BP and CNPC sign first major oil deal with Iraq in almost 40 years

Region Iraq's oil ministry has signed a deal with Britain's BP and the China National Petroleum Corporation.

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Iraq's oil ministry has signed a deal with Britain's BP and the China National Petroleum Corporation (CNPC) for work that will almost triple output from the country's biggest oilfield. The formal ratification of the 20-year service agreement - the first major deal between Iraq and Big Oil in almost 40 years - is being hailed as a milestone in the country's efforts to refurbish its dilapidated oil sector.

The contract to develop the Rumaila oilfield, worth an estimated US$14 billion (Dh51.42bn) to $20bn, was also the only deal to emerge from the ministry's first post-war auction of oil and gas licences, held in late June. That meant the government lacked a fallback position if the deal fell through. "The signed contract will be referred to the cabinet for approval, after which the oil ministry will hold a ceremony to announce the beginning of work by the two companies," said Asim Jihad, the ministry's spokesman.

The Iraqi oil minister, Hussain al Shahristani, pitched the two oil and gas licencing rounds scheduled for this year as the centrepiece of his strategy for drawing desperately needed foreign investment to Iraq's key oil sector without giving away the country's resources. But most firms bidding in June baulked at tough government counter-offers and left the auction empty-handed. BP and CNPC agreed to drop their fee by nearly 50 per cent to $2 per barrel to win the contract for raising output from Rumaila, a "supergiant" field with about 17 billion barrels of reserves. The companies propose to increase production in stages to 2.85 million barrels per day (bpd) from about 1.1 million bpd.

Rumaila, the workhorse of Iraq's oil industry, already accounts for almost half the country's total oil production of about 2.4 million bpd, of which 2 million bpd is exported to earn the bulk of the government's foreign revenues. The ministry will offer licences to develop 10 other oilfields in a second bidding round in early December. @Email:tcarlisle@thenational.ae