Oil Ministry that set a fee of $2, will take a 40 percent stake in Zubair and boost output to 1 million barrels a day, Scaroni said at the Oil & Money conference in London.

“We live in a world in which political risk is part of our life, but we are equipped to cope with it,” Scaroni said on what’s involved with working in a country lacking in security and an oil law. “We don’t find oil in Switzerland.”

Iraq aims to award development rights for its West Qurna-1 oilfield within two weeks, Abdul Mahdy al-Ameedi, deputy director general at Iraq’s Petroleum Contracts and Licensing Directorate, said on Oct. 19.

Exxon and Lukoil are willing to work on the field for $1.90 a barrel, and the Oil Ministry is also in negotiations for the field with Total SA of France and China National Petroleum Corp., he said. Exxon, in a group with Royal Dutch Shell Plc, made a best bid in June of $3.70 a barrel. Lukoil, working with ConocoPhillips bid $6.49, according to the ministry.

Nasiriyah Field

Iraq reached an initial agreement with Nippon Oil on developing the Nasiriyah field, which was offered outside of the country’s two bidding rounds. Nippon will raise output from 100,000 barrels a day during the first 18 months to 150,000 barrels a day for the term of the contract, al-Ameedi said.

Iraq is estimated to hold 115 billion barrels of proved oil reserves, according to government statistics compiled by BP. Its second bidding round will take place on Dec. 11 to 12 and focuses on undeveloped oil fields, which will take several years to start production, rather than extensions to older fields.

To contact the reporter on this story: Ayesha Daya in Dubai ;

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