Iraq holds oil auction, Shell wins giant field

BAGHDAD Fri Dec 11, 2009 2:17pm IST

An Iraqi worker maintains an oil pipe at a gas refinery in Al-Dier District, Basra in this July 17, 2009 file photo. REUTERS/Atef Hassan/Files

An Iraqi worker maintains an oil pipe at a gas refinery in Al-Dier District, Basra in this July 17, 2009 file photo.

Credit: Reuters/Atef Hassan/Files

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BAGHDAD (Reuters) - Royal Dutch Shell and Malaysia's Petronas on Friday won the rights to develop one of the world's largest remaining untapped oilfields as Iraq staged its second auction of oil contracts since the 2003 U.S. invasion.

The companies proposed a per barrel fee of just $1.39 per barrel and pledged to increase output from the supergiant Majnoon field to 1.8 million barrels per day, more than double what Iraq had expected. The fee was lower than Iraq had been willing to pay.

"We announce that the consortium of Shell and Petronas have won (the contract) to develop Majnoon, and the fee is less than the Oil Ministry specified," Iraqi Oil Minister Hussain al-Shahristani said. French oil major Total, partnered with China's CNPC, had also bid for the field.

Iraq is offering 10 oilfields over two days in a rare opportunity for oil firms, from Western majors to Chinese and Indian state-owned giants, to gain access to plentiful and cheap to drill Middle East oil reserves.

The deals have the potential to make Iraqi oil output rival that of top oil producers Saudi Arabia and Russia, and could rattle the geopolitical power balance in the Middle East.

TIGHT SECURITY

Baghdad desperately needs the billions of dollars of revenue these and other deals would generate to rebuild after decades of war, international sanctions and years of neglect and sabotage.

Competition had been expected to be fierce as the second auction since the invasion includes the last of Iraq's supergiant fields - reservoirs holding 5 billion barrels or more. They are among the last untapped fields of their size in the world. Collectively, the fields on offer hold about as much oil as all that held by OPEC-member Libya.

Executives from the world's top oil companies braved the security threat to bid in Baghdad. Forty-four companies were expected to send top-level representatives. They include Exxon Mobil, Royal Dutch Shell, BP, Chevron and Total.

A series of car bombs killed 112 people in the capital on Tuesday, police said, a bloody reminder of the threat oil firms would face in deploying staff to remote fields across the country.

Iraqi army helicopters buzzed overhead while convoys of armoured SUVs carrying the oil executives hidden behind tinted windows raced through town to the auction.

Iraqi police trucks and squads of police dressed in commando gear deployed at dawn to line the streets leading to the Oil Ministry, blocking off many side roads.

Crowds of uniformed police and army personnel milled around at the ministry next to Iraq army Humvees and police pickup trucks. The auction, which was being held in a large auditorium, did not start on time.

With 12.6 billion barrels of reserves, Majnoon in relatively stable southern Iraq is one of the largest untapped oilfields left on earth.

Other large fields on offer on Friday were Halfaya and central field of East Baghdad, part of which lies under Baghdad's Sadr City slum.

Also on the block were a cluster known as the Eastern Fields in volatile Diyala province, and Qayara, a reservoir in the northern province of Nineveh, where Sunni Islamist insurgents like al Qaeda are still on the prowl and Kurd-Arab disputes have led to considerable tension.

(Writing by Simon Webb and Michael Christie; Editing by James Jukwey)

(For more news on Reuters Money visit www.reutersmoney.in)

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