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Iraq completes Shell-led deal for huge oil field

By Associated Press

Sunday, January 17, 2010

BAGHDAD – Iraq gave final approval Sunday to a deal by a Shell-led consortium to develop one of its largest oil fields, marking a crucial step toward the nation’s postwar rebuilding by boosting the production of its most lucrative resource.

Royal Dutch Shell PLC and its partner, Malaysia’s state-run Petronas, won the right to develop the 12.5 billion barrel Majnoon field last month during Iraq’s second postwar bidding round. As part of the deal, Shell and Petronas will pay the Iraqi government a $150 million signing bonus.

At a Baghdad signing ceremony, Oil Minister Hussain al-Shahristani hailed the deal as a “major step that will transform the region from an area of misery and deprivation into a prosperous one.”

Shell Chief Executive Peter Voser said his company looks “forward to a good cooperation with the government,” but he refused to say how much money will be spent on the project.

The oil deal for Majnoon, located in Basra province near the Iranian border, was one of seven that the Iraqi government awarded last month.

The 20-year contract calls for the companies to be paid $1.39 per barrel produced above current output levels. The businesses have said they hope to raise production from the current 45,900 barrels per day to 1.8 million barrels per day by 2020.

The Majnoon field was discovered in 1976 and was partially developed until the Iran-Iraq war halted work there in the early 1980s. Oil production resumed in 2002.

For Iraq, the oil deals mark a crucial step forward in the country’s so-far faltering bid to raise oil output. Although it sits atop the world’s third-largest proven reserves of conventional crude oil, Iraq produces a comparatively modest 2.5 million barrels per day, of which about 1.9 million barrels a day are exported.

Decades of neglect of the fields have been compounded by the effects of the fighting and sabotage after the 2003 U.S.-led invasion to oust Saddam Hussein. That violence has meant that Iraq has been unable to even reach its prewar output levels of oil. Crude oil sales account for roughly 90 percent of the government’s budget.

Of the seven deals awarded in December, Iraq’s Cabinet has approved four, including Majnoon. The Cabinet has asked for changes to proposals for the remaining three — awarded to consortiums led by Russia’s private oil giant Lukoil, China’s CNPC and Russia’s Gazprom — before signing off on them as expected by the end of the month.

On Monday, the Iraqi government will give final approval to a contract to develop the Gharraf field in the southern Nasiriyah province, which is believed to hold 863 million barrels of oil. That deal, won by a partnership between Petronas and Japan’s Japex, seeks to pump 230,000 barrels from Gharraf daily by 2023, for $1.49 per barrel.

On Jan. 26, the government is scheduled to sign off on contracts to let Angola’s Sonangol develop two oil fields in the northern province of Ninevah, about 225 miles (360 kilometers) northwest of Baghdad.

Sonangol will be paid $6 per barrel produced from the Nejma field, which holds an estimated 858 barrels, and it plans to raise output to 110,000 barrels per day by 2019. The company also is seeking to develop the nearby Qayara field for $5 per barrel. There are an estimated 807 million barrels in Qayara, and Sonangol plans to produce 120,000 a day within nine years.

Last June, Iraq awarded only one oil deal, to BP PLC and its partner CNPC of China, for the 17.8 billion-barrel Rumaila field in Basra. The field is the nation’s largest, and two other foreign business consortiums have since revised their bids to develop two other prized oil fields nearby.

Al-Shahristani said one of those deals — a partnership among Italy’s Eni, U.S.’s Occidental Petroleum Corp. and South Korea’s KOGAS — will be approved next Friday. He said oil production from those fields could boost output to 12 million barrels per day within by 2017, although some analysts call that an overly optimistic target.

© Copyright 2010 Associated Press. All rights reserved.


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