Exxon-Shell consortium’s deal will boost Iraq’s output

ExxonMobil and Royal Dutch Shell signed a deal with the Iraqi Oil Ministry on Thursday to develop a major field, marking the first foray by a U.S.-led consortium into Iraq’s promising but uncertain oil industry.

The agreement, the second of its kind signed this week, suggests that foreign companies that initially balked at the terms the ministry offered at a public auction in June now think the prospect of eventually tapping into Iraq’s vast oil reserves outweighs the risks. Oil Minister Hussain Shahristani called the deal “another huge achievement in the pursuit of rebuilding this country.”

On Monday, the ministry signed a separate deal with a consortium led by the Italian oil giant Eni that includes Los Angeles-based Occidental Petroleum. The Iraqi cabinet is widely expected to ratify both agreements.

BP and China National Petroleum Corp.

, the only companies that walked away from the June auction with a deal in hand, signed the final contract this week.

All the deals are for service contracts, which give the companies a per-barrel fee for boosting output at active fields encumbered by old technology and derelict equipment. But they do not give the energy giants a stake in the profits.

Industry experts say the contracts are likely to be only modestly advantageous, if at all, to Western energy giants in the short term but could position them to reap a windfall if Iraq opens unexplored oil fields to foreign companies.

The Oil Ministry is expected to hold another round of bidding in December for undeveloped fields.

Those would also be for service agreements, but oil executives hope the deals could one day lead to production-sharing arrangements — long a goal of energy firms that have been shut out of the Middle East for years.

The deal signed Thursday gives ExxonMobil and Shell $1.90 per barrel above the current production rate, considerably less than the $4 a barrel the consortium proposed in its June bid. The companies will refurbish the West Qurna-1 oil field, which is near Basra, in southern Iraq.

The consortiums led by BP and Eni will boost production at the Rumaila and Zubair oil fields, respectively. Both are in the south.

Iraqi officials say they hope the foreign companies will help increase output at the three fields from the current 2.5 million barrels per day to roughly 7 million per day over the next six years.

Since the 2003 U.S.-led invasion of Iraq, foreign oil companies have sought to penetrate the country, which has among the largest proven crude reserves in the world.

The firms continue to be wary of the violence, corruption and political instability in the country but are growing more tolerant of risk as other large markets such as Venezuela and Russia adopt increasingly nationalist policies.

Also Thursday, Iraqi lawmakers adjourned for the rest of the week having failed to pass a law needed to hold national elections in January.

The impasse has alarmed U.S. and U.N. officials because Iraq’s electoral commission had said that it would be unable to hold the elections on time if the law was not enacted by the end of this week.

Lawmakers said they would resume deliberations Saturday in hopes of settling a dispute over how to hold the vote in the disputed northern city of Kirkuk.



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