THE MIKIVERSE

Iraq signs mega oil deal with BP, CNPC

Ammar Karim
November 4, 2009 - 7:09AM

Iraq formally signed a deal with Britain's BP and China's CNPC on Tuesday to almost triple production at a giant southern oilfield.

"The two companies will invest $US50 billion ($A55.25 billion) in the project," Oil Minister Hussein al-Shahristani, told reporters.

The 20 year-contract is expected to boost production at the Rumaila field from the current one million barrels per day (bpd) to around 2.8 million bpd within its first six years, the minister said.

Rumaila is already integral to Iraq's oil output, contributing almost half of the nation's current production of around 2.5 million bpd, and is estimated to hold further reserves of 17.7 billion barrels.

In return for their enormous investment, BP and CNPC have agreed to accept payment of two dollars per additional barrel produced at Rumaila.

"We have shown we can attract international companies to invest in Iraq and to boost production through service contracts," Shahristani said.

"They will not have a share of Iraqi oil and our country will have total control over production. Work begins tomorrow (Wednesday)," he said.

The two companies will operate through a joint venture in which Iraq's State Oil Marketing Organisation (SOMO) will have 25 per cent, BP 38 per cent and CNPC 37 per cent.

Shahristani said development of the oil field will cost $US25 billion ($A27.62 billion) and the other 25 billion will be the operating costs.

BP chief executive Tony Hayward said: "We expect to invest around $US15 billion ($A16.57 billion). It's a very significant undertaking for BP.

"We are going to focus on building the capacity and capabilities in Iraq, in the Iraqi oil industry for the benefit of Iraq and the people of Iraq. We are looking forward for the beginning of long and mutual relationship," he said.

Jiang Jemin, CEO of CNPC, said the three shareholders have "reached a common understanding on mutual efforts to reach the (targeted) level of production ahead of schedule".

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

However, there has been little exploration or development of fields in the past three decades because of wars and the international embargo imposed on Iraq in 1990 following Saddam Hussein's invasion of Kuwait.

Income from oil sales, especially earnings from exports of around two million barrels a day, provides some 85 per cent of Iraqi government revenues.

This story was found at: http://news.theage.com.au/breaking-news-business/iraq-signs-mega-oil-deal-with-bp-cnpc-20091104-hvmu.html