A consortium led by Italian energy giant Eni SpA on Monday signed an initial pact to develop Iraq's Zubair field, one of several deals moving forward this week aimed at boosting the war-torn country's oil output.
On Tuesday, Iraq is scheduled to sign a $15 billion final agreement with BP PLC and China National Petroleum Co. to develop the super giant Rumaila field, the only contract awarded in the country's historic bid in June. A delegation from Japan's Nippon Oil Corp. is also in Baghdad this week to finalize terms on an $8 billion deal to develop the Nassiriyah oil field, which wasn't part of the first oil auction.
Eni, along with partners Occidental Petroleum Corp. and Korea Gas Corp., signed the initial 20-year agreement at a ceremony at the oil ministry. The deal will be sent to the Iraqi cabinet for approval.
The Eni group will be paid $2 per barrel of oil extracted above current production levels at the field, but will be liable for a 35% tax on those profits. Oil Minister Hussain al-Shahristani said the consortium would make capital investments of $20 billion in the field.
Eni had proposed a $4.80 a barrel payment in the first bid round on June 30, when Iraq auctioned development licenses for eight oil and gas fields. Most companies balked at the ministry's tough pricing terms, and only the Rumaila field was awarded, although the BP consortium had to cut its payment in half to $2 a barrel.
Mr. Shahristani said companies like Eni reconsidered the payment terms after the oil ministry clarified they would be taxed only on the profit they make from the payments, and not on billions of dollars spent on investments in the field.
Eni Chief Operating Officer Claudio Descalzi told analysts last week that the tax terms on the Zubair contract show the consortium is liable only for oil profit. Mr. Shahristani said in talks after the auction, the ministry realized the oil firms also overestimated their security costs.
The ministry added that it is close to choosing a bidder for the West Qurna 1, another field that wasn't awarded in the first bid round because companies rejected the ministry's suggested $1.90 per barrel payment. A consortium led by Russia's Lukoil, a group led by Exxon Mobil Corp. and a CNPC-led consortium, which have now accepted the ministry's payment proposal, are competing for the field.
Considering the new contracts for Zubair, Rumaila and West Qurna 1, Iraq will produce a total of about seven million barrels of oil a day in six years, compared with about 2.5 million now, Mr. Shahristani said.
He said he realizes oil companies won't make a big profit with these contracts and that they need very competitive bids to work in Iraq. A second bid round for 10 unexplored oil and gas fields will be held in December.